Criteria: Per Financial Operations and Accounting Procedures For Insured Handbook 4370.2, Chapter 2: Financial Operations and Accounting: 2-3 Maintenance of Books and Accounts B states that “Books and accounts must be complete and accurate. The books of original entry must be kept current at all times, and postings must be made a least monthly to ledger accounts. Standard journal entries may be established for recurring items and posted monthly.”
Condition: As a result of our audit, we proposed thirty-seven (37) audit adjusting entries to correct the books as originally provided to us for audit. Most of these adjustments proposed were material to the financial statements. Adjustments were necessary for basis areas such as due from the owner, replacement reserve, insurance escrow MIP escrow, fixed assets, accumulated depreciation, accounts payable, accrued wages payable, accrued payroll taxes, net assets, revenue, and expenses.
Cause: Management Agent did not properly reconcile the statement of financial positions accounts (balance sheet) on a monthly basis. It appears that there is no systematic method of ensuring that timely and complete monthly reconciliation and closing procedures take place. This situation leads to a continuing and growing backlog of transactions and journal entries that are not posted into the accounting system, which renders the accounting information virtually useless in making well-informed business decisions. This accounting function disorganization will ultimately cause significant errors in the financial records and financial statements as well as allow for possible irregularities, including fraud, to exist and continue without notice.
Effect: The Project audited financial statements were not performed on a timely basis. The audit financial statements are due nine months and/or September 30, 2022. Also, many of the statements of financial position accounts (“balance sheet accounts”) were materially misstated.
Recommendation: It is important to reconcile subsidiary ledgers or supporting schedules to the general ledger to ensure the accuracy of financial information and minimize the risk of misstatement or misappropriation. We strongly recommend that a policy be implemented whereby all subsidiary ledgers and/or supporting schedules are reconciled to the general ledger on a monthly basis. We also recommend that appropriate management-level personnel review the reconciliations for accuracy and document evidence of their review for audit purposes.
Views of Responsible Officials and Corrective Action Plan: No disagreements with the audit finding.
Criteria: Per Financial Operations and Accounting Procedures for Insured Handbook 4370.20, Chapter 2. Financial Operations and Accounting 2-2 Objective of the HUD- Prescribed Accounting System General Objectives of the HUD accounting system include “Reporting on all financial transactions using HUD guidelines and Generally Accepted Accounting Principles (GAAP).” Per Financial Operations and Accounting Procedures for Insured Handbook 4370.20, Chapter 2. Maintenance of Books and Account 2-3, “Book and accounts must be complete and accurate. The books of the original entry must be kept current at all times, posting must be made at least monthly to ledger accounts. Standard journal entries may be established for recurring items and posted monthly.
Condition: The Project’s general ledger is currently maintained on the cash basis of accounting and accrual adjustments are performed at year-end to convert the cash basis of accounting to the accrual basis of accounting. The accrual basis is the method of accounting where revenues are recognized when earned and expenses are recognized when incurred. We understand that maintaining the general ledger on the accrual basis of accounting is more difficult than using the cash basis. However, the accrual basis provides more meaningful financial information to management and complies with generally accepted accounting principles. Failure to maintain the Project’s general ledger on the accrual basis of accounting distorts the interim financial statements and may lead to critical financial decisions being made on erroneous data.
Cause: The Project books and records are kept on the cash basis of accounting which is not generally accepted accounting principles.
Effect: During our testing of cash disbursements, we noted that the majority of the expenditures are recorded when paid as opposed to when the transactions are incurred. The majority of expenditures are recorded one month to three months after the transactions are incurred. During our testing of Accounts Receivable for Tennant and HUD and Revenue, we noted the Rent Potential on an accrued basis.is unrecorded on a monthly basis. The monthly rental income is recorded when rent income is deposited. At year-end, there is no Detail Schedule for 1130 Tenant Accounts Receivable and 1135 Accounts Receivable-HUD. In summary, the majority of the audit adjustment entries were to convert the books and records to the accrual basis of accounting.
