Finding No. 2023-001: Restricted Cash (Material Weakness)
Statement of condition
Special Tests and Provisions
The residual receipts reserve was not properly funded at June 30, 2023.
Criteria
The Regulatory Agreement requires that any surplus cash amount be deposited into a residual receipts reserve and retained until released as approved by the U.S. Department of Housing and Urban Development ("HUD").
Cause
Review procedures were insufficient to ensure that a surplus cash deposit from fiscal year 2021 was deposited into the reserve, resulting in the residual receipts reserve being underfunded at June 30, 2023.
Effect
Funds required to be deposited into the residual receipts reserve could be used to fund operations or for alternative purposes without HUD's authorization.
Recommendation
Management should revisit its internal controls and procedures for the computation of surplus cash to ensure it is performed accurately and timely and that any calculated surplus cash amount be deposited into the residual receipts reserve timely.
Identification of repeat finding
The finding is a repeat of Finding No. 2022-004.
Auditor non-compliance code
B - Failure to make required residual receipts deposits
Questioned costs
None
Finding resolution status
In process
Finding No. 2023-002: Financial Reporting (Material Weakness)
Statement of condition
Reporting
The lack of appropriate policies, procedures, and internal processes led to inaccurate recording of depreciation, tenant security deposit liability, cash, accounts payable, property insurance, and net deficit, as well as inaccurate rental assistance payment requests and late filing of required reporting.
Certain information technology controls and procedures were not documented, properly designed, or followed appropriately, including, but not limited to: segregation of administrative user roles from the accounting function, user access review, removal of terminated users, physical access, complementary user entity controls assessment, backup restoration testing, penetration testing, and cybersecurity awareness training.
Criteria
The Organization is required to have internal controls and procedures in place in order to timely and accurately report the results of its operations, close its books, and timely file its reports with the applicable federal agencies. These procedures include documenting of levels of review, reconciling accounting records at month-end and year-end close, and maintaining a well-documented, designed, and applied information technology environment.
Cause
Management did not have sufficient internal controls in place to accurately and timely report the results of the Organization's operations and maintenance and maintain the information technology environment.
Effect
Insufficient controls, late closing and reconciliation of accounting records, and insufficiently maintained information technology environment could result in accounting errors and theft. A lack of controls over financial reporting can result in untimely filing of required reports or incomplete filings with the regulatory and oversight entities.
Recommendation
We recommend that management re-evaluate its policies and procedures to ensure an appropriate member of management is in place to review the year-end and month-end close processes, as well as journal entries, reconciliations, and other accounting records. Management should appoint an individual to be responsible for the Organization's financial statements and reporting obligations. Management should evaluate its controls and procedures over the information technology environment to ensure they are properly documented, designed, and followed, including but not limited to: ensuring segregation of administrative user roles from the accounting function, performing a regular review of user access, ensuring terminated users are removed from all systems and software, ensuring restriction of physical access to the system, performing an assessment of complementary user entity controls for relevant software vendors, performing backup restoration tests and penetration tests, and providing cybersecurity awareness training.
Identification of repeat finding
The finding is a repeat of Finding No. 2022-003.
Auditor non-compliance code
S - Internal control deficiencies
Questioned costs
None
Finding resolution status
In process
Finding No. 2023-003: Cash Disbursements and Classifications (Material Weakness)
Statement of condition
Allowable costs
Activities allowed or unallowed
During the year ended June 30, 2023, the Organization:
did not properly capitalize certain expenditures as fixed assets in accordance with the Organization's capitalization policy and properly depreciate those fixed assets;
did not obtain bids for an expenditure over $10,000;
did not properly classify certain expenditures between expense accounts;
did not properly cut off disbursements at fiscal year end, resulting in expenses not being recorded within the current audit period; and
did not accurately record gross potential rent, due to and from affiliates, and receivables.
Criteria
Management must review invoices after fiscal year end to ensure all expenses related to the fiscal period are being accurately captured. Additionally, management should review expenditures for accurate expense account classification and proper capitalization, and review revenue classifications to the appropriate revenue account recording to ensure proper financial and HUD reporting. The Uniform Guidance requires bidding be obtained for expenditures over $10,000.
Cause
Review procedures were not sufficient to ensure expenditures were recorded in accurate expense accounts and properly capitalized, and revenue was recorded in the appropriate revenue account. Review procedures were not adequately followed to review subsequent invoices for relevance to the current fiscal period. Review procedures were not sufficient to ensure expenditures over $10,000 received competitive bids.
