PROJECT HOSPITALITY, INC. AND SUBSIDIARIES …...respects, the consolidated financial position of...

PROJECT HOSPITALITY, INC. AND

SUBSIDIARIES

Consolidated Financial Statements and

Single Audit Reports

For the years ended June 30, 2017 and 2016

PROJECT HOSPITALITY, INC. AND SUBSIDIARIES

Consolidated Financial Statements

June 30, 2017 and 2016

Contents

Page

Independent Auditors’ Report ...................................................................................................... 1-2

Consolidated Statements of Financial Position................................................................................3

Consolidated Statements of Activities ......................................................................................... 4-5

Consolidated Statements of Cash Flows ..........................................................................................6

Notes to Consolidated Financial Statements.............................................................................. 7-18

Supplementary Information

Schedules of Government Grants Revenue ...................................................................................19

Consolidated Schedules of Functional Expenses ..................................................................... 20-21

Schedule of Expenditures of Federal Awards .......................................................................... 22-23

Notes to Schedule of Expenditures of Federal Awards .................................................................24

Independent Auditors’ Report on Internal Control over Financial Reporting and on

Compliance and Other Matters Based on an Audit of Financial Statements

Performed in Accordance With Government Auditing Standards ....................................... 25-26

Independent Auditors’ Report on Compliance for Each Major Federal Program and on

Internal Control over Compliance Required by the Uniform Guidance .............................. 27-28

Schedule of Findings and Questioned Costs ............................................................................ 29-30

Summary Schedule of Prior Audit Findings ..................................................................................31

Corrective Action Plan ...................................................................................................................32

1

40 Wall Street, 32nd F loor

New York, NY 10005

T 212 785 0100

F 212 785 9168

www.ncheng.com

Independent Auditors’ Report

To the Board of Directors of

Project Hospitality, Inc.

Watershed Associates, Inc.

New Vision HDFC

Report on the financial statements

We have audited the accompanying consolidated financial statements of Project Hospitality, Inc.

and subsidiaries (Watershed Associates, Inc. and New Vision HDFC), which comprise the

consolidated statements of financial position as of June 30, 2017 and 2016, and the related

consolidated statements of activities, functional expenses, and cash flows for the years then

ended, and the related notes to the consolidated financial statements.

Management’s responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these consolidated

financial statements in accordance with accounting principles generally accepted in the United

States of America; this includes the design, implementation, and maintenance of internal control

relevant to the preparation and fair presentation of consolidated financial statements that are free

from material misstatement, whether due to fraud or error.

Auditors’ responsibility Our responsibility is to express an opinion on these consolidated financial statements based on

our audits. We conducted our audits in accordance with auditing standards generally accepted in

the United States of America and the standards applicable to financial audits contained in

Government Auditing Standards, issued by the Comptroller General of the United States. Those

standards require that we plan and perform the audit to obtain reasonable assurance about

whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and

disclosures in the consolidated financial statements. The procedures selected depend on the

auditor’s judgment, including the assessment of the risks of material misstatement of the

consolidated financial statements, whether due to fraud or error. In making those risk

assessments, the auditor considers internal control relevant to the entity’s preparation and fair

presentation of the consolidated financial statements in order to design audit procedures that are

appropriate in the circumstances, but not for the purpose of expressing an opinion on the

effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit

also includes evaluating the appropriateness of accounting policies used and the reasonableness

of the significant accounting estimates made by management, as well as evaluating the overall

presentation of the consolidated financial statements.

2

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis

for our audit opinion.

Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material

respects, the consolidated financial position of Project Hospitality, Inc. and subsidiaries as of June

30, 2017 and 2016, and the changes in its net assets and its cash flows for the years then ended in

accordance with accounting principles generally accepted in the United States of America.

Other matters

Supplementary information

Our audits were conducted for the purpose of forming an opinion on the consolidated financial

statements as a whole. The accompanying supplementary information shown on pages 19-21 is

presented for purposes of additional analysis and is not a required part of the consolidated financial

statements. The accompanying schedule of expenditures of federal awards shown on pages 22-23,

as required by Title 2 U.S. Code of Federal Regulation Part 200, Uniform Administrative

Requirements, Cost Principles, and Audit Requirements for Federal Awards, is presented for

purposes of additional analysis and is not a required part of the consolidated financial statements.

Such information is the responsibility of management and was derived from and relates directly to

the underlying accounting and other records used to prepare the consolidated financial statements.

The information has been subjected to the auditing procedures applied in the audit of the

consolidated financial statements and certain additional procedures, including comparing and

reconciling such information directly to the underlying accounting and other records used to prepare

the consolidated financial statements or to the consolidated financial statements themselves, and

other additional procedures in accordance with auditing standards generally accepted in the United

States of America. In our opinion, the information is fairly stated, in all material respects, in relation

to the consolidated financial statements as a whole.

Other reporting required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated April 20,

2018 on our consideration of Project Hospitality, Inc.‘s internal control over financial reporting on

our tests of its compliance with certain provisions of laws, regulations, contracts, and grant

agreements and other matters. The purpose of that report is to describe the scope of our testing of

internal control over financial reporting and compliance and the results of that testing, and not to

provide an opinion on internal control over financial reporting or on compliance. That report is an

integral part of an audit performed in accordance with Government Auditing Standards in

considering Project Hospitality, Inc.‘s internal control over financial reporting and compliance.

New York, New York

April 20, 2018

See notes to consolidated financial statements.

3


Consolidated Statements of Financial Position As of June 30, 2017 and 2016

2017 2016

Assets

Cash and cash equivalents $ 6,050,127 $ 6,988,545

Investments – Note 13 1,970,852 1,820,370 Due from funding sources 8,343,470 8,348,687 Contributions receivable – Note 7 679,000 253,500 Accounts receivable 61,377 51,371 Prepaid expenses 12,136 57,354 Due from related parties – Note 3 499,210 369,355 Security deposits 116,127 91,789 Loans receivable 65,000 65,000

Fixed assets, net – Note 6 6,131,009 4,899,331 Total assets $ 23,928,308 $ 22,945,302

Liabilities and net assets

Liabilities Accounts and accrued expenses payable $ 2,852,238 $ 2,615,810 Due to funding sources 762,755 570,935 Loans payable, net – Note 16 2,715,853 2,881,888

Mortgage payable – Note 14 128,161 154,472 Total liabilities 6,459,007 6,223,105 Net assets Unrestricted:

Undesignated 7,710,165 8,603,097 Board designated endowment fund – Note 4 1,920,251