Recommendation: We recommend that the Project implement the use of accrual basis accounting and utilize QuickBooks Accounts Payable Module to record vendor’s invoices as Accounts Payable and make payments We also recommend that the Owner hire a Management Agent Company that has the dual capacity to perform the HUD property management and HUD accounting functions.
Views of Responsible Officials and Corrective Action Plan: No disagreements with the audit finding.
Criteria: Per Financial Operations and Accounting Procedures for Insured Handbook 4370.20, Chapter 2. Maintenance of Books and Account 2-3, “Book and accounts must be complete and accurate.”
Condition: During the testing of the Cash Operating bank reconciliation as of December 31, 2021, we noted that the 1121 Operating Cash per book-$27,441.81 does not agree with the reconciliation balance-$19,056.41. A difference of $8,385.40
.
Cause: This is caused by not agreeing the Cash Operating per book to bank reconciliation, An investigation must be performed correct the cash balance.
Recommendation: We recommend that the Project investigate why the Cash Operating balance per book does not agree with the bank reconciliation.
Views of Responsible Officials and Corrective Action Plan: No disagreements with the audit finding.
Criteria: Per Financial Operations and Accounting Procedures for Insured Handbook 4370.20, Chapter 2. Maintenance of Books and Account 2-3, “Book and accounts must be complete and accurate.”
Condition: The Project did not provide the Resident Balance By Fiscal Period-December 31, 2021 to reconcile to the 1130 Tenant Receivable, 1130 Accounts Receivable HUD, 2210 Prepaid Revenue, and 2191 Tenant Deposit Held in Trust (Contra). The Resident Balance by Fiscal Period is the subsidiary ledger for the accounts noted.
Criteria: Per Financial Operations and Accounting Procedures for Insured Handbook 4370.20, Chapter 2. Maintenance of Books and Account 2-3, “Book and accounts must be complete and accurate.”
Effect: The Project accounts noted were not reconciled to Resident Balance By Fiscal Period as of December 31, 2021 to determine the proper account balances.
Recommendation: We recommend that the Management Agent establish policy and procedures to reconcile the Resident Balance by Fiscal Period on a monthly basis to the following accounts to determine a complete and accurate account balance:
5. 1130 Tenant Accounts Receivable.
6. 1135 Accounts Receivable-HUD.
7. 2210 Prepaid Revenue.
8. 2191 Tenant Deposit Held in Trust (Contra).
Views of Responsible Officials and Corrective Action Plan: No disagreements with the audit finding.
Criteria:
Per The Management Agent Handbook 4381.5, REV-2, CHG-2, Section 1: Management Fees and Review Requirements,” Fee derived from project income (residentials commercial, and miscellaneous) must be quoted and calculated as a percentage of the amount of income collected by the agent. Multiplying the fee percentage by the Income collected gives the actual amount of fee paid to the agent. This requirement serves two purposes:
1) It gives the agent an incentive to maximize collections.
2) It automatically increases the agent’s potential fee yield as project rents increase. These increases help offset increases in the agent’s cost due to inflation.
Condition: Management Agent fees are paid basis on the Yield CAP -$59,184. The 5% of resident income collected fee is noted in the Project Owner’s Certification of Owner-Managed Multifamily Housing Projects dated October 13, 2016. The Yield CAP is established so the Management Fee basis on collections does not exceed the Yield CAP. The Management Agent does not attach to monthly payment of the Management Fee a Schedule of Resident Income Collected to compute to the Management Fee to support the payment of the Management Fee.
Cause: The Project did not follow the HUD directive regarding the calculated Management Fee as a percentage of the amount of income collected by the agent.
Effect: Management Agent did not follow HUD directive for computation of Management Fees.
Criteria: Per Financial Operations and Accounting Procedures for Insured Handbook 4370.20, Chapter 2. Financial Operations and Accounting 2-12 Cash Management Controls-B Disbursement Controls, are the following disbursement controls:
1. A request for a check must have supporting documentation (i.e., invoice itemizing amount requested with an authorized signature) in order for approval to be obtained top to make the disbursements.