Effect
Certain utility expenses presented for the current fiscal year were not recorded until the next fiscal year, resulting in understated expenses. Additionally, improperly capitalized expenditures and inaccurate expenses, fixed assets, and revenue classification could result in improper financial and HUD reporting.
Recommendation
Management should revisit and enhance its internal controls and procedures over subsequent expenditures to ensure expenses are captured in the correct fiscal period. Management should implement an additional period-end review to ensure proper classification and capitalization of charges, complete accrued expenditures, and accurate recording of revenue, due to and from affiliates, and receivables. Management should review its controls over expenditure authorization to ensure competitive bids are obtained where necessary.
Identification of repeat finding
The finding is a repeat of Finding No. 2022-006.
Auditor non-compliance code
S - Internal control deficiencies
Questioned costs
None
Finding resolution status
In process
Finding No. 2023-004: Tenant File Maintenance (Material Weakness)
Statement of condition
Eligibility
In connection with the procedures applied to a sample of five tenant lease files, the Organization did not maintain the required lead-based paint disclosure in all selected lease files.
Criteria
Tenant lease files are required to be maintained and tenant eligibility determined in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs.
Cause
Management’s policies with respect to the determination of tenant eligibility and the maintenance of tenant lease files in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, were not consistently followed.
Effect
The procedures for determining tenant eligibility and maintaining tenant lease files were not consistently applied in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs. This noncompliance could result in units being rented to ineligible tenants or errors in the rent subsidies paid by HUD.
Recommendation
Management should review and enhance procedures and monitor compliance with those procedures to ensure that tenant eligibility is correctly determined and that tenant lease files are properly maintained in accordance with the requirements of HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs.
Identification of repeat finding
The finding is a repeat of Finding No. 2022-007.
Auditor non-compliance code
S - Internal control deficiencies
Questioned costs
None
Finding resolution status
In process
Finding No. 2023-005: Timely Work Order Completion (Significant Deficiency)
Statement of condition
Activities allowed or unallowed
During the year ended June 30, 2023, management was unable to demonstrate timely completion of 7 of 29 work orders selected.
Criteria
HUD projects are required to complete work orders timely.
Cause
The Organization did not have sufficient controls in place to ensure the timely completion of work orders as required by HUD.
Effect
Significant repairs could be delayed and repairs could be falsified or duplicated.
Recommendation
Management should review and enhance its internal controls and procedures over work orders to ensure they are completed on a timely basis.
Identification of repeat finding
The finding is not a repeat finding.
Auditor non-compliance code
S - Internal control deficiencies
Questioned costs
None
Finding resolution status
In process
Finding No. 2023-006: Verification of Tenant Assets (Significant Deficiency)
Statement of condition
Eligibility
During the year ended June 30, 2023, management did not perform a verification of tenant assets as part of tenant certification and recertification procedures.
Criteria
In accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, HUD projects are required to verify tenant assets to ensure appropriate subsidy calculations.
Cause
The Organization's tenants are multi-handicapped blind low-income adults. The cash accounts held by the tenants are maintained by the Sponsor on behalf of the tenants and therefore other assets are not verified.
Effect
Subsidy receipts could be overstated.
Recommendation
Management should review and enhance its certification and annual recertification procedures to include a verification of tenant assets.
Identification of repeat finding
The finding is a repeat of Finding No. 2022-008.
Auditor non-compliance code
S - Internal control deficiencies
Questioned costs
None
Finding resolution status
In process
Finding No. 2023-007: Replacement Reserves (Significant Deficiency)
Statement of condition
Special Tests and Provisions
For two months of the fiscal year, the monthly replacement reserve deposit was funded in the subsequent month.
The replacement reserve was underfunded by one month's deposit at June 30, 2023.
Criteria
The Regulatory Agreement requires a monthly deposit of $27 in the replacement reserve.
Cause
The monthly replacement reserve transfer was delayed by several days into the subsequent month due to it being on a set interval of time rather than on a monthly date. This late funding resulted in only 11 deposits being made during the year ended June 30, 2023.
Effect
Late deposits and underfunding of the replacement reserve could result in insufficient funds for repairs and replacements.
Recommendation
Management should review and enhance policies, procedures and internal controls to ensure that the replacement reserve deposits are made timely.
Identification of repeat finding
The finding is a repeat of Finding No. 2022-001.
Auditor non-compliance code
S - Internal control deficiencies
Questioned costs
None
Finding resolution status
Remediated subsequent to year-end.