1,896,152

Fixed assets 6,131,009

4,899,331 Total unrestricted net assets 15,761,425 15,398,580 Temporarily restricted – Note 11 1,707,876 1,323,617 Total net assets 17,469,301 16,722,197 Total liabilities and net assets $ 23,928,308 $ 22,945,302


4


Consolidated Statement of Activities For the year ended June 30, 2017

Temporarily

Unrestricted restricted Total

Revenue

Government grants $ 22,939,723 $ 22,939,723

Medicaid reimbursements 5,254,998 5,254,998

Contributions – Note 12 430,366 $ 1,108,256 1,538,622

Special events 284,094 284,094

Direct expenses on special events ( 24,799 ) ( 24,799 )

Rental income 1,485,971 1,485,971

Net investments income – Note 13 157,193 157,193

Other income 88,064 88,064

In-kind contributions – Note 5 183,508 183,508 Total revenue 30,799,118 1,108,256 31,907,374

Net assets released from restriction 723,997 ( 723,997 ) Total revenue 31,523,115 384,259 31,907,374 Expenses

Program services

Support and treatment services 8,144,558 8,144,558

Re-housing services 8,529,529 8,529,529

Homeless care and prevention services 11,213,802 11,213,802 Total program services 27,887,889 27,887,889 Supporting services

Management and general 3,034,980 3,034,980

Fund raising 237,401 237,401 Total supporting services 3,272,381 3,272,381 Total expenses 31,160,270 31,160,270

Changes in net assets 362,845 384,259 747,104

Net assets at beginning of year 15,398,580 1,323,617 16,722,197 Net assets at end of year $ 15,761,425 $ 1,707,876 $ 17,469,301


5


Consolidated Statement of Activities For the year ended June 30, 2016

Temporarily

Unrestricted restricted Total

Revenue

Government grants $ 23,481,620 $ 23,481,620

Medicaid reimbursements 5,252,272 5,252,272

Contributions – Note 12 349,294 $ 966,000 1,315,294

Special events 293,271

293,271

Direct expenses on special events ( 34,690 )

( 34,690 )

Rental income 1,440,405

1,440,405

Net investments income – Note 13 3,271 24 3,295

Gain on insurance proceeds 127,287 127,287

Other income 86,103 86,103

In-kind contributions – Note 5 183,675 183,675 Total revenue 31,182,508 966,024 32,148,532

Net assets released from restriction 1,004,068 ( 1,004,068 ) Total revenue 32,186,576 ( 38,044 ) 32,148,532 Expenses

Program services

Support and treatment services 7,193,028 7,193,028

Re-housing services 8,489,156 8,489,156

Homeless care and prevention services 11,045,145 11,045,145 Total program services 26,727,329 26,727,329 Supporting services

Management and general 3,644,245 3,644,245

Fund raising 235,960 235,960 Total supporting services 3,880,205 3,880,205 Total expenses 30,607,534 30,607,534 Changes in net assets 1,579,042 ( 38,044 ) 1,540,998

Net assets at beginning of year 13,819,538 1,361,661 15,181,199 Net assets at end of year $ 15,398,580 $ 1,323,617 $ 16,722,197


6


Consolidated Statements of Cash Flows For the years ended June 30, 2017 and 2016

2017 2016

Cash flows from operating activities

Changes in net assets $ 747,104 $ 1,540,998

Adjustments to reconcile changes in net assets to

net cash provided by (used in) operating activities: Depreciation and amortization 587,944 437,796

Amortization of capitalized debt issuance costs 4,712 16,343

Change in contributions receivable ( 425,500 ) 29,000

Change in accounts receivable ( 10,006 ) ( 5,716 )

Change in due from funding sources 5,217 ( 4,865,358 )

Change in prepaid expenses 45,218 4,498

Change in security deposits ( 24,338 ) ( 16,905 )

Change in accounts and accrued expenses payable 236,428 478,824

Change in due to funding sources 191,820 ( 520 ) Net cash provided by (used in) operating activities 1,358,599 ( 2,381,040 ) Cash flows from investing activities

Purchase of fixed assets ( 1,819,621 ) ( 728,363 )

Purchase of investments ( 150,482 )

Sale of investments 640

Repayment from related parties ( 129,855 ) 124,288 Net cash provided by (used in) investing activities ( 2,099,958 ) ( 603,435 ) Cash flows from financing activities

Payments of mortgage ( 26,311 ) ( 40,412 )

Payments on loans ( 2,886,600 )

Proceeds from loans 2,715,852 1,521,607 Net cash provided by (used in) financing activities ( 197,059 ) 1,481,195 Net increase (decrease) in cash ( 938,418 ) ( 1,503,280 )

Cash – beginning of year 6,988,545 8,491,825 Cash – end of year $ 6,050,127 $ 6,988,545

Supplemental disclosures of cash flow information

Cash paid during the year for interest $ 7,865 $ 10,672

7


Notes to Consolidated Financial Statements June 30, 2017 and 2016

Note 1 Organization

The consolidated financial statements include the accounts of Project Hospitality, Inc.,

Watershed Associates, Inc. and New Vision HDFC which were organized to provide

counseling, food and shelter to homeless individuals.

Project Hospitality, Inc. (hereinafter referred to as “PHI”), is a not-for-profit corporation,

incorporated on April 14, 1984, whose main purpose is to reach out to community members

who are hungry, homeless or otherwise in need, to work with them to achieve their self-

sufficiency. PHI seeks to realize its mission both by advocating for those in need and by

establishing a comprehensive continuum of care that begins with the provision of food,

clothing and shelter and extends to other services which include health care, mental health

services, alcohol and substance abuse treatment, HIV care, education, vocational training, legal

assistance and transitional and permanent housing. PHI is exempt from Federal income taxes

under Section 501(c)(3) of the Internal Revenue Code.

Watershed Associates, Inc. (“Watershed”) is a 501(c)(2) corporation. Watershed was

incorporated in March 2003. The executive offices of Watershed are located at 100 Park

Avenue, Staten Island, New York. Watershed’s main purpose is to provide counseling, food

and shelter to homeless individuals living on Staten Island, New York with the objective of

removing the financial and social burdens from federal, state and local governments. In

fulfilling this purpose and objective, the Corporation will hold title to real and personal

property, collect income thereof, and remit the entire amount thereof, less expenses to PHI, a

New York not-for-profit corporation organized under Section 402 of the Not-for-Profit

Corporation Law and exempt under Section 501(c)(3) of the Internal Revenue Code.

New Vision HDFC (“New Vision”) Development Fund Corporation is a 501(c)(3) corporation.

