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12. ON -SITE PERSONNEL. All on -site personnel are employees of the Agent, who will hire, pay, supervise and discharge them. 13. DISBURSEMENT FROM THE OPERATING ACCOUNT. The Agent shall disburse monthly from the Operating Account payment for all Property Expenses due and payable as Property Expenses; provided, however, that the Agent shall under no circumstances be obligated or required to expend or advance its own funds for any purpose on behalf of the Owner or the Property whether or not such expenses are designated herein as Property Expenses. The Agent shall disburse to owner any funds in excess of $10,000 after Operating Expenses are paid. 14. BUDGETS. The Agent will prepare a recommended annual operating budget for each fiscal year which begins during the term of this Agreement and will submit the proposed budget to the Owner on or before the first day of December of each year following the first full year of this Agreement. The Owner will review, revise as necessary, and approve the annual operating budget for the Property on or before the first day of each fiscal year which begins during the term of this Agreement. The fiscal year shall be from January 1 through December 31. The Agent is authorized to make expenditures of Property Expenses within the amounts set forth within the categories established in the annual operating budget. All such expenses are Property Expenses and will be paid by or reimbursed to the Agent from the Operating Account pursuant to this Agreement. Variations from the annual operating budget will be reported to the Owner. 15. FINANCIAL RECORDS AND REPORTS. The Agent will have the following responsibilities with respect to financial records and reports of the Property: a. The Agent will establish and maintain a comprehensive system of records, books and accounts in a manner satisfactory to the Owner and subject to applicable state law. All records, books and accounts will be subject to examination at reasonable hours by the Owner. b. With respect to each fiscal year ending during the term of this Agreement, the Agent will cause an annual financial report of the Property to be prepared by a certified public accountant or other person acceptable to the Owner, based upon the preparer's examination of the books and records of the Owner and the Agent. The report will be certified by the preparer and will be submitted to the Owner within sixty (60) days after the end of the fiscal year. Compensation for the preparer's services and expenses is Property Expense. C. By the twentieth (20th) day of each month, the Agent will furnish the Owner with a statement of receipts and disbursements during the previous month, a schedule of accounts receivable and payable, and reconciled bank statements for the Operating Account and security deposit account as of the end of the previous month. Each report will contain a discussion of pertinent activity and any significant variances from the annual operating budget and the need for the Owner's consideration of a revision of budgeted expenses. -5-