Finding No. 2023-001: Restricted Cash (Material Weakness)
Statement of condition
Special Tests and Provisions
The residual receipts reserve was not properly funded at June 30, 2023.
Criteria
The Regulatory Agreement requires that any surplus cash amount be deposited into a residual receipts reserve and retained until released as approved by the U.S. Department of Housing and Urban Development ("HUD").
Cause
Review procedures were insufficient to ensure that a surplus cash deposit from fiscal year 2021 was deposited into the reserve, resulting in the residual receipts reserve being underfunded at June 30, 2023.
Effect
Funds required to be deposited into the residual receipts reserve could be used to fund operations or for alternative purposes without HUD's authorization.
Recommendation
Management should revisit its internal controls and procedures for the computation of surplus cash to ensure it is performed accurately and timely and that any calculated surplus cash amount be deposited into the residual receipts reserve timely.
Identification of repeat finding
The finding is a repeat of Finding No. 2022-004.
Auditor non-compliance code
B - Failure to make required residual receipts deposits
Questioned costs
None
Finding resolution status
In process
Finding No. 2023-002: Financial Reporting (Material Weakness)
Statement of condition
Reporting
The lack of appropriate policies, procedures, and internal processes led to inaccurate recording of depreciation, tenant security deposit liability, cash, accounts payable, property insurance, and net deficit, as well as inaccurate rental assistance payment requests and late filing of required reporting.
Certain information technology controls and procedures were not documented, properly designed, or followed appropriately, including, but not limited to: segregation of administrative user roles from the accounting function, user access review, removal of terminated users, physical access, complementary user entity controls assessment, backup restoration testing, penetration testing, and cybersecurity awareness training.
Criteria
The Organization is required to have internal controls and procedures in place in order to timely and accurately report the results of its operations, close its books, and timely file its reports with the applicable federal agencies. These procedures include documenting of levels of review, reconciling accounting records at month-end and year-end close, and maintaining a well-documented, designed, and applied information technology environment.
Cause
Management did not have sufficient internal controls in place to accurately and timely report the results of the Organization's operations and maintenance and maintain the information technology environment.
Effect
Insufficient controls, late closing and reconciliation of accounting records, and insufficiently maintained information technology environment could result in accounting errors and theft. A lack of controls over financial reporting can result in untimely filing of required reports or incomplete filings with the regulatory and oversight entities.
Recommendation
We recommend that management re-evaluate its policies and procedures to ensure an appropriate member of management is in place to review the year-end and month-end close processes, as well as journal entries, reconciliations, and other accounting records. Management should appoint an individual to be responsible for the Organization's financial statements and reporting obligations. Management should evaluate its controls and procedures over the information technology environment to ensure they are properly documented, designed, and followed, including but not limited to: ensuring segregation of administrative user roles from the accounting function, performing a regular review of user access, ensuring terminated users are removed from all systems and software, ensuring restriction of physical access to the system, performing an assessment of complementary user entity controls for relevant software vendors, performing backup restoration tests and penetration tests, and providing cybersecurity awareness training.
Identification of repeat finding
The finding is a repeat of Finding No. 2022-003.
Auditor non-compliance code
S - Internal control deficiencies
Questioned costs
None
Finding resolution status
In process
Finding No. 2023-003: Cash Disbursements and Classifications (Material Weakness)
Statement of condition
Allowable costs
Activities allowed or unallowed
During the year ended June 30, 2023, the Organization:
did not properly capitalize certain expenditures as fixed assets in accordance with the Organization's capitalization policy and properly depreciate those fixed assets;
did not obtain bids for an expenditure over $10,000;
did not properly classify certain expenditures between expense accounts;
did not properly cut off disbursements at fiscal year end, resulting in expenses not being recorded within the current audit period; and
did not accurately record gross potential rent, due to and from affiliates, and receivables.
Criteria
Management must review invoices after fiscal year end to ensure all expenses related to the fiscal period are being accurately captured. Additionally, management should review expenditures for accurate expense account classification and proper capitalization, and review revenue classifications to the appropriate revenue account recording to ensure proper financial and HUD reporting. The Uniform Guidance requires bidding be obtained for expenditures over $10,000.
Cause
Review procedures were not sufficient to ensure expenditures were recorded in accurate expense accounts and properly capitalized, and revenue was recorded in the appropriate revenue account. Review procedures were not adequately followed to review subsequent invoices for relevance to the current fiscal period. Review procedures were not sufficient to ensure expenditures over $10,000 received competitive bids.