New Vision was incorporated in July 2010. The executive offices of New Vision are located

at 100 Park Avenue, Staten Island, New York. New Vision’s main purpose is to acquire,

develop and manage housing projects for persons of low income.

Project Hospitality 385 Housing Development Fund Corporation is a not-for-profit corporation, incorporated in September 2000. Project Hospitality 385 Housing Development Fund Corporation's main purpose is to develop a housing project for persons of low income. It is exempt from federal income taxes in accordance with Section 501(c)(3) of the Internal Revenue Code. The criteria of control and economic interest over Project Hospitality 385 HDFC are not met and therefore, it is not consolidated in the accompanying consolidated financial statements.

Note 2 Summary of significant accounting policies

Basis of accounting. The consolidated financial statements of PHI and subsidiaries have been

prepared on the accrual basis of accounting in accordance with accounting principles generally

accepted in the United States of America. All significant interfund accounts and transactions

have been eliminated.

8



Note 2 Summary of significant accounting policies – (continued)

Recent accounting standard adopted. In 2017, PHI and subsidiaries adopted new requirements to present debt issuance costs as a reduction of the carrying amount of the related debt rather than as an asset. Amortization of the debt issuance costs is reported as interest expense rather than as amortization expense. The effect of the change for 2017 was to decrease capitalized debt issuance costs, net of amortization and loans payable by $0. The financial statements of 2016 have been retroactively restated for this change, which resulted in a decrease in capitalized debt issuance costs, net of amortization and loans payable by $4,712. This change does not impact changes in net assets.

Cash and cash equivalents. Included in cash and cash equivalents are short-term investments in certificate of deposit and money market funds with original maturities of 90 days or less when purchased. The securities are carried at cost, which approximates fair market value.

Financial statement presentation. The financial statement presentation follows the accounting standards for not-for-profit organizations. Under these standards, an organization is required to report information regarding its financial position and activities according to three classes of net assets depending on the existence and/or nature of any donor restrictions as follows: unrestricted net assets, temporarily restricted net assets and permanently restricted net assets. Unrestricted net assets consist of unrestricted contributions and other resources not subject to donor-imposed restrictions. Temporarily restricted net assets consist of contributions and other inflow of assets whose use by the recipient is limited by donor-imposed stipulation. When donor restrictions expire, that is, when a stipulated time restriction ends or a purpose restriction is fulfilled, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. However, if a restriction is fulfilled in the same time period in which the contribution is received, PHI and subsidiaries report that support as unrestricted.

Support. All contributions are considered to be available for unrestricted use unless specifically restricted by the donor. Amounts received that are designed for future periods or restricted by the donor for specific purposes are reported as temporarily restricted or permanently restricted support that increases those net asset classes.

Promises to give. Unconditional promises to give that are expected to be collected within one

year are recorded at net realizable value. Unconditional promises to give that are expected to

be collected in future years are recorded at fair value, which is measured as the present value

of their future cash flows. The discounts on those amounts are computed using risk-adjusted

interest rates applicable to the years in which the promises are received. Amortization of the

discounts is included in contribution revenue. Conditional promises to give are not included as

support until the conditions are substantially met.

9




Contributed property and equipment. Contributed property and equipment is recorded at fair value at the date of donation. If donors stipulate how long the assets must be used, the contributions are recorded as restricted support. In the absence of such stipulations, contributions of property and equipment are recorded as unrestricted support.

Investments. Investments are stated at fair value. The fair value of all debt and equity securities with readily determinable fair value is based on quotations obtained from national securities exchanges.

Allowance for doubtful accounts. Management has determined that no allowance for

uncollectible accounts for accounts receivable or contributions receivable is necessary as of

June 30, 2017 and 2016. Such estimate is based on management’s assessments of the

creditworthiness of its donors, the aged basis of its receivables, as well as current economic

conditions and historical information.

Fixed assets. Buildings, building improvements, leasehold improvements, vehicles, furniture

and equipment, and capitalized costs are stated at cost, less accumulated depreciation or

amortization computed on the straight-line method. Improvements are capitalized, while

expenditures for maintenance and repairs are charged to expense as incurred.

The estimated useful lives are as follows:

Estimated life

Buildings 27.5 or 39 years

Building improvements 10 years

Leasehold improvements related lease term

Vehicles 4 years

Furniture and equipment 3 or 5 years

Capitalized costs 15 years

Unrestricted board designated endowment fund. The Endowment fund consists of

unrestricted net assets designated by the Board of Directors to function as a long-term

investment portfolio. Beginning in 2007, the Board undertook a multi-year campaign for the

express purpose of creating a board designated investment fund. The Board of Directors has

implemented an investment policy for these funds and is charged with making decisions on

how and where Endowment funds are invested. The Board of Directors is also charged with

selecting an investment firm or an investor who has the requisite skills and capabilities to

manage the Endowment portfolio.

Use of estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

10




The overall investment objective of the endowment fund is to preserve and enhance the real

(inflation-adjusted) purchasing power of the fund’s assets while providing a relatively

predictable, stable and constant (in real terms) stream of distributions in line with spending

needs. Although it is the goal of the organization to set a spending rate of 5% of the interest

earned for the operating needs of the agency, the amount of distribution shall be determined

annually in consultation with the Executive Committee.

The endowment fund seeks an effectively diversified portfolio by employing the portfolio

theory of investing. The fund’s assets shall be diversified to avoid undue exposure to any

single economic or industry sector, or individual security. Accordingly, over the long-term,

PHI expects the current spending policy to minimally match 5% of annual interest earnings of

the endowment for the operating needs of the agency. This is consistent with PHI’s objective

to maintain the purchasing power of the endowment assets held in perpetuity.

Functional allocation of expenses. The costs of providing various programs and activities have been summarized on a functional basis in the combining statement of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Concentrations of credit risk. Financial instruments, which potentially subject PHI and subsidiaries to concentrations of credit risk, include cash, investments, accounts and loans receivable. PHI and subsidiaries’ maintain cash in bank deposits which, at times, may exceed the current insured amount under the Federal Deposit Insurance Corporation (FDIC). As of June 30, 2017 and 2016, PHI and subsidiaries cash balance exceeded the current insured amount under FDIC by approximately $5,415,745 and $6,344,246, respectively. PHI and subsidiaries’ have not experienced any losses in such accounts and believes it is not exposed to any significant financial risk therein.

Income taxes. Project Hospitality, Inc., Watershed Associates, Inc., and New Vision HDFC are exempts from income taxes under Sections 501(c)(3), 501(c)(2) and 501(c)(3) (status pending), respectively, of the Internal Revenue Code and state jurisdictions where they operate. PHI and subsidiaries do not anticipate any significant uncertain tax positions that would require recognition in the consolidated financial statements. Periods ending June 30, 2014 and subsequent remain subject to examination by the taxing authorities.

