Finding No. 2022-001: Restricted Cash (Material Weakness) Statement of condition Special Tests and Provisions During the year ended June 30, 2022, management commingled replacement reserve deposits, tenant security deposits, and operating cash. For one month of the fiscal year, the monthly replacement reserve deposit was funded in the subsequent month. Security deposit funding liability was not properly tracked. Criteria In accordance with the HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, HUD projects are required to establish and maintain at all times fully funded, separate bank accounts in the name of the entity for all security deposits collected and for residual receipts deposits. The Organization is required a monthly deposit of $198 through September, and $207 commencing in September in the replacement reserve. Security deposits owed to tenants are required to be tracked for accurate financial and HUD reporting. Cause Certain tenant security deposits, replacement reserve deposits, and operating cash were commingled as of June 30, 2022. The Sponsor funds tenant security deposits and the deposits funded during the year were included within the amounts owed to the Sponsor instead of within the tenant security deposit liability. 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. Effect Management commingled certain tenant security deposits, replacement reserve deposits, and operating cash, resulting in the potential use of tenant security deposit cash or replacement reserve deposits to fund repairs or replacements without obtaining the required prior approval of HUD. Inaccurate tracking of the tenant security deposit liability could result in understated liability and improper refunding of tenant security deposits. Late deposits to the replacement reserve could result in underfunding of the replacement reserve. Recommendation Management should review and enhance policies, procedures and internal controls to ensure that all tenant security deposits and residual receipts deposits are segregated into separate, restricted cash accounts. Management should revisit its review procedures for tracking tenant security deposits and its timing schedule for making deposits to the replacement reserve. Identification of repeat finding The finding is a repeat of Finding No. 2021-001. Auditor non-compliance code D - Commingling funds Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will ensure that security deposits are tracked so they can be recorded accordingly when there is a move in and/or move out. Moving forward management will put in place controls to ensure that the calculation is done at the end of the fiscal year.
Finding No. 2022-002: Accounting for Debt (Material Weakness) Allowable costs Activities allowed or unallowed During the year ended June 30, 2022, principle, accrued interest, and interest expense on the HUD Section 202 Direct Loan (mortgage payable) and Community Development Block Grant (the residual receipts note payable) were not properly recorded, which resulted in the Schedule being inaccurately stated during the year. Criteria The Organization is required to have controls and procedures in place in order to properly account for principle, accrued interest, and interest expense on debt, as well as to properly and accurately present the Schedule. Cause The monthly payments of $2,661 on the HUD Section 202 Direct Loan (mortgage payable) are withheld by HUD from the monthly HAP contract rental assistance payments receipts. Management did not properly apply the withholding against interest for the year ended June 30, 2022. The HUD Community Development Block Grant (the residual receipts note payable) bears interest at a rate of 3% per annum and is payable from the residual receipts balance held by the Organization in connection with Section 202 HUD Direct Loan. At the end of each year, any unpaid, accrued interest on the note is converted to note principal. Management failed to convert the unpaid, accrued interest to principal and therefore did not record interest expense and accrued interest on the appropriate principal balance for the year ended June 30, 2022. Effect Management did not have sufficient controls and procedures in place in order to properly account for interest expense, accrued interest and interest payments on debt. The Schedule could be inaccurately reported to the federal government and HUD. Recommendation Management should review and enhance its controls and procedures for recording principle, accrued interest, and interest expense on the Organization's debt and therefore properly stating the Schedule. Identification of repeat finding The finding is a repeat of Finding No. 2021-002. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place controls and procedures to ensure principle, accrued interest, and interest expense on debt is properly accounted for and reported
Finding No. 2022-003: Financial Reporting (Material Weakness) Statement of condition Reporting The lack of appropriate policies, procedures, and internal processes led to untimely year end close and recording procedures, late filing of required reporting, and incomplete submissions of required data collection forms. 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 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 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 internal controls, 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 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. 2021-003. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place controls and procedures to ensure financial reporting is complete, accurate, and timely.
Finding No. 2022-004: Expense Allocations (Material Weakness) Statement of condition Allowable costs Activities allowed or unallowed Special tests and provisions Management has not reviewed its allocated costs calculations for accuracy and completeness of insurance and payroll costs incurred by the Organization. Criteria The Organization is required to have controls and procedures in place in order to accurately record costs incurred by the Organization. Cause Management did not have appropriate controls in place to review the allocation percentages for completeness and accuracy. Effect Out-of-date allocations could result in understated or overstated expenses and liabilities of the Organization, as well as theft. Recommendation Management should review and enhance its internal controls over payroll and insurance allocations to ensure the costs recorded by the Organization are representative of its share of the charges. Identification of repeat finding The finding is a repeat of Finding No. 2021-005. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place controls and procedures to annually evaluate the percentage of time staff dedicate to the organization to determine the correct allocation for payroll.