Effect
Certain utility expenses presented for the current fiscal year were not recorded until the next fiscal year, resulting in understated expenses. Additionally, improperly capitalized expenditures and inaccurate expenses, fixed assets, and revenue classification could result in improper financial and HUD reporting.
Recommendation
Management should revisit and enhance its internal controls and procedures over subsequent expenditures to ensure expenses are captured in the correct fiscal period. Management should implement an additional period-end review to ensure proper classification and capitalization of charges, complete accrued expenditures, and accurate recording of revenue, due to and from affiliates, and receivables. Management should review its controls over expenditure authorization to ensure competitive bids are obtained where necessary.
Identification of repeat finding
The finding is a repeat of Finding No. 2022-006.
Auditor non-compliance code
S - Internal control deficiencies
Questioned costs
None
Finding resolution status
In process
Finding No. 2023-004: Tenant File Maintenance (Material Weakness)
Statement of condition
Eligibility
In connection with the procedures applied to a sample of five tenant lease files, the Organization did not maintain the required lead-based paint disclosure in all selected lease files.
Criteria
Tenant lease files are required to be maintained and tenant eligibility determined in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs.
Cause
Management’s policies with respect to the determination of tenant eligibility and the maintenance of tenant lease files in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, were not consistently followed.
Effect
The procedures for determining tenant eligibility and maintaining tenant lease files were not consistently applied in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs. This noncompliance could result in units being rented to ineligible tenants or errors in the rent subsidies paid by HUD.
Recommendation
Management should review and enhance procedures and monitor compliance with those procedures to ensure that tenant eligibility is correctly determined and that tenant lease files are properly maintained in accordance with the requirements of HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs.
Identification of repeat finding
The finding is a repeat of Finding No. 2022-007.
Auditor non-compliance code
S - Internal control deficiencies
Questioned costs
None
Finding resolution status
In process
Finding No. 2023-005: Timely Work Order Completion (Significant Deficiency)
Statement of condition
Activities allowed or unallowed
During the year ended June 30, 2023, management was unable to demonstrate timely completion of 7 of 29 work orders selected.
Criteria
HUD projects are required to complete work orders timely.
Cause
The Organization did not have sufficient controls in place to ensure the timely completion of work orders as required by HUD.
Effect
Significant repairs could be delayed and repairs could be falsified or duplicated.
Recommendation
Management should review and enhance its internal controls and procedures over work orders to ensure they are completed on a timely basis.
Identification of repeat finding
The finding is not a repeat finding.
Auditor non-compliance code
S - Internal control deficiencies
Questioned costs
None
Finding resolution status
In process
Finding No. 2023-006: Verification of Tenant Assets (Significant Deficiency)
Statement of condition
Eligibility
During the year ended June 30, 2023, management did not perform a verification of tenant assets as part of tenant certification and recertification procedures.
Criteria
In accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, HUD projects are required to verify tenant assets to ensure appropriate subsidy calculations.
Cause
The Organization's tenants are multi-handicapped blind low-income adults. The cash accounts held by the tenants are maintained by the Sponsor on behalf of the tenants and therefore other assets are not verified.
Effect
Subsidy receipts could be overstated.
Recommendation
Management should review and enhance its certification and annual recertification procedures to include a verification of tenant assets.
Identification of repeat finding
The finding is a repeat of Finding No. 2022-008.
Auditor non-compliance code
S - Internal control deficiencies
Questioned costs
None
Finding resolution status
In process
Finding No. 2023-007: Replacement Reserves (Significant Deficiency)
Statement of condition
Special Tests and Provisions
For two months of the fiscal year, the monthly replacement reserve deposit was funded in the subsequent month.
The replacement reserve was underfunded by one month's deposit at June 30, 2023.
Criteria
The Regulatory Agreement requires a monthly deposit of $27 in the replacement reserve.
Cause
The monthly replacement reserve transfer was delayed by several days into the subsequent month due to it being on a set interval of time rather than on a monthly date. This late funding resulted in only 11 deposits being made during the year ended June 30, 2023.
Effect
Late deposits and underfunding of the replacement reserve could result in insufficient funds for repairs and replacements.
Recommendation
Management should review and enhance policies, procedures and internal controls to ensure that the replacement reserve deposits are made timely.
Identification of repeat finding
The finding is a repeat of Finding No. 2022-001.
Auditor non-compliance code
S - Internal control deficiencies
Questioned costs
None
Finding resolution status
Remediated subsequent to year-end.
