September 6, 2007
FILED BY EDGAR
Ms. Yolanda Crittendon
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Re: Boston Financial Qualified Housing Tax Credits LP II ("Fund II")
- File No. 000-17777
Boston Financial Qualified Housing Tax Credits LP III ("Fund III")
- File No. 000-18462
Boston Financial Qualified Housing Tax Credit LP IV ("Fund IV")
- File No. 000-19765
Boston Financial Qualified Housing Tax Credits LP V ("Fund V")
- File No. 000-19706
Boston Financial Tax Credit Fund Plus LP ("Fund Plus")
- File No. 000-22104
Boston Financial Tax Credit Fund VII LP ("Fund VII")
- File No. 000-24584
Boston Financial Tax Credit Fund VIII LP ("Fund VIII")
- File No. 000-26522
(collectively, the "Funds")
Forms 8-K filed July 26, 2007
Dear Ms. Crittendon:
We are writing in response to your comments to the Forms 8-K filed on July 26,
2007, made in a letter from you dated July 27, 2007. The Funds' responses to the
comments are set forth below and are keyed to the numbering of the comments
contained in your letter. For ease of reference, we have reproduced your
comments in italics below.
Item 4.01 Form 8-K
1. We note the disclosure of material weaknesses in your internal
controls. Tell us in what period the weaknesses occurred and whether or
not you intend to restate any prior period for any adjustment resulting
from such weaknesses; and if not, why not. Tell us in detail the steps
you plan to take and procedures you plan to implement to correct each
material weakness.
Response:
Each of the errors resulting from these material weaknesses was assessed
for their impact on prior periods. Where a prior period impact was
identified, management evaluated the errors in accordance with the guidance
provided by Staff Accounting Bulletin 99, Materiality ("SAB 99"), and
concluded that no restatements were necessary. No debt covenants or
management fees were impacted by the errors or adjustments. All errors were
unintentional and did not involve fraud. The Funds' former independent
registered public accounting firm did not take exception to management's
position.
In part, SAB 99 notes that "omission or misstatement of an item in a
financial report is material if, in light of surrounding circumstances, the
magnitude of the item is such that it is probable that the judgment of a
reasonable person relying on the report would have been changed or
influenced by the inclusion or correction of the item".
Management considered all of the factors in accordance with SAB 99 in its
quantitative and qualitative analysis. In general, the Funds are
approaching the end of their terms and many of the Funds have minimal
partner equity balances and minimal activity in the statement of
operations. Therefore, adjustments, when strictly considered for
quantitative impact, appear material. Because of the status of the Funds
and the disproportionately low quantitative measures for materiality,
management thoroughly considered a variety of qualitative factors including
the following: 1) the Funds are structured as low income housing limited
partnerships for the purpose of generating tax benefits for investors who
make investment decisions based on expected tax losses and tax credits and;
2) investment units in the Funds are neither actively traded nor listed on
any exchange and when a secondary market transaction does occur, an
investor determines the price principally from the value of expected tax
benefits (primarily tax credits).
Management considered the guidance of SAB 99 and concluded that the errors
resulting from the noted weaknesses were not material and that no amendment
to the financial statements for prior periods was necessary or appropriate.
Management has implemented remediation plans to address each of the
material weaknesses previously identified:
A. Controls over Contracts
1) During the period from December 2006 to early February 2007, the
Funds' cash was invested in below market interest bearing accounts as
part of a banking arrangement which resulted in financial benefits to
affiliates of the General Partners. Management determined that this
arrangement was inconsistent with the terms of the Partnership
Agreements of the Funds and terminated the arrangement in early
February 2007. The arrangement and management's intent for the General
Partners to reimburse the Funds were disclosed in the audited financial
statements for the Funds filed on Forms 10-KSB for the year ended March
31, 2007. Management determined that the lost interest should not have
been recorded in the year ended March 31, 2007 as the interest was not
legally earned in fiscal 2007; the recovery of the lost interest should
be recorded when it was agreed to be repaid, in the quarter ended
September 30, 2007. On August 9, 2007 the General Partners reimbursed
the Funds and interest income was recorded as follows:
Fund II $15,792
Fund III $297,594
Fund IV $428,553
Fund V $77,966
Fund Plus $24,116
Fund VII $20,507
Fund VIII $21,931
Management has developed comprehensive remediation plans to ensure
processes and controls are in place to prevent a recurrence of issues
related to this material weakness. In February 2007, management stopped
all compensating balance fund arrangements for these Funds. During the
quarter ended June 30, 2007, management initiated changes in processes
and controls including restricting authority to the corporate treasury
department over the opening, closing, investment and movement of cash
accounts, the engagement of the corporate legal department to perform
due diligence on new agreements to assure compliance with existing
agreements and developing a fiduciary and conflicts policy that
provides formal guidance to management's personnel. In August 2007,
management reimbursed interest income to the Funds and implemented the
fiduciary and conflicts policy. Based on the implementation of these
remediation plans, there were no proposed adjustments to previously
issued financial statements.