2. Checks must be approved by individual; authorized to approve checks.
3. The authorized check signer should review supporting documentation before signing checks.
4. Supporting vouchers shall be marked cancelled to prevent resubmission.
5. A monthly reconciliation shall be performed to ensure that all outstanding checks disbursed are accounted for (i.e., cashed, outstanding, or void).
6. Invoices should be marked “paid” and the check number and date should be posted to the invoice. Supporting vouchers shall also be marked “paid” to prevent resubmission.
Condition: During our testing of cash disbursements, we noted the following:
1. Vendor’s invoice is unavailable for examination purposes. 24 (twenty-four) exceptions were noted
2. No approval note or accounts number & account description noted on vendor’s invoices per all vendors’ invoices. 15 (fifteen ) exceptions were noted.
3. Cancelled check was unavailable for examination purposes. 40 (forty) exceptions were noted.
Effect: The Management Agent did not follow HUD Disbursement Control procedures.
Recommendation: We recommend the following:
1. Management Agent follows HUD Disbursements Control procedures.
2. The review of canceled checks is impossible under this account, which greatly weakens internal controls over cash. The Management Agent make arrangements with their bank to have scanned canceled checks as an attachment to the online bank statements. The ability to review all canceled checks is critically important to maintaining a strong system of cash controls.
3. Utilized the Accounts Payable system in QuickBooks to record vendors’ invoices and make payments.
Views of Responsible Officials and Corrective Action Plan: No disagreements with the audit finding.
Criteria: Per HUD Handbook Multifamily Asset Management and Project Servicing (4350.01), Chapter 21-4 Section 2. Required Insurance For All HUD-Assisted and HUD-Held Multifamily Projects, “HUD Insured and HUD-Held Projects. Throughout the life of the mortgage insurance contract, the mortgagee of a HUD-insured project (or the Field Office Loan Management Branch Chief for a HUD-held project) must assure that the mortgagor maintains fire and other hazard (as determined by HUD) insurance on the property pledged as security for the loan.
Condition: During our testing of the Management Function, the Project could not provide general and liability insurance policies to assure that the Project maintains fire and hazard insurance on the property pledged as security for the loan.
Cause: Due to staff turnover, general & liability policies could not be located for testing of insurance coverage of the property.
Effect: The test of insurance could not be performed to determine whether liability coverage is sufficient with Chapter 21 of HUD Handbook 4350.1.
Recommendation: We recommend that the Project provide general & liability policies to determine liability coverage of the property during the audit period.
Views of Responsible Officials and Corrective Action Plan: No disagreements with the audit finding.
Criteria: The owner or management agent must obtain a fidelity bond in accordance with HUD Handbook 4381.5 The Management Agent Handbook Section 2. Procedures For HUD Approval of Management Agent 2.14 Bonding Requirement for Agents. The owner or the management agent must be insured for at least the value of two months’ gross potential income for the project.
Condition: During the testing of fidelity bond insurance coverage, we noted that the Project could not provide support for fidelity bond coverage for at least the value of two months’ gross potential income for the Project.
Cause: Due to staff turnover, the fidelity bond coverage for the proper coverage of two months’ gross potential income could not be located.
Effect: The test to determine whether the owner has obtained a fidelity bond in accordance with Chapter 2.14 of HUD Handbook 4381.5 could not be performed.
Recommendation: We recommend that the Project contact its fidelity bond company to determine if the Project has coverage for two months’ gross potential income during the audit period.
Views of Responsible Officials and Corrective Action Plan: No disagreements with the audit finding.
Criteria: Per the Compliance Requirement, “Owner shall not, without the prior written consent of HUD, convey, assign, transfer, dispose of, or encumber any of the mortgaged property or permit the conveyance, transfer, or encumbrance of such property.