Finding No. 2023-001: Restricted Cash (Material Weakness)
Statement of condition
Special Tests and Provisions
The residual receipts reserve was not properly funded at June 30, 2023.
Criteria
The Regulatory Agreement requires that any surplus cash amount be deposited into a residual receipts reserve and retained until released as approved by the U.S. Department of Housing and Urban Development ("HUD").
Cause
Review procedures were insufficient to ensure that a surplus cash deposit from fiscal year 2021 was deposited into the reserve, resulting in the residual receipts reserve being underfunded at June 30, 2023.
Effect
Funds required to be deposited into the residual receipts reserve could be used to fund operations or for alternative purposes without HUD's authorization.
Recommendation
Management should revisit its internal controls and procedures for the computation of surplus cash to ensure it is performed accurately and timely and that any calculated surplus cash amount be deposited into the residual receipts reserve timely.
Identification of repeat finding
The finding is a repeat of Finding No. 2022-004.
Auditor non-compliance code
B - Failure to make required residual receipts deposits
Questioned costs
None
Finding resolution status
In process
Finding No. 2023-002: Financial Reporting (Material Weakness)
Statement of condition
Reporting
The lack of appropriate policies, procedures, and internal processes led to inaccurate recording of depreciation, tenant security deposit liability, cash, accounts payable, property insurance, and net deficit, as well as inaccurate rental assistance payment requests and late filing of required reporting.
Certain information technology controls and procedures were not documented, properly designed, or followed appropriately, including, but not limited to: segregation of administrative user roles from the accounting function, user access review, removal of terminated users, physical access, complementary user entity controls assessment, backup restoration testing, penetration testing, and cybersecurity awareness training.
Criteria
The Organization is required to have internal controls and procedures in place in order to timely and accurately report the results of its operations, close its books, and timely file its reports with the applicable federal agencies. These procedures include documenting of levels of review, reconciling accounting records at month-end and year-end close, and maintaining a well-documented, designed, and applied information technology environment.
Cause
Management did not have sufficient internal controls in place to accurately and timely report the results of the Organization's operations and maintenance and maintain the information technology environment.
Effect
Insufficient controls, late closing and reconciliation of accounting records, and insufficiently maintained information technology environment could result in accounting errors and theft. A lack of controls over financial reporting can result in untimely filing of required reports or incomplete filings with the regulatory and oversight entities.
Recommendation
We recommend that management re-evaluate its policies and procedures to ensure an appropriate member of management is in place to review the year-end and month-end close processes, as well as journal entries, reconciliations, and other accounting records. Management should appoint an individual to be responsible for the Organization's financial statements and reporting obligations. Management should evaluate its controls and procedures over the information technology environment to ensure they are properly documented, designed, and followed, including but not limited to: ensuring segregation of administrative user roles from the accounting function, performing a regular review of user access, ensuring terminated users are removed from all systems and software, ensuring restriction of physical access to the system, performing an assessment of complementary user entity controls for relevant software vendors, performing backup restoration tests and penetration tests, and providing cybersecurity awareness training.
Identification of repeat finding
The finding is a repeat of Finding No. 2022-003.
Auditor non-compliance code
S - Internal control deficiencies
Questioned costs
None
Finding resolution status
In process
Finding No. 2023-003: Cash Disbursements and Classifications (Material Weakness)
Statement of condition
Allowable costs
Activities allowed or unallowed
During the year ended June 30, 2023, the Organization:
did not properly capitalize certain expenditures as fixed assets in accordance with the Organization's capitalization policy and properly depreciate those fixed assets;
did not obtain bids for an expenditure over $10,000;
did not properly classify certain expenditures between expense accounts;
did not properly cut off disbursements at fiscal year end, resulting in expenses not being recorded within the current audit period; and
did not accurately record gross potential rent, due to and from affiliates, and receivables.
Criteria
Management must review invoices after fiscal year end to ensure all expenses related to the fiscal period are being accurately captured. Additionally, management should review expenditures for accurate expense account classification and proper capitalization, and review revenue classifications to the appropriate revenue account recording to ensure proper financial and HUD reporting. The Uniform Guidance requires bidding be obtained for expenditures over $10,000.
Cause
Review procedures were not sufficient to ensure expenditures were recorded in accurate expense accounts and properly capitalized, and revenue was recorded in the appropriate revenue account. Review procedures were not adequately followed to review subsequent invoices for relevance to the current fiscal period. Review procedures were not sufficient to ensure expenditures over $10,000 received competitive bids.