Note 3 Related party transactions

Project Hospitality, Inc. and subsidiaries provide various program implementation, staff and

office support to each other. At June 30, 2017 and 2016, the amount due to Project Hospitality,

Inc. and subsidiaries for the services provided amounted to $499,210 and $369,355, respectively.

11



Note 4 Unrestricted board designated endowment fund

Unrestricted board designated endowment fund consists of the following:

2017 2016

Money market fund account at fair market value $ 10,144 $ 10,109

Investments at fair market value 1,908,457 1,758,133

Checking account 1,650 127,910

Total $ 1,920,251 $ 1,896,152

Note 5 In-kind contributions

In-kind contributions are recorded as income and expenses at the time the items are received,

which is also the time they are placed into service or distributed. Donated services are reported

as income at their fair value if such services create or enhance non-financial assets or would

have been purchased if not provided by donation, require specialized skills, and are provided

by individuals possessing such specialized skills.

In-kind contributions for the years ended June 30, 2017 and 2016 were food donations from

Food Bank for New York City valued at $183,508 and $183,675, respectively.

Note 6 Fixed assets and capitalized costs

Fixed assets and capitalized costs are as follows:

2017 2016

Land $ 1,254,942 $ 1,254,942

Buildings 4,828,145 3,917,380

Leasehold improvements 1,368,790 1,000,429

Vehicles 63,146 63,146

Furniture, fixtures and equipment 1,960,452 1,379,241

Total fixed assets 9,475,475 7,615,138

Less: accumulated depreciation and amortization ( 3,344,466 ) ( 2,715,807 )

Net fixed assets $ 6,131,009 $ 4,899,331

Buildings include properties that New York State Homeless Housing and Assistance

Corporation provided funding under the Homeless Housing Assistance Program (HHAP) to

purchase, rehabilitate and operate as homeless shelters. Certain provisions of the agreements

require PHI, among others, to use the properties to provide homeless shelter services for a

period of twenty five years. Noncompliance with the provisions may result in the recapture of

the HHAP funds. The agreements expire at various dates ranging from 2017 to 2042.



12

Note 7 Contributions receivable

Contributions receivable are recorded at the full amount and discounted using a discount rate

reflective of the PHI and subsidiaries’ borrowing rate for the year the pledge was made. As of

June 30, 2017 and 2016, all contributions receivable were due in less than one year, in the

amounts of $679,000 and $253,500, respectively.

Note 8 Commitments and contingencies

Lease commitments.

Project Hospitality, Inc. and subsidiaries are obligated to make minimum annual rental payments

under operating leases, principally for office space, program facilities, vehicles and office

equipment. Total expense for all leased equipment and office space for the years ended June 30,

2017 and 2016 was $1,533,341 and $1,465,927, respectively.

The future minimum lease payments are as follows:

Year ending June 30, Amount

2018 $ 928,018

2019 552,673

2020 345,010

2021 300,037

2022 277,739

Thereafter 4,501,857

Total $ 6,905,334

Government funded activities Government funded activities are subject to audits and technical reviews by the applicable funding

agencies. At June 30, 2017 and 2016, there were no material obligations outstanding as a result of

such audits, and management believes that unaudited projects would not result in any material

obligations.

The current third-party-pay or programs, including Medicaid-funded programs, are based upon

complex laws and regulations. Noncompliance with such laws and regulations could result in

fines, penalties, and exclusion from such programs.

Note 9 Employee benefit plan

PHI has a defined contribution salary deferral 403(b) plan covering all eligible employees. PHI may make a discretionary contribution to the plan. In order to be eligible for the employer discretionary contribution, an employee must have two years of service as of December 31 of the plan year that the contribution is being made. Employer discretionary contribution amounted to $135,378 and $135,269 for the years ended June 30, 2017 and 2016, respectively.



13

Note 10 Repayment of leasehold improvements funded by the New York State Office of

Mental Health

In 1994, New York State Office of Mental Health (“OMH”) funded the renovation of a leased

building located at 103 Targee Street in Staten Island. The work was completed in 1995. On

January 25, 2006, a “Mortgage and Security Agreement” (“the Agreement”) was signed

between PHI and the Dormitory Authority of the State of New York (“DASNY”) in the amount

of $1,092,000 at an annual interest rate of 8.85%. The agreement calls for a first payment of

$60,178.77 on June 1st 2006 and semi-annual payments of $74,789.35 thereafter until

December 1st 2017 when the entire unpaid balance of principal and interest together with fees

and other charges are due and payable. Payments were adjusted to annual payments of

$149,579. These payments have no gross impact on PHI as this amount is added to the amount

of funding from OMH.

Note 11 Temporarily restricted net assets

Changes in temporarily restricted net assets are as follows for the year ended June 30, 2017:

Beginning Ending

Balance Additions Releases Balance

Housing, food and legal $ 468,111 $ 836,000 ( $ 517,978 ) $ 786,133 Hurricane Sandy relief 553,712 38,048 ( 110,014 ) 481,746

IT and capacity building 301,794 234,208 ( 96,005 ) 439,997

Total $ 1,323,617 $ 1,108,256 ( $ 723,997 ) $ 1,707,876

Changes in temporarily restricted net assets are as follows for the year ended June 30, 2016:

Beginning Ending Balance Additions Releases Balance

Housing, food and legal $ 339,576 $ 908,476 ( $ 779,941 ) $ 468,111 Hurricane Sandy relief 717,786 37,548 ( 201,622 ) 553,712 IT and capacity building 304,299 20,000 ( 22,505 ) 301,794

Total $ 1,361,661 $ 966,024 ( $ 1,004,068 ) $ 1,323,617



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Note 12 Contribution revenue

Contribution revenue is as follows:

2017 2016

Private grants $ 1,291,628 $ 1,067,266

Contributions and solicitations 246,994 248,028

Total $ 1,538,622 $ 1,315,294

Note 13 Investments and investment income The fair value of investments as of June 30, 2017 and 2016 are as follows:

Recurring fair market measurements Total

Quoted

prices in

active

markets

Level 1

Fair value measurements at June 30, 2017

Money market funds $ 66,883 $ 66,883

Common stock 3,895 3,895

Sub-total 70,778 70,778

Equity securities:

U.S. Large-Cap value 138,779 138,779

U.S. Large-Cap growth 262,106 262,106

U.S. Large-Cap blend 104,954 104,954

U.S. Mid-Cap value 120,712 120,712

U.S. Small-Cap value 111,316 111,316

U.S. Small-Cap growth 102,795 102,795

Sub-total 840,662 840,662

Fixed income securities:

U.S. gov’t, corporate bonds and other fixed income 1,059,412 1,059,412

Total assets measured at fair value $ 1,970,852 $ 1,970,852



15

Note 13 Investments and investment income – (continued)

Recurring fair market measurements Total

Quoted

prices in

active

markets

Level 1

Fair value measurements at June 30, 2016

Money market funds $ 64,051 $ 64,051

Common stock 3,772 3,772

Sub-total 67,823 67,823

Equity securities:

U.S. Large-Cap value 107,248 107,248

U.S. Large-Cap growth 203,029 203,029

U.S. Large-Cap blend 118,725 118,725

U.S. Mid-Cap value 114,589 114,589

U.S. Small-Cap value 86,827 86,827

U.S. Small-Cap growth 87,142 87,142

Sub-total 717,560 717,560

Fixed income securities:

U.S. gov’t, corporate bonds and other fixed income 1,034,987 1,034,987

Total assets measured at fair value $ 1,820,370 $ 1,820,370

Investment income consists of:

2017 2016

Interest and dividends $ 51,480 $ 40,445

Realized gains 3,974 20,631

Unrealized gains 108,196 ( 45,526 )

Investment fees ( 6,457 ) ( 12,255 )

Net investment income $ 157,193 $ 3,295



16

Note 14 Mortgage payable Mortgage payable by Watershed Associates, Inc. consists of the following: 2017 2016

Park Avenue location – original loan amount $247,352, with

monthly payments of $2,861 including interest at 7.75% per

annum. Mortgage paid in full during the year. $ - $ 17,002

Castleton Avenue location – original loan amount $170,000, with

monthly payments of $1,396 including interest at 5.5% per

annum. Mortgage matures on June 1, 2027 and is secured by the

real estate property. 128,161 137,470

Total $ 128,161 $ 154,472

The following are the maturities of mortgages for the next five years and beyond: Year ending June 30, Amount

2018 9,974

2019 10,537

2020 11,131

2021 11,759

2022 12,417

Thereafter 72,343

Total $ 128,161

Note 15 Workers compensation retention assessment

PHI purchased Workers Compensation Insurance through CRISP Self Insured Trust from 1998 to 2011. Crisp went out of business in 2011 and the Workers Compensation Board (“Board”) assumed the administration of the assets and liabilities. It was determined that the fund’s assets would not cover the outstanding open workers compensation case liabilities. The Board invoiced each trust member for their respective share of the liability. As of June 30, 2017 and 2016, the assessed accrued liability was $0 and $233,496, respectively. PHI is making payments per the Memorandum of Understanding (MOU). The Board reserves the right to adjust the assessment as open claims either increase or close. PHI will re-assess this liability as additional information is provided by the Board.



17

Note 16 Loans payable

Project Hospitality, Inc. and subsidiaries have outstanding loans as follows:

2017 2016

a) In January 2017, PHI received a grant with a recoverable

portion of $120,000. The loan bears no interest and has annual

payments of $40,000 payable by November 30, 2019, 2020 and

2021. $ 120,000 $ -

b) In September 2016, PHI and New Vision HDFC entered into

agreement with NYS HHAP to finance a Homeless Project.

Funds are to be used for the repayment of the existing mortgage

and rehabilitation for the building located at 411 Vanderbilt Ave

in Staten Island, NY. The funds bear no interest and require no

monthly payments. Terms of the agreement include the

establishment and operation of a homeless shelter for a minimum

of 25 years. The funds provided by HHAP are fully recoverable

in the event the project ceases to be used as a shelter for the

homeless within 25 years. The loan will be forgiven at the end

of 25 years, provided PHI and New Vision HDFC comply with

the terms of the agreement. 2,595,853 -

c) During fiscal year 2016, PHI received interest free loans in

the amount of $1,446,600 from the Fund for the City of New

York (FCNY). The loans were provided to PHI to cover costs for

the provision of emergency program expenses due to the delayed

registration of contracts between PHI and NYC Department of

Homeless Services (NYC DHS). The loan was repaid in full. - 1,446,600

d) On November 14, 2014, New Vision HDFC obtained a loan in the amount of $1,314,000 from Supportive Housing Solutions Fund LLC for the acquisition and predevelopment expenses related to the rehabilitation of a supportive housing project on Staten Island. The loan bears interest at 6% per annum. The outstanding balance was paid in full during the year. - 1,440,000

Total loans payable 2,715,853 2,886,600

Less: Unamortized capitalized loan closing costs - ( 4,712 ) Total $ 2,715,853 $ 2,881,888



18

Note 17 Subsequent events

PHI and subsidiaries have evaluated events and transactions for potential recognition or

disclosure through April 20, 2018 which is the date the consolidated financial statements

were available to be issued. There were no subsequent events requiring adjustment to the

consolidated financial statements or disclosures.


Schedule of Government Grants Revenue June 30, 2016 and 2015

19

Funding source 2017 2016

United Way of New York City (pass-through grant) $ 14,545 $ 15,153

NYC Department of Youth and Community Development 1,564,912 1,374,769

NYC Department of Homeless Services 7,046,687 8,615,532

NYC Department of Health and Mental Hygiene 2,838,892 2,881,268

NYC Human Resource Administration 1,150,506 1,158,000

Public Health Solutions (pass-through grant) 2,437,707 2,403,995

NYS Department of Health 1,841,429 1,630,838

Health Research, Inc. (pass-through grant) 116,923

NYS Office of Temporary and Disability Assistance 1,691,425 1,090,617

NYS Office of Alcoholism and Substance Abuse Services 950,387 959,553

NYS Office of Mental Health 1,394,312 1,342,403

NYS Office of Family & Children Services 69,969 69,032

Department of Housing and Urban Development 1,938,952 1,732,519

Department of Health and Human Services 91,018

Total $ 22,939,723 $ 23,481,620

20


Consolidated Schedule of Functional Expenses

For the year ended June 30, 2017

Program services Supporting services Total

Support and Homeless program and

treatment Re-housing care and Management Fund supporting

services services prevention Total and general raising Total services

Salaries $ 4,480,489 $ 2,803,689 $ 4,982,695 $ 12,266,873 $ 1,025,588 $ 127,885 $ 1,153,473 $ 13,420,346

Fringe benefits 1,361,985 840,743 1,514,668 3,717,396 346,560 39,094 385,654 4,103,050