Condition: The Corporation entered into a Paycheck Protection Program Loans (‘PPP”) for $71,645. The PPP loan was not forgiven due to not applying for forgiveness and/or not providing the banks' documentation needed to complete the forgiveness applications. Due to the PPP loan not being approved by HUD, payment of principal and interest of the PPPs cannot be paid with current Project funds. Therefore, a PPP loan is an Unauthorized Acquisitions of Liabilities
Cause: Due to the turnover of the Management Agent-Owner, there were no procedures in place to monitor and/or apply for the PPP Loan Forgiveness Applicant.
Effect: As of December 31, 2021, the PPP Loans totaling $71,645 are not unforgiven and must be repaid by the Corporation and not out of the Project’s contract rents.
Recommendation: We recommend that the Corporation contact Cross River Bank-$71,645 requesting PPP loan forgiveness due to financial hardship and/or submit the PPP Loan Forgiveness Application.
Views of Responsible Officials and Corrective Action Plan: No disagreements with the audit finding.
Criteria: Per the Compliance Requirement, “Owner shall not, without the prior written consent of HUD, convey, assign, transfer, dispose of, or encumber any of the mortgaged property or permit the conveyance, transfer, or encumbrance of such property.
Condition, The Corporation without written consent from HUD and/or approval from HUD enter into a line of credit of $40,000 with PNC bank.
Cause: The Corporation did not follow HUD directive regarding applying for a loan without prior written consent from HUD,
Effect: The Corporation is liable to pay the line of credit as of December 31, 2021 in the amount of $40,202.62 and cannot use the Project funds to pay-off the line of credit.
Recommendation: We recommend that the Corporation pay-off the line of credit with its own funds and not of the Projects.
Views of Responsible Officials and Corrective Action Plan: No disagreements with the audit finding.
Criteria: Payroll transactions are in conformance with 2 CFR part 200. The Payroll charge is supported by personnel activity reports e.g., payroll journals, payroll cash requirements, time and attendance records, and salary distribution reports for nonprofit organizations.
Condition: During our testing of Payroll, we noted Project terminated payroll service with QuickBooks as of the last payroll period ending 4/25/2021 and utilized a manual payroll and the payroll services from ADP for the remainder of the 2021 calendar year. The payroll cost for the period 7/1/2021 through 12/44/2021 was recorded basis on the bank debits. Therefore, the payroll cost was not allocated in the Project’s books and records by account number & description per HUD’s Chart of Accounts but was recorded as Payroll Expenses-$7,543.98, Taxes-$30,366.02, & Wages -$81,958.66 totaling $119,868.66 of unallocated payroll.
Also, the Project could not provide ADP payroll reports for the payroll period in question. To correct this, we utilized the payroll period ending 4/25/2021 to estimate the allocation of the payroll cost from 7/2021 through 12/24/2021 and 12/31/2021 accrued payroll and taxes.
Effect: The Project could not provide personnel activity reports for the period 7/2021 through 12/22/2021 and 12/31/2021 accrual payroll and taxes and payroll cost per the books and records cannot be reconciled to the quarterly Form 941 Federal Employment Tax Returns.
Cause Due to the turnover of Management Agent personnel, the Project’s personnel activity reports were unavailable for examination purposes.
Recommendation: We recommend that Project contact ADP to obtain the missing personnel report for the period 7/1/2021 through 3/31/2022.
Criteria: Per the Compliance Requirements-Procurement and Suspension and Debarment-Compliance Requirement-Procurement, “Use the micro-purchase and small purchase methods only for procurements that meet the applicable criteria under 2 CFR section 200.329(a) and (b). Under the micro-purchase method, the aggregate dollar amount does not exceed $10,000 ($2,000 in case of acquisitions for construction subject to Wage Rate Requirement (Davis-Bacon Act)). Small purchase procedures are used for purchases that exceed the micro-purchase amount but do not exceed the simplified acquisition threshold. Micro-purchases may be awarded without soliciting competitive quotations if the non-federal entity considers the price to be reasonable (2 CFR section 200.32 (a). If small purchase procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources (CFR section 200.320 (b)). “
Condition: For the procurement of small purchases over $10,000, the Management Agent did not obtain price or rate quotations from an adequate number of qualified sources for the following procurements per the Uniform Guidance for a security vendor for the amount of $131,808.