Finding No. 2022-005: Cash Disbursements and Classifications (Material Weakness) Statement of condition Allowable costs Activities allowed or unallowed During the year ended June 30, 2022, 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 properly classify certain expenditures between expense accounts; ? did not properly classify certain receipts among revenue 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 The Organization is required to maintain the books on a U.S. GAAP basis, including properly classified expenses and fixed assets, complete accrued expenditures, proper capitalization of fixed assets, and accurate recording of revenue, due to and from affiliates, and receivables. Cause Review procedures were not sufficient to ensure the Organization's books were maintained on a U.S. GAAP basis. Effect Failure to maintain the books on a U.S. GAAP basis 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 of expenses and fixed assets, complete accrued expenditures, proper capitalization of fixed assets, and accurate recording of revenue, due to and from affiliates, and receivables. Identification of repeat finding The finding is a repeat of Finding No. 2021-006. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will ensure that moving forward there are controls in place to ensure expenses are captured in the correct fiscal period and that at year end there is a final review of the transactions to ensure that everything is not only properly entered, but properly classified as well.
Finding No. 2022-006: Tenant File Maintenance (Material Weakness) Statement of condition Program Income In connection with the procedures applied to a sample of four tenant lease files, the Organization did not maintain the lead-based paint disclosure for all tenant lease files selected. 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. 2021-007. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put controls and procedures in place that ensure all tenant files are maintained in accordance with the HUD Handbook.
Finding No. 2022-007: Verification of Tenant Assets (Significant Deficiency) Statement of condition Program Income During the year ended June 30, 2022, 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 revisit 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. 2021-008. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place procedures to ensure verification of tenant assets is done during recertification.
Finding No. 2022-008: Work Order Log (Significant Deficiency) Statement of condition Activities allowed or unallowed During the year ended June 30, 2022, management did not maintain a log of work orders processed. Criteria HUD projects are required to maintain a log of work orders processed. Cause The Organization did not have a system in place to summarize and collect work orders for the fiscal year. Effect Significant repairs could be delayed and repairs could be falsified or duplicated. Recommendation Management should revisit and enhance its internal controls and procedures over work orders to ensure a log is maintained on a timely basis. Identification of repeat finding The finding is a repeat of Finding No. 2021-009. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status Remediated subsequent to year end. Reporting views of responsible officials and planned corrective actions Management put in place an electronic work order system that keeps track of the work orders for the property and has put controls in place to actively monitor the system to ensure appropriate repairs are being completed in a timely manner.
Finding No. 2022-001: Restricted Cash (Material Weakness) Statement of condition Special Tests and Provisions During the year ended June 30, 2022, management commingled replacement reserve deposits, tenant security deposits, and operating cash. For one month of the fiscal year, the monthly replacement reserve deposit was funded in the subsequent month. Security deposit funding liability was not properly tracked. Criteria In accordance with the HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, HUD projects are required to establish and maintain at all times fully funded, separate bank accounts in the name of the entity for all security deposits collected and for residual receipts deposits. The Organization is required a monthly deposit of $198 through September, and $207 commencing in September in the replacement reserve. Security deposits owed to tenants are required to be tracked for accurate financial and HUD reporting. Cause Certain tenant security deposits, replacement reserve deposits, and operating cash were commingled as of June 30, 2022. The Sponsor funds tenant security deposits and the deposits funded during the year were included within the amounts owed to the Sponsor instead of within the tenant security deposit liability. 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. Effect Management commingled certain tenant security deposits, replacement reserve deposits, and operating cash, resulting in the potential use of tenant security deposit cash or replacement reserve deposits to fund repairs or replacements without obtaining the required prior approval of HUD. Inaccurate tracking of the tenant security deposit liability could result in understated liability and improper refunding of tenant security deposits. Late deposits to the replacement reserve could result in underfunding of the replacement reserve. Recommendation Management should review and enhance policies, procedures and internal controls to ensure that all tenant security deposits and residual receipts deposits are segregated into separate, restricted cash accounts. Management should revisit its review procedures for tracking tenant security deposits and its timing schedule for making deposits to the replacement reserve. Identification of repeat finding The finding is a repeat of Finding No. 2021-001. Auditor non-compliance code D - Commingling funds Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will ensure that security deposits are tracked so they can be recorded accordingly when there is a move in and/or move out. Moving forward management will put in place controls to ensure that the calculation is done at the end of the fiscal year.