Effect
Certain utility expenses presented for the current fiscal year were not recorded until the next fiscal year, resulting in understated expenses. Additionally, improperly capitalized expenditures and inaccurate expenses, fixed assets, and revenue classification could result in improper financial and HUD reporting.
Recommendation
Management should revisit and enhance its internal controls and procedures over subsequent expenditures to ensure expenses are captured in the correct fiscal period. Management should implement an additional period-end review to ensure proper classification and capitalization of charges, complete accrued expenditures, and accurate recording of revenue, due to and from affiliates, and receivables. Management should review its controls over expenditure authorization to ensure competitive bids are obtained where necessary.
Identification of repeat finding
The finding is a repeat of Finding No. 2022-006.
Auditor non-compliance code
S - Internal control deficiencies
Questioned costs
None
Finding resolution status
In process
Finding No. 2023-004: Tenant File Maintenance (Material Weakness)
Statement of condition
Eligibility
In connection with the procedures applied to a sample of five tenant lease files, the Organization did not maintain the required lead-based paint disclosure in all selected lease files.
Criteria
Tenant lease files are required to be maintained and tenant eligibility determined in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs.
Cause
Management’s policies with respect to the determination of tenant eligibility and the maintenance of tenant lease files in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, were not consistently followed.
Effect
The procedures for determining tenant eligibility and maintaining tenant lease files were not consistently applied in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs. This noncompliance could result in units being rented to ineligible tenants or errors in the rent subsidies paid by HUD.
Recommendation
Management should review and enhance procedures and monitor compliance with those procedures to ensure that tenant eligibility is correctly determined and that tenant lease files are properly maintained in accordance with the requirements of HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs.
Identification of repeat finding
The finding is a repeat of Finding No. 2022-007.
Auditor non-compliance code
S - Internal control deficiencies
Questioned costs
None
Finding resolution status
In process
Finding No. 2023-005: Timely Work Order Completion (Significant Deficiency)
Statement of condition
Activities allowed or unallowed
During the year ended June 30, 2023, management was unable to demonstrate timely completion of 7 of 29 work orders selected.
Criteria
HUD projects are required to complete work orders timely.
Cause
The Organization did not have sufficient controls in place to ensure the timely completion of work orders as required by HUD.
Effect
Significant repairs could be delayed and repairs could be falsified or duplicated.
Recommendation
Management should review and enhance its internal controls and procedures over work orders to ensure they are completed on a timely basis.
Identification of repeat finding
The finding is not a repeat finding.
Auditor non-compliance code
S - Internal control deficiencies
Questioned costs
None
Finding resolution status
In process
Finding No. 2023-006: Verification of Tenant Assets (Significant Deficiency)
Statement of condition
Eligibility
During the year ended June 30, 2023, management did not perform a verification of tenant assets as part of tenant certification and recertification procedures.
Criteria
In accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, HUD projects are required to verify tenant assets to ensure appropriate subsidy calculations.
Cause
The Organization's tenants are multi-handicapped blind low-income adults. The cash accounts held by the tenants are maintained by the Sponsor on behalf of the tenants and therefore other assets are not verified.
Effect
Subsidy receipts could be overstated.
Recommendation
Management should review and enhance its certification and annual recertification procedures to include a verification of tenant assets.
Identification of repeat finding
The finding is a repeat of Finding No. 2022-008.
Auditor non-compliance code
S - Internal control deficiencies
Questioned costs
None
Finding resolution status
In process
Finding No. 2023-007: Replacement Reserves (Significant Deficiency)
Statement of condition
Special Tests and Provisions
For two months of the fiscal year, the monthly replacement reserve deposit was funded in the subsequent month.
The replacement reserve was underfunded by one month's deposit at June 30, 2023.
Criteria
The Regulatory Agreement requires a monthly deposit of $27 in the replacement reserve.
Cause
The monthly replacement reserve transfer was delayed by several days into the subsequent month due to it being on a set interval of time rather than on a monthly date. This late funding resulted in only 11 deposits being made during the year ended June 30, 2023.
Effect
Late deposits and underfunding of the replacement reserve could result in insufficient funds for repairs and replacements.
Recommendation
Management should review and enhance policies, procedures and internal controls to ensure that the replacement reserve deposits are made timely.
Identification of repeat finding
The finding is a repeat of Finding No. 2022-001.
Auditor non-compliance code
S - Internal control deficiencies
Questioned costs
None
Finding resolution status
Remediated subsequent to year-end.