Total personnel costs 5,842,474 3,644,432 6,497,363 15,984,269 1,372,148 166,979 1,539,127 17,523,396

Client expenses 213,850 3,642,171 1,598,280 5,454,301 - - - 5,454,301

Insurance 53,069 69,071 83,010 205,150 40,032 2,388 42,420 247,570

Rent 754,215 294,888 251,014 1,300,117 57,378 3,970 61,348 1,361,465

Auto 104,697 110,095 148,256 363,048 37,000 - 37,000 400,048

Equipment lease and purchase 33,383 102,598 137,095 273,076 8,064 558 8,622 281,698

Utilities 71,583 81,362 247,128 400,073 56,497 3,909 60,406 460,479

Repairs and maintenance 123,195 90,076 225,839 439,110 58,343 4,037 62,380 501,490

Telephone 143,918 80,264 131,072 355,254 63,700 3,249 66,949 422,203

Supplies 64,636 48,225 69,756 182,617 63,615 1,555 65,170 247,787

Contract services 94,162 70,534 1,445,872 1,610,568 60,158 8,627 68,785 1,679,353

Professional fees 451,384 30,106 297,007 778,497 485,497 - 485,497 1,263,994

Printing and postage 10,150 10,574 11,542 32,266 15,876 41,121 56,997 89,263

Community relations - - 1,600 1,600 146,259 788 147,047 148,647

Advertising 13,441 11,625 8,089 33,155 9,925 - 9,925 43,080

Per diem 126,175 65,250 16,160 207,585 90,395 - 90,395 297,980

Staff related expenses 16,711 18,407 40,982 76,100 77,527 220 77,747 153,847

Real estate taxes 31,541 31,541 31,541

Interest expense 79,274 79,274 79,274

Other 37,660 37,660 37,660 8,117,043 8,480,493 11,210,065 27,807,601 2,680,074 237,401 2,917,475 30,725,076

Capitalization (152,750) - - (152,750) - - - (152,750)

Depreciation and amortization 180,265 49,036 3,737 233,038 354,906 - 354,906 587,944 Total expenses $ 8,144,558 $ 8,529,529 $ 11,213,802 $ 27,887,889 $ 3,034,980 $ 237,401 $ 3,272,381 $ 31,160,270

.

21


Consolidated Schedule of Functional Expenses


Program services Supporting services Total

Support and Homeless program and

treatment Re-housing care and Management Fund supporting

services services prevention Total and general raising Total services

Salaries $ 4,021,993 $ 3,020,140 $ 4,188,455 $ 11,230,588 $ 1,906,294 $ 137,751 $ 2,044,045 $ 13,274,633

Fringe benefits 1,192,832 905,508 1,183,769 3,282,109 524,321 39,948 564,269 3,846,378

Total personnel costs 5,214,825 3,925,648 5,372,224 14,512,697 2,430,615 177,699 2,608,314 17,121,011

Client expenses 179,588 3,360,647 2,748,303 6,288,538 6,288,538

Insurance 46,208 70,633 62,696 179,537 43,393 753 44,146 223,683

Rent 768,753 278,763 203,540 1,251,056 33,008 2,284 35,292 1,286,348

Auto 98,839 109,276 146,412 354,527 32,729 32,729 387,256

Equipment lease and purchase 219,520 124,751 173,272 517,543 19,592 1,356 20,948 538,491

Utilities 50,318 103,477 222,714 376,509 26,547 1,837 28,384 404,893

Repairs and maintenance 58,281 96,426 177,550 332,257 39,146 2,709 41,855 374,112

Telephone 113,707 92,008 107,308 313,023 45,893 2,517 48,410 361,433

Supplies 69,090 60,252 66,459 195,801 48,243 3,089 51,332 247,133

Contract services 48,980 77,377 1,667,322 1,793,679 66,140 4,208 70,348 1,864,027

Professional fees 408,438 38,201 261,048 707,687 275,676 275,676 983,363

Printing and postage 10,934 11,895 17,771 40,600 4,959 37,632 42,591 83,191

Community relations 3,070 3,070 77,197 476 77,673 80,743

Advertising 14,583 10,199 26,055 50,837 10,127 1,400 11,527 62,364

Per diem 28,244 51,660 50,920 130,824 16,835 16,835 147,659

Staff related expenses 22,054 24,206 31,962 78,222 74,023 74,023 152,245

Real estate taxes 12,985 12,985 12,985

Interest expense 102,021 102,021 102,021

Other 37,176 37,176 37,176 7,352,362 8,550,425 11,338,626 27,241,413 3,281,299 235,960 3,517,259 30,758,672

Capitalization (180,346) (111,247) (297,341) (588,934) (588,934)

Depreciation and amortization 21,012 49,978 3,860 74,850 362,946 362,946 437,796 Total expenses $ 7,193,028 $ 8,489,156 $ 11,045,145 $ 26,727,329 $ 3,644,245 $ 235,960 $ 3,880,205 $ 30,607,534

The accompanying notes are an integral part of this schedule.

22

PROJECT HOSPITALITY, INC.

Schedule of Expenditures of Federal Awards


Federal grantor / Pass-through

grantor / Program or Cluster title

Federal

CFDA

number

Pass-through

entity identifying

number

Passed

through to

subrecipients

Total

federal

expenditures

Department of Homeland Security programs:

United Way of New York City

Emergency food and shelter national board program 97.024 LRO#31631400649 $ 15,153

Total Department of Homeland Security programs 15,153

Department of Health and Human Services programs:

NYS Department of Health

HHS programs for disaster relief appropriations act –

non construction 93.095 C029205 24,629

NYS Office of Temporary and Disability Assistance

HHS programs for disaster relief appropriations act –

non construction 93.095 C021866 1,260,955

Total for program 1,285,584

NYC Department of Health and Mental Hygiene

Projects for assistance in transition from homelessness

(PATH) 93.150 8161214653 133,119


Temporary assistance for needy families 93.558 C021629 129,743

NYC Department of Homeless Services

Temporary assistance for needy families 93.558 20130000256 2,046,419



Children’s health insurance program 93.767 00000476 5,004


Medical assistance program 93.778 00000476 32,564

Public Health Solutions

HIV emergency relief project grants 93.914 15-NMG-535 280,853

HIV emergency relief project grants 93.914 07-HRR-535 314,132

HIV emergency relief project grants 93.914 06-ADV-535 273,045

HIV emergency relief project grants 93.914 07-MSV-535 351,103

HIV emergency relief project grants 93.914 14-STH-535 665,014

HIV emergency relief project grants 93.914 16-EIP-535 42,546

HIV emergency relief project grants 93.914 11-FNS-535 370,390

HIV emergency relief project grants 93.914 16-CSH-535 140,625


Total Department of Health and Human Services programs 6,070,141

The accompanying notes are an integral part of this schedule.