2) Many of the Funds had advisory contracts pursuant to which the
dealer agreed to provide investment advisory services for the Funds'
assets. The advisory contracts contained an overall limit on the
cumulative amount of fees that each Fund was required to pay over the
life of the contract. Prior to June 30, 2006, management did not
effectively monitor the payment of fees under these contracts with
respect to this limitation. As a result, in July 2006, management
identified an over accrual with respect to Fund III ($253,805) and an
over accrual and over payment with respect to Fund V ($128,712 and
$91,212, respectively) as of March 31, 2006. These over accruals
occurred over the periods from 2000 and 2001 (for Fund III and Fund V,
respectively) through March 31, 2006. For the quarter ended June 30,
2006, management corrected these over accruals. In September 2006,
final payment (and reimbursement) occurred for all Funds and the
contracts were terminated.
Management considered the guidance of SAB 99 and concluded that the
error and the out of period adjustment resulting from the noted
weakness were not material and that no amendment to the financial
statements for prior periods was necessary or appropriate.
During July 2006, management completed a thorough review of its
contracts and determined that no other contractual relationships
existed which would require special compliance monitoring. Management
has concluded that based on this review and because it is not expected
that the Funds will enter into similar contracts, the material weakness
has been remediated as of the period ended September 30, 2006.
B. Controls over Expense Accruals
During February 2006, the Funds' former independent registered public
accounting firm discovered that legal bills paid in January 2006
related to November and December 2005. Management then accrued these
amounts as of December 31, 2005 prior to filing the Funds' 10-QSB on
February 14, 2006. The accrual amounts were as follows:
Fund II $25,000
Fund III $35,000
Fund IV $270,000
Fund V $25,000
In July 2006, management discovered that certain amounts due to its
principal law firm were under accrued because the law firm did not
submit invoices on a timely basis for the period ended March 31, 2006.
Consequently, through its normal expense cut off procedures, management
had not recorded a liability for legal fees related to the period ended
March 31, 2006. The adjustments to increase legal expense for each of
the Funds are as follows:
Fund II $31,000
Fund III $33,000
Fund IV $459,000
Fund V $27,000
Fund Plus $25,000
Fund VII $27,000
Fund VIII $17,000
This adjustment was recorded in the quarter ended June 30, 2006.
Management concluded this error and the out of period adjustment were
not material under the guidance of SAB 99 and that no amendment to the
financial statements for prior periods was necessary or appropriate.
Since the quarter ended June 30, 2006, management has enhanced its
quarterly close procedures to include monitoring services provided and
invoices received from significant professional service providers.
Management also confirms amounts due but not billed with these
providers. Due to the implementation and operation of these enhanced
and additional controls, which was completed in July 2006, management
concluded that this material weakness was remediated as of the quarter
ended September 30, 2006.
C. Controls over Sales of Investments
Sales of investments began to increase in late 2005 as the investments'
tax credit compliance periods expired. Accordingly, as part of its
required communications with respect to the quarter ended December 31,
2005, the Funds' former independent registered public accounting firm
recommended that management obtain written, executed documents as
evidence of the terms of all sales transactions. Also, as part of its
required communications with respect to the quarter ended September 30,
2006, the Funds' former independent registered public accounting firm
recommended that management develop processes and controls for
monitoring contingent proceeds from sales of investments. The former
independent registered public accounting firm did not identify
adjustments due to this material weakness.