Finding No. 2022-002: Accounting for Debt (Material Weakness) Allowable costs Activities allowed or unallowed During the year ended June 30, 2022, principle, accrued interest, and interest expense on the HUD Section 202 Direct Loan (mortgage payable) and Community Development Block Grant (the residual receipts note payable) were not properly recorded, which resulted in the Schedule being inaccurately stated during the year. Criteria The Organization is required to have controls and procedures in place in order to properly account for principle, accrued interest, and interest expense on debt, as well as to properly and accurately present the Schedule. Cause The monthly payments of $2,661 on the HUD Section 202 Direct Loan (mortgage payable) are withheld by HUD from the monthly HAP contract rental assistance payments receipts. Management did not properly apply the withholding against interest for the year ended June 30, 2022. The HUD Community Development Block Grant (the residual receipts note payable) bears interest at a rate of 3% per annum and is payable from the residual receipts balance held by the Organization in connection with Section 202 HUD Direct Loan. At the end of each year, any unpaid, accrued interest on the note is converted to note principal. Management failed to convert the unpaid, accrued interest to principal and therefore did not record interest expense and accrued interest on the appropriate principal balance for the year ended June 30, 2022. Effect Management did not have sufficient controls and procedures in place in order to properly account for interest expense, accrued interest and interest payments on debt. The Schedule could be inaccurately reported to the federal government and HUD. Recommendation Management should review and enhance its controls and procedures for recording principle, accrued interest, and interest expense on the Organization's debt and therefore properly stating the Schedule. Identification of repeat finding The finding is a repeat of Finding No. 2021-002. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place controls and procedures to ensure principle, accrued interest, and interest expense on debt is properly accounted for and reported
Finding No. 2022-003: Financial Reporting (Material Weakness) Statement of condition Reporting The lack of appropriate policies, procedures, and internal processes led to untimely year end close and recording procedures, late filing of required reporting, and incomplete submissions of required data collection forms. 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 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 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 internal controls, 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 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. 2021-003. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place controls and procedures to ensure financial reporting is complete, accurate, and timely.
Finding No. 2022-004: Expense Allocations (Material Weakness) Statement of condition Allowable costs Activities allowed or unallowed Special tests and provisions Management has not reviewed its allocated costs calculations for accuracy and completeness of insurance and payroll costs incurred by the Organization. Criteria The Organization is required to have controls and procedures in place in order to accurately record costs incurred by the Organization. Cause Management did not have appropriate controls in place to review the allocation percentages for completeness and accuracy. Effect Out-of-date allocations could result in understated or overstated expenses and liabilities of the Organization, as well as theft. Recommendation Management should review and enhance its internal controls over payroll and insurance allocations to ensure the costs recorded by the Organization are representative of its share of the charges. Identification of repeat finding The finding is a repeat of Finding No. 2021-005. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place controls and procedures to annually evaluate the percentage of time staff dedicate to the organization to determine the correct allocation for payroll.
Finding No. 2022-005: Cash Disbursements and Classifications (Material Weakness) Statement of condition Allowable costs Activities allowed or unallowed During the year ended June 30, 2022, 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 properly classify certain expenditures between expense accounts; ? did not properly classify certain receipts among revenue 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 The Organization is required to maintain the books on a U.S. GAAP basis, including properly classified expenses and fixed assets, complete accrued expenditures, proper capitalization of fixed assets, and accurate recording of revenue, due to and from affiliates, and receivables. Cause Review procedures were not sufficient to ensure the Organization's books were maintained on a U.S. GAAP basis. Effect Failure to maintain the books on a U.S. GAAP basis 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 of expenses and fixed assets, complete accrued expenditures, proper capitalization of fixed assets, and accurate recording of revenue, due to and from affiliates, and receivables. Identification of repeat finding The finding is a repeat of Finding No. 2021-006. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will ensure that moving forward there are controls in place to ensure expenses are captured in the correct fiscal period and that at year end there is a final review of the transactions to ensure that everything is not only properly entered, but properly classified as well.
Finding No. 2022-006: Tenant File Maintenance (Material Weakness) Statement of condition Program Income In connection with the procedures applied to a sample of four tenant lease files, the Organization did not maintain the lead-based paint disclosure for all tenant lease files selected. 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. 2021-007. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put controls and procedures in place that ensure all tenant files are maintained in accordance with the HUD Handbook.
Finding No. 2022-007: Verification of Tenant Assets (Significant Deficiency) Statement of condition Program Income During the year ended June 30, 2022, 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 revisit 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. 2021-008. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place procedures to ensure verification of tenant assets is done during recertification.
Finding No. 2022-008: Work Order Log (Significant Deficiency) Statement of condition Activities allowed or unallowed During the year ended June 30, 2022, management did not maintain a log of work orders processed. Criteria HUD projects are required to maintain a log of work orders processed. Cause The Organization did not have a system in place to summarize and collect work orders for the fiscal year. Effect Significant repairs could be delayed and repairs could be falsified or duplicated. Recommendation Management should revisit and enhance its internal controls and procedures over work orders to ensure a log is maintained on a timely basis. Identification of repeat finding The finding is a repeat of Finding No. 2021-009. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status Remediated subsequent to year end. Reporting views of responsible officials and planned corrective actions Management put in place an electronic work order system that keeps track of the work orders for the property and has put controls in place to actively monitor the system to ensure appropriate repairs are being completed in a timely manner.