Finding No. 2023-001: Restricted Cash (Material Weakness)
Statement of condition
Special Tests and Provisions
The residual receipts reserve was not properly funded at June 30, 2023.
Criteria
The Regulatory Agreement requires that any surplus cash amount be deposited into a residual receipts reserve and retained until released as approved by the U.S. Department of Housing and Urban Development ("HUD").
Cause
Review procedures were insufficient to ensure that a surplus cash deposit from fiscal year 2021 was deposited into the reserve, resulting in the residual receipts reserve being underfunded at June 30, 2023.
Effect
Funds required to be deposited into the residual receipts reserve could be used to fund operations or for alternative purposes without HUD's authorization.
Recommendation
Management should revisit its internal controls and procedures for the computation of surplus cash to ensure it is performed accurately and timely and that any calculated surplus cash amount be deposited into the residual receipts reserve timely.
Identification of repeat finding
The finding is a repeat of Finding No. 2022-004.
Auditor non-compliance code
B - Failure to make required residual receipts deposits
Questioned costs
None
Finding resolution status
In process
Finding No. 2023-002: Financial Reporting (Material Weakness)
Statement of condition
Reporting
The lack of appropriate policies, procedures, and internal processes led to inaccurate recording of depreciation, tenant security deposit liability, cash, accounts payable, property insurance, and net deficit, as well as inaccurate rental assistance payment requests and late filing of required reporting.
Certain information technology controls and procedures were not documented, properly designed, or followed appropriately, including, but not limited to: segregation of administrative user roles from the accounting function, user access review, removal of terminated users, physical access, complementary user entity controls assessment, backup restoration testing, penetration testing, and cybersecurity awareness training.
Criteria
The Organization is required to have internal controls and procedures in place in order to timely and accurately report the results of its operations, close its books, and timely file its reports with the applicable federal agencies. These procedures include documenting of levels of review, reconciling accounting records at month-end and year-end close, and maintaining a well-documented, designed, and applied information technology environment.
Cause
Management did not have sufficient internal controls in place to accurately and timely report the results of the Organization's operations and maintenance and maintain the information technology environment.
Effect
Insufficient controls, late closing and reconciliation of accounting records, and insufficiently maintained information technology environment could result in accounting errors and theft. A lack of controls over financial reporting can result in untimely filing of required reports or incomplete filings with the regulatory and oversight entities.
Recommendation
We recommend that management re-evaluate its policies and procedures to ensure an appropriate member of management is in place to review the year-end and month-end close processes, as well as journal entries, reconciliations, and other accounting records. Management should appoint an individual to be responsible for the Organization's financial statements and reporting obligations. Management should evaluate its controls and procedures over the information technology environment to ensure they are properly documented, designed, and followed, including but not limited to: ensuring segregation of administrative user roles from the accounting function, performing a regular review of user access, ensuring terminated users are removed from all systems and software, ensuring restriction of physical access to the system, performing an assessment of complementary user entity controls for relevant software vendors, performing backup restoration tests and penetration tests, and providing cybersecurity awareness training.
Identification of repeat finding
The finding is a repeat of Finding No. 2022-003.
Auditor non-compliance code
S - Internal control deficiencies
Questioned costs
None
Finding resolution status
In process
Finding No. 2023-003: Cash Disbursements and Classifications (Material Weakness)
Statement of condition
Allowable costs
Activities allowed or unallowed
During the year ended June 30, 2023, the Organization:
did not properly capitalize certain expenditures as fixed assets in accordance with the Organization's capitalization policy and properly depreciate those fixed assets;
did not obtain bids for an expenditure over $10,000;
did not properly classify certain expenditures between expense accounts;
did not properly cut off disbursements at fiscal year end, resulting in expenses not being recorded within the current audit period; and
did not accurately record gross potential rent, due to and from affiliates, and receivables.
Criteria
Management must review invoices after fiscal year end to ensure all expenses related to the fiscal period are being accurately captured. Additionally, management should review expenditures for accurate expense account classification and proper capitalization, and review revenue classifications to the appropriate revenue account recording to ensure proper financial and HUD reporting. The Uniform Guidance requires bidding be obtained for expenditures over $10,000.
Cause
Review procedures were not sufficient to ensure expenditures were recorded in accurate expense accounts and properly capitalized, and revenue was recorded in the appropriate revenue account. Review procedures were not adequately followed to review subsequent invoices for relevance to the current fiscal period. Review procedures were not sufficient to ensure expenditures over $10,000 received competitive bids.