23


Schedule of Expenditures of Federal Awards


Federal grantor / Pass-through

grantor / Program or Cluster title

Federal

CFDA

number

Pass-through

entity identifying

number

Passed

through to

subrecipients

Total

federal

expenditures

Department of Housing and Urban Development programs:


Community development block grants/state’s program

and non-entitlement grants in Hawaii 14.228 20140000610 553,000


Supportive housing program 14.235 5,000

NYC Department of Health and Mental Hygiene

Housing opportunities for persons with AIDS 14.241 20141417747-SPH1-010 432,217

Housing opportunities for persons with AIDS 14.241 20141417101-HPA-010 346,532

Housing opportunities for persons with AIDS 14.241 20141417018-SPH2-010 417,305

NYC Department of Social Service and Human Resources

Administration

Housing opportunities for persons with AIDS 14.241 CT106920141417841 241,954


Continuum of care program 14.267 NY0940L2T001401 1,397,205

Continuum of care program 14.267 NY0936L2T001401 189,786

Continuum of care program 14.267 NY0936L2T001502 351,961


Total Department of Housing and Urban Development programs 3,934,960

Department of Agriculture programs:


Child and adult care food program 10.558 5150 93,543


State administrative matching grant for the supplemental

nutrition assistance program 10.561 C021223 300,727

Food Bank for New York City

Emergency food assistance program (food commodities) 10.569 A436-81034 183,508

Total Department of Agriculture programs 577,778

Total Expenditures of Federal Awards $ 10,598,032

24


Notes to Schedule of Expenditures of Federal Awards

June 30, 2017

Note 1 Basis of presentation

The accompanying schedule of expenditures of federal awards (the “Schedule”) includes

the federal grant activity of Project Hospitality, Inc. under programs of the federal government

for the year ended June 30, 2017. The information in this Schedule is presented in accordance

with the requirements of Title 2 Code of Federal Regulations Part 200, Uniform Administrative

Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform

Guidance). Because the Schedule presents only a selected portion of the operations of Project

Hospitality, Inc., it is not intended to and does not present the financial position, changes in net

assets or cash flows of Project Hospitality, Inc.

Note 2 Summary of significant accounting policies

Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such

expenditures are recognized following the cost principles contained in the Uniform Guidance,

wherein certain types of expenditures are not allowable or are limited as to reimbursement.

Negative amounts shown on the Schedule represent adjustments or credits made in the normal

course of business to amounts reported as expenditures in prior years.

Note 3 Indirect cost rate

Project Hospitality, Inc. has elected not to use the 10 percent de minimis indirect cost rate

allowed under the Uniform Guidance.

25


New York, NY 10005

T 212 785 0100

F 212 785 9168

www.ncheng.com

Independent Auditors’ Report on Internal Control over Financial Reporting and on

Compliance and Other Matters Based on an Audit of Financial Statements Performed in

Accordance With Government Auditing Standards

To the Board of Directors


We have audited, in accordance with the auditing standards generally accepted in the United

States of America and the standards applicable to financial audits contained in Government

Auditing Standards issued by the Comptroller General of the United States, the consolidated

financial statements of Project Hospitality, Inc., which comprise the consolidated statements

of financial position as of June 30, 2017, and the related consolidated statements of activities,

functional expenses, and cash flows for the year ended, and the related notes to the consolidated

financial statements, and have issued our report thereon dated April 20, 2018.

Internal control over financial reporting

In planning and performing our audit of the consolidated financial statements, we considered

Project Hospitality, Inc.’s internal control over financial reporting (internal control) to

determine the audit procedures that are appropriate in the circumstances for the purpose of

expressing our opinion on the consolidated financial statements, but not for the purpose of

expressing an opinion on the effectiveness of Project Hospitality, Inc.’s internal control.

Accordingly, we do not express an opinion on the effectiveness of Project Hospitality, Inc.’s

internal control.

A deficiency in internal control exists when the design or operation of a control does not allow

management or employees, in the normal course of performing their assigned functions, to

prevent, or detect and correct, misstatements on a timely basis. A material weakness is a

deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable

possibility that a material misstatement of the entity's financial statements will not be

prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency,

or a combination of deficiencies, in internal control that is less severe than a material weakness,

yet important enough to merit attention by those charged with governance.

26

Our consideration of internal control was for the limited purpose described in the first paragraph

of this section and was not designed to identify all deficiencies in internal control that might be

material weaknesses or significant deficiencies and therefore, material weaknesses and significant

deficiencies may still exist that were not identified. Given these limitations, during our audit we

did not identify any deficiencies in internal control that we consider to be material weaknesses.

We did identify certain deficiencies in internal control, described in the accompanying schedule

of findings and questioned costs, as item 2017-001, that we consider to be significant deficiency.

Compliance and other matters

As part of obtaining reasonable assurance about whether Project Hospitality, Inc.‘s consolidated

financial statements are free from material misstatement, we performed tests of its compliance

with certain provisions of laws, regulations, contracts and grants agreements, noncompliance with

which could have a direct and material effect on the determination of financial statement amounts.

However, providing an opinion on compliance with those provisions was not an objective of our

audit, and, accordingly, we do not express such an opinion. The results of our tests disclosed no

instances of noncompliance or other matters that are required to be reported under Government

Auditing Standards.

Project Hospitality, Inc.’s Response to findings

Project Hospitality, Inc. response to the finding identified in our audit is described in the

accompanying schedule of findings and questioned costs. Project Hospitality, Inc.’s response was

not subjected to the auditing procedures applied in the audit of financial statements and,

accordingly, we express no opinion on it.

Purpose of this report

The purpose of this report is solely to describe the scope of our testing of internal control and

compliance and the results of that testing, and not to provide an opinion on the effectiveness of

the Project Hospitality, Inc.’s internal control or on compliance. This report is an integral part of

an audit performed in accordance with Government Audit Standards in considering the Project

Hospitality, Inc.’s internal control and compliance. Accordingly, this communication is not

suitable for any other purpose.

New York, New York

April 20, 2018

27


New York, NY 10005

T 212 785 0100

F 212 785 9168

www.ncheng.com

Independent Auditors’ Report on Compliance for Each Major Federal Program and on

Internal Control over Compliance Required by the Uniform Guidance

To the Board of Directors


Report on compliance for each major federal program We have audited Project Hospitality, Inc.’s compliance with the types of compliance

requirements described in the OMB Compliance Supplement that could have a direct and

material effect on each of Project Hospitality, Inc.’s major federal programs for the year ended

June 30, 2017. Project Hospitality, Inc.’s major federal programs are identified in the summary

of auditor’s results section of the accompanying schedule of findings and questioned costs.