Beginning in the quarter ended December 31, 2005, management has
continued to strengthen controls by developing and enhancing reports
which capture all relevant sale information needed by management in
preparing the quarterly Fund financial statements. In addition,
quarterly review meetings with the Funds' investment managers were
initiated during the quarter ended December 31, 2005. The status of
future sales transactions are discussed so that management gains access
to appropriate documentation and contingent proceeds amounts for all
sales transactions. Based on the implementation of these enhanced and
additional controls, management determined that this material weakness
was remediated as of the quarter ended March 31, 2006.
D. Controls over Recording Equity in Income/Losses
As part of its required communications with respect to the quarter
ended December 31, 2006, the Funds' former independent registered
public accounting firm recommended that management perform a more
detailed review of investees' financial data to appropriately reflect
the Funds' equity in income/losses from investees. As background,
management had the following key controls in place to properly account
for its equity investments.
o At year end, each investee submits audited financial
statements to management which management uses to record
the Funds' share of income/loss. Management then
reconciles each investment balance to the corresponding
equity balance in the investee's audited financial
statement.
o For each quarter, management receives unaudited financial
data from the investees. Management analyzes this data to
gain comfort that it is materially correct. Significant
line items are analyzed by comparing them to the prior
year's audited financial statement. Real estate
professionals, who know the operational details of the
investee property, review the financial data for
reasonableness.
In February 2007, the Funds' former independent registered public
accounting firm discovered adjustments needed to correctly reflect the
equity in income/loss in the financial statements of Fund Plus and Fund
VII for the quarter ended December 31, 2006. The aggregate amount of
these adjustments to the December 2006 period were as follows:
Fund Plus $10,000
Fund VII $97,000
In addition, an audit adjustment was recorded on Fund Plus for the year
ended March 31, 2007. Equity in income/loss was adjusted because the
investee had recorded the gain on involuntary conversion due to a fire
loss in the wrong period on its audited financial statements. For more
information on this audit adjustment, please see adjustment #3 in
Exhibit I attached. Management considered the guidance of SAB 99 and
concluded that the error and the out of period adjustment resulting
from the noted weakness were not material and that no amendment to the
financial statements for prior periods was necessary or appropriate.
During the quarter ended September 30, 2007, management improved the
review and analysis process over annual audited financial statements
and quarterly financial data received from the investees. Specifically,
investee audited financial statements are reviewed for unusual events
(such as a fire) to assure proper accounting in the appropriate period.
Quarterly, commencing in the quarter ended September 30, 2007
management will expand the scope of line items tested for
reasonableness in comparison to prior year audited financial
statements. Based on the implementation of these enhanced and
additional controls, management determined that this material weakness
was remediated as of the quarter ended September 30, 2007.
2. Please provide us with a schedule of your fiscal year end fourth
quarter adjustments (for both 2006 and 2007) to close the books, or
adjustments recorded in connection with or as a result of the audit.
Clearly explain the reason for each adjustment. For each adjustment,
show us the impact on pre-tax net loss. Quantify the net effect of all
adjustments on pre-tax net income (loss). Also, tell us why none of the
adjustments relate to any prior period. Explain in detail why you
believe the timing of each adjustment is appropriate.
Response
There were no adjustments made for any Fund for the fourth quarter of the
year ended March 31, 2006. A schedule of adjustments for the fourth quarter
of the year ended March 31, 2007 is attached as Exhibit I. This schedule
does not include adjustments made in other quarters identified during the
two-year period ended March 31, 2007. Management evaluated all adjustments
identified for impact on prior periods. When an entry related to a prior
period, management assessed such adjustment for materiality and in each
case concluded that no adjustment to the financial statements for prior
periods was necessary or appropriate. To the extent adjustments were
recorded in other quarters in connection with the material weaknesses
identified in comment 1 above, these adjustments have been outlined in the
response to comment 1.
3. To the extent that you make changes to the Form 8-K to comply with our
comments, please obtain and file an updated Exhibit 16 letter from the
former accountants stating whether the accountant agrees with the
statements made in your revised Form 8-K.
Response
Management believes that the disclosures made in the original Form 8-K are
still appropriate and, as such, no amendments are currently contemplated to
the Item 4.01 Form 8-K as previously filed.