Effect
Certain utility expenses presented for the current fiscal year were not recorded until the next fiscal year, resulting in understated expenses. Additionally, improperly capitalized expenditures and inaccurate expenses, fixed assets, and revenue classification could result in improper financial and HUD reporting.
Recommendation
Management should revisit and enhance its internal controls and procedures over subsequent expenditures to ensure expenses are captured in the correct fiscal period. Management should implement an additional period-end review to ensure proper classification and capitalization of charges, complete accrued expenditures, and accurate recording of revenue, due to and from affiliates, and receivables. Management should review its controls over expenditure authorization to ensure competitive bids are obtained where necessary.
Identification of repeat finding
The finding is a repeat of Finding No. 2022-006.
Auditor non-compliance code
S - Internal control deficiencies
Questioned costs
None
Finding resolution status
In process
Finding No. 2023-004: Tenant File Maintenance (Material Weakness)
Statement of condition
Eligibility
In connection with the procedures applied to a sample of five tenant lease files, the Organization did not maintain the required lead-based paint disclosure in all selected lease files.
Criteria
Tenant lease files are required to be maintained and tenant eligibility determined in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs.
Cause
Management’s policies with respect to the determination of tenant eligibility and the maintenance of tenant lease files in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, were not consistently followed.
Effect
The procedures for determining tenant eligibility and maintaining tenant lease files were not consistently applied in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs. This noncompliance could result in units being rented to ineligible tenants or errors in the rent subsidies paid by HUD.
Recommendation
Management should review and enhance procedures and monitor compliance with those procedures to ensure that tenant eligibility is correctly determined and that tenant lease files are properly maintained in accordance with the requirements of HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs.
Identification of repeat finding
The finding is a repeat of Finding No. 2022-007.
Auditor non-compliance code
S - Internal control deficiencies
Questioned costs
None
Finding resolution status
In process
Finding No. 2023-005: Timely Work Order Completion (Significant Deficiency)
Statement of condition
Activities allowed or unallowed
During the year ended June 30, 2023, management was unable to demonstrate timely completion of 7 of 29 work orders selected.
Criteria
HUD projects are required to complete work orders timely.
Cause
The Organization did not have sufficient controls in place to ensure the timely completion of work orders as required by HUD.
Effect
Significant repairs could be delayed and repairs could be falsified or duplicated.
Recommendation
Management should review and enhance its internal controls and procedures over work orders to ensure they are completed on a timely basis.
Identification of repeat finding
The finding is not a repeat finding.
Auditor non-compliance code
S - Internal control deficiencies
Questioned costs
None
Finding resolution status
In process
Finding No. 2023-006: Verification of Tenant Assets (Significant Deficiency)
Statement of condition
Eligibility
During the year ended June 30, 2023, management did not perform a verification of tenant assets as part of tenant certification and recertification procedures.
Criteria
In accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, HUD projects are required to verify tenant assets to ensure appropriate subsidy calculations.
Cause
The Organization's tenants are multi-handicapped blind low-income adults. The cash accounts held by the tenants are maintained by the Sponsor on behalf of the tenants and therefore other assets are not verified.
Effect
Subsidy receipts could be overstated.
Recommendation
Management should review and enhance its certification and annual recertification procedures to include a verification of tenant assets.
Identification of repeat finding
The finding is a repeat of Finding No. 2022-008.
Auditor non-compliance code
S - Internal control deficiencies
Questioned costs
None
Finding resolution status
In process
Finding No. 2023-007: Replacement Reserves (Significant Deficiency)
Statement of condition
Special Tests and Provisions
For two months of the fiscal year, the monthly replacement reserve deposit was funded in the subsequent month.
The replacement reserve was underfunded by one month's deposit at June 30, 2023.
Criteria
The Regulatory Agreement requires a monthly deposit of $27 in the replacement reserve.
Cause
The monthly replacement reserve transfer was delayed by several days into the subsequent month due to it being on a set interval of time rather than on a monthly date. This late funding resulted in only 11 deposits being made during the year ended June 30, 2023.
Effect
Late deposits and underfunding of the replacement reserve could result in insufficient funds for repairs and replacements.
Recommendation
Management should review and enhance policies, procedures and internal controls to ensure that the replacement reserve deposits are made timely.
Identification of repeat finding
The finding is a repeat of Finding No. 2022-001.
Auditor non-compliance code
S - Internal control deficiencies
Questioned costs
None
Finding resolution status
Remediated subsequent to year-end.