Management’s responsibility

Management is responsible for compliance with federal statutes, regulations and the terms and

conditions of its federal awards applicable to its federal programs.

Auditors’ responsibility

Our responsibility is to express an opinion on compliance for each of Project Hospitality, Inc.’s

major federal programs based on our audit of the types of compliance requirements referred to

above. We conducted our audit of compliance in accordance with auditing standards generally

accepted in the United States of America; the standards applicable to financial audits contained

in Government Auditing Standards, issued by the Comptroller General of the United States;

and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform

Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards

(Uniform Guidance). Those standards and the Uniform Guidance require that we plan and

perform the audit to obtain reasonable assurance about whether noncompliance with the types

of compliance requirements referred to above that could have a direct and material effect on a

major federal program occurred. An audit includes examining, on a test basis, evidence about

Project Hospitality, Inc.’s compliance with those requirements and performing such other

procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion on compliance for each

major federal program. However, our audit does not provide a legal determination of Project

Hospitality, Inc.’s compliance.

28

Opinion on each major federal program

In our opinion, Project Hospitality, Inc. complied, in all material respects, with the types of

compliance requirements referred to above that could have a direct and material effect on each of

its major federal programs for the year ended June 30, 2017.

Report on internal control over compliance

Management of Project Hospitality, Inc. is responsible for establishing and maintaining effective

internal control over compliance with the types of compliance requirements referred to above. In

planning and performing our audit of compliance, we considered Project Hospitality, Inc.’s

internal control over compliance with the types of requirements that could have a direct and

material effect on each major federal program to determine the auditing procedures that are

appropriate in the circumstances for the purpose of expressing an opinion on compliance for each

major federal program and to test and report on internal control over compliance in accordance

with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness

of internal control over compliance. Accordingly, we do not express an opinion on the

effectiveness of Project Hospitality, Inc.’s internal control over compliance.

A deficiency in internal control over compliance exists when the design or operation of a control

over compliance does not allow management or employees, in the normal course of performing

their assigned functions, to prevent, or detect and correct, noncompliance with a type of

compliance requirement of a federal program on a timely basis. A material weakness in internal

control over compliance is a deficiency, or combination of deficiencies, in internal control over

compliance, such that there is a reasonable possibility that material noncompliance with a type of

compliance requirement of a federal program will not be prevented, or detected and corrected, on

a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a

combination of deficiencies, in internal control over compliance with a type of compliance

requirement of a federal program that is less severe than a material weakness in internal control

over compliance, yet important enough to merit attention by those charged with governance.

Our consideration of internal control over compliance was for the limited purpose described in the

first paragraph of this section and was not designed to identify all deficiencies in internal control

over compliance that might be material weaknesses or significant deficiencies. We did not identify

any deficiencies in internal control over compliance that we consider to be material weaknesses.

However, material weaknesses may exist that have not been identified.

The purpose of this report on internal control over compliance is solely to describe the scope of

our testing of internal control over compliance and the results of that testing based on the

requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other

purpose.

New York, New York

April 20, 2018

29


Schedule of Findings and Questioned Costs


Section I – Summary of auditor’s results

Financial statements

Type of report the auditor issued on whether the

financial statements audited were prepared in

accordance with GAAP:

Unmodified

Internal control over financial reporting:

Material weakness(es) identified? yes X no

Significant deficiency(ies) identified? X yes none reported

Noncompliance material to financial statements noted? yes X no

Federal awards

Internal control over major federal programs:

Material weakness(es) identified? yes X no

Significant deficiency(ies) identified? yes X none reported

Type of auditor’s report issued on compliance for

major federal programs: Unmodified

Any audit findings disclosed that are required to be

reported in accordance with 2 CFR 200.516(a)? yes X no

Identification of major federal programs:

CFDA number(s) Name of federal program or cluster

93.914 HIV Emergency Relief Project Grants

93.558 Temporary Assistance for Needy Families

Dollar threshold used to distinguish between type A and

type B programs:

$750,000

Auditee qualified as low-risk auditee? yes X no

30


Schedule of Findings and Questioned Costs

For the year ended June 30, 2017 Section II – Financial statement findings 2017-001 Late submission of the single audit reporting package and data collection

form to Federal Audit Clearinghouse (“FAC”) Criteria or specific requirements: The single audit reporting package and data collection form shall be submitted to Federal Audit Clearinghouse 30 days after receipt of the auditor’s report, or 9 months after the end of the fiscal year whichever comes first. Condition: Submission of the single audit reporting package and data collection form to FAC was not done within the timeframe as required by the Uniform Guidance. Context: During the audit we noted that single audit reporting package and data collection form is expected to be submitted to FAC approximately in April 2018 for the fiscal year ended June 30, 2017. Effect: Late filing will result in noncompliance with timely submission of financial information to the grantor agencies. Cause: Management did not have adequate procedures in place to ensure the timely filing of the single audit reporting package and data collection form to FAC. Recommendation: We recommend that management of Project Hospitality, Inc. strengthen its procedures over filing of the single audit reporting package and data collection form with FAC to ensure timely filing. Views of responsible officials and planned corrective actions: See page 32. Section III – Federal award findings and questioned costs None

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Summary Schedule of Prior Audit Findings


Financial statement findings Index#: 2015-001 Summary of finding: Late submission of the single audit reporting package and data collection form to Federal Audit Clearinghouse (“FAC”) Status: Repeat finding in current year report, refer to index# 2017-001 Federal award findings and questioned costs None

32


Corrective Action Plan

For the year ended June 30, 2017 2017-001 Late submission of the single audit reporting package and data collection form

to Federal Audit Clearinghouse (“FAC”) Views of responsible officials and planned corrective actions: In 2017 Project Hospitality restructured its administrative organization with the goal of improving financial and operational effectiveness. Former Executive Director, Terry Troia was elevated to CEO/President and, in July of 2017, the Board hired a new Executive Director with direct oversight of the agency's fiscal department, government funded programs and operations. The Executive Director reports directly to the Board of Directors. In (December) of 2017 the CFO retired after 20 years of tenure with the organization. The organization recognizes the importance of a timely audit completion and submission to the Federal Audit Clearinghouse; consequently a primary organizational goal in 2018 is to streamline and modernize the organization's operations with particular emphasis on its financial functions so that the audit process may begin three months earlier and deadlines may be met.

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