4. Reference is being made to Form 10-KSB for the year ended March 31,
2007. In light of the fact that a material weakness existed for the
years ended March 31, 2007 and 2006, disclose in reasonable detail the
basis for the officers' conclusions that the company's disclosure
controls and procedures were nonetheless effective, as of the end of
the period covered by the Form 10-KSB.
Response
During the reporting period ended March 31, 2007, management believed that
the weaknesses related to Controls over Expense Accruals and Controls over
Sales of Investments were remediated prior to March 31, 2007. The
remediation efforts related to the Controls over Contracts and Controls
over Recording Equity in Income/Losses were ongoing in 2007, and due to
management's belief that these weaknesses did not result in a material
adjustment to the results that were determined through the Funds' normal
close process, management believed that there was a reasonable basis to
conclude that the Funds' disclosure controls and procedures were effective.
However, management now believes that these two weaknesses existed as of
March 31, 2007 (and were subsequently remediated) and represented an
exception to the Company's conclusion on the effectiveness of the Company's
control effectiveness at March 31, 2007 and plans to file an amended Item
8A to the Forms 10-KSB. Attached as Exhibit II is the planned disclosure
related to these weaknesses and remediation efforts.
Please be advised that the Funds acknowledge that:
o The Funds are responsible for the adequacy and accuracy of the
disclosure in the filings;
o Staff comments or changes to disclosure in response to staff
comments in the filing reviewed by the staff do not foreclose the
Commission from taking any action with respect to the filing; and
o The Funds may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
If you require any further information concerning this matter, please contact me
at 617-488-3488 or our counsel, Deborah L. Thaxter of Nixon Peabody LLP at
(617)345-1326.
Very truly yours,
[Managing GP Signature Block]
By: /s/ MICHAEL GLADSTONE
cc: Deborah L. Thaxter
Nixon Peabody LLP
Exhibit I
Boston Financial Qualified Housing Tax Credit Fund Plus LP
Boston Financial Qualified Housing Tax Credit Fund VII LP
Audit Adjustments
For the fourth quarter of the year ended March 31, 2007
Effect on Original
Net Loss Quarter
Fund Account name Debit Credit YE 3/31/07 Affected
- ------------ ----- ----------------------------------------------------------------- ------- --------------- ---------- ----------
The following adjustments (#1 and #2) have NO effect on the Net Loss of Fund
Plus:
----------------------------------------------------------------- ------- ---------------
Fund Plus # 1 Gain on sale of investment in Local Limited Partnerships 16,113
Recovery of provision for valuation allowance on advances to
Local Limited Partnerships 16,113 0 3/07
Journal description:
Cash received from a Local Limited Partnership was originally
booked as part of the proceeds from the sale of this Local
Limited Partnership. This entry reclassified the cash receipt
to be a reduction of previous advances to this Local Limited
Partnership. These advances had been fully reserved in prior
years, therefore, the offset was a recovery of the provision
for valuation allowance on these advances.
----------------------------------------------------------------- ------- ---------------
----------------------------------------------------------------- ------- ---------------
# 2 Other income 31,500
Equity in losses of Local Limited Partnerships 31,500 0 3/07
Journal description:
Cash received in FY06 from a Local Limited Partnership was
booked to other income in FY06. In FY07, this same amount was
booked to other income with an offset to equity in losses of
Local Limited Partnership. This entry reversed the FY07
entry.
----------------------------------------------------------------- ------- ---------------
The following adjustment (#3) has an effect on the Net Loss of Fund Plus:
----------------------------------------------------------------- ------- ---------------
Fund Plus # 3 Investments in Local Limited Partnerships 905,000
Equity in losses of Local Limited Partnerships 905,000 (905,000) 6/06
Journal description:
One of the Local Limited Partnerships had a gain on
involuntary conversion due to a fire loss. The audited
Financial Statements of the Local Limited Partnership did not
reflect this gain in the proper period. Upon further
investigation, it was determined that the Fund should
recognize this gain in FY07.
----------------------------------------------------------------- ------- ---------------
------------
Fund Plus, ($905,000)
Net Effect on
Net Loss
============
The following adjustments (#4 and #5) have an effect on the Net Loss of Fund
VII:
----------------------------------------------------------------- ------- ---------------
Fund VII # 4 Accounts Receivable 147,901
Recovery of provision for valuation allowance on advances to
Local Limited Partnerships 147,901 147,901 3/07
Journal description:
On June 12, 2007 (after year end but before filing the Form
10KSB), this amount was received as a reimbursement of
advances to Local Limited Partnerships. Since the advance was
deemed collectible at year end (3/07), the previous provision
for valuation allowance on advances to Local Limited
Partnerships was reversed with this entry.
----------------------------------------------------------------- ------- ---------------
----------------------------------------------------------------- ------- ---------------
Fund VII # 5 Equity in losses of Local Limited Partnerships 143,735 (143,735) 59,000 6/05
Investments in Local Limited Partnerships 143,735 84,735 3/07
Journal description:
Entry recorded additional losses for two Local Limited
Partnerships so that the net investment in the two Local
Limited Partnerships is equal to the capital commitment to
these Local Limited Partnerships (a net negative investment
balance)
----------------------------------------------------------------- ------- ---------------
------------
Fund VII, Net
Effect on Net
Loss $4,166
============
Exhibit II
Item 8A. Controls and Procedures
We conducted an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange
Act, as of March 31, 2007, to ensure that information required to be disclosed
by us in the reports filed or submitted by us under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the Securities Exchange Commission's rules and forms, including to ensure
that information required to be disclosed by us in the reports filed or
submitted by us under the Exchange Act is accumulated and communicated to
management to allow timely decisions regarding required disclosure. Based on
that evaluation, management has concluded that as of March 31, 2007, our
disclosure controls and procedures were not effective at the reasonable
assurance level due to the material weakness described below.
A material weakness is a control deficiency, or a combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of annual or interim financial statements will not be prevented or
detected. Management identified the following weaknesses in the Partnership's
disclosure controls that existed as of March 31, 2007:
o Controls over Monitoring of Contractual Agreements: The
Partnership did not maintain effective monitoring controls over
the contractual agreements that were entered into on its behalf by
the General Partner. Specifically, during the period from December
2006 to early February 2007, the Partnership's cash was invested
in below market interest bearing accounts as part of a banking
arrangement which resulted in financial benefits to affiliates of
the General Partners. Management determined that this arrangement
was inconsistent with the terms of the Partnership Agreement of
the Partnership.
o Controls over Recording Equity in Income/Losses: The Partnership
did not maintain effective controls over the calculation of the
Partnership's equity in income/losses from investees.
Specifically, certain non- recurring items were recorded in the
wrong period due to an ineffective review of the investees'
unaudited quarterly financial data and audited annual financial
statements utilized to calculate equity in income/losses from
investees. This control deficiency resulted in adjustments to the
Partnership's interim and annual financial statements for the year
ended March 31, 2007.
The Partnership considered these matters in connection with the closing and
preparation of the financial statements for the year ended March 31, 2007, and
determined that the financial statements for this period were not materially
affected by these control weaknesses.
During the second and third quarters of fiscal year 2008, the Partnership
completed implementation of the following control improvements to remediate the
material weaknesses existing as of March 31, 2007:
Controls over Monitoring of Contractual Agreements
o As part of the remediation plan, management initiated changes in processes and
controls including:
o the refund of lost interest;
o restricting authority to the corporate treasury department over the opening,
closing, investment and movement of cash accounts;
o the engagement of the corporate legal department to perform due diligence
on new agreements to assure compliance with existing agreements; and
o the development and implementation of a fiduciary and conflicts policy that
provides guidance to personnel on conflict management.
Controls over Recording Equity in Income/Losses
o Management now performs a more detailed review and analysis of
quarterly financial data and audited financial statements received
from its investees to assure proper accounting in the appropriate
period. Specifically, investee audited financial statements are
reviewed for unusual events (such as a fire) to assure proper
accounting in the appropriate period. Quarterly, commencing in the
quarter ended September 30, 2007, management will expand the scope
of line items tested for reasonableness in comparison to prior
year audited financial statements.
There were no other changes in the Partnership's internal control over financial
reporting identified in connection with the evaluation required by paragraph (d)
of the Securities and Exchange Act Rules 13a-15 or 15d-15 that occurred during
the quarter ended March 31, 2007 that affected, or were reasonably likely to
affect, the Partnership's internal control over financial reporting.