Effect: The Project did not follow small purchase procedures set forth in Compliance Requirements-Procurement.
Cause: Due to the turnover of Management Agent personnel, the documentation to support small purchases was unavailable and/or not performed.
Recommendation: We recommend that the Project follows a small purchase method for procurement that exceeds $10,000.
Views of Responsible Officials and Corrective Action Plan: No disagreements with the audit finding.
Criteria: Owners who participate in HUD’s rent subsidy programs are responsible for accepting applications, maintaining a waiting list, determining eligibility, calculating the tenant’s contribution toward rent and utilities, calculating subsidy, and recertifying the tenant annually in accordance with HUD requirements.
Condition: The Project did not provide documentation requests for Testing Tenants’ Eligibility.
Effect: The following Eligibility testing was not performed:
1. Tenant Move-In.
2. Tenant Move-Out
3. Certification and Recertification procedures.
4. Rejected Applicants
Cause: The Auditor submitted the request for documentation to the Project for Eligibility Test and was not provided.
Recommendation: We recommend that the Project follows the above criteria for HUD’s rent subsidy program by following the policies and procedures for Tenants’ Eligibility.
Views of Responsible Officials and Corrective Action Plan: No disagreements with the audit finding.
Criteria: The auditor should schedule out HAP payments for the current year and reconcile them to the amount recorded in the financial statements. The auditor will also determine whether the HAP payments requested on Form-52670 Housing Owners Certification and Application for Housing Payments agree with HAP Contract.
Condition: The Project did not provide the Housing Assistance Payments for the entire year for testing purposes. Therefore, the auditor's reliance on the ACH deposit received from HUD to determine the amount recorded in the financial statements,
Effect: The actual HAP billing for the audit period was not available for examination purposes.
Cause: The Project did not provide the twelve months of HAP billing requested.
Recommendation: The Project must follow provide record retention for HAP billing per the HUD.
Views of Responsible Officials and Corrective Action Plan: Do disagreements with the audit finding.
Criteria: Per the HUD Handbook 4381.5 Management Agent Chapter 4.7d Addressing Resident Service Requests/Complaints, Proper use of a Service system reflects a commitment by the owner/agent to respond effectively to resident concerns.
1) Owner/agent who implements an acceptable Service Request system can receive the following considerations from HUD. It should provide enough flexibility for residents to either write or phone in their concerns.
a) HUD will not become involved in situations involving resident complaints (with the exception of immediate health and safety threats) until the owner/agent has had 30 days from the date of the resident’s service request to present a written response to the concern.
b) HUD would consider evidence of proper implementation of a Service Request system as a strong positive factor when rating the agent’s resident/management relations during management reviews.
Condition: During the Testing of Work Orders, the Project could not provide a Detail Schedule for Work Orders for the period January 1, 2021 through December 31, 2021 for testing.
Cause: The Project did not follow HUD directives regarding proper implementation of a Service Request system.
Effect: The Project did not maintain the tenants’ written Service Request system.
Recommendation: We recommend that the Project maintain a proper Service Request system per HUD directive.
Views of Responsible Officials and Corrective Action Plan: No disagreements with the audit finding.
Criteria: Per Financial Operations and Accounting Procedures For Insured Handbook 4370.2, Chapter 2: Financial Operations and Accounting: 2-3 Maintenance of Books and Accounts B states that “Books and accounts must be complete and accurate. The books of original entry must be kept current at all times, and postings must be made a least monthly to ledger accounts. Standard journal entries may be established for recurring items and posted monthly.”
Condition: As a result of our audit, we proposed thirty-seven (37) audit adjusting entries to correct the books as originally provided to us for audit. Most of these adjustments proposed were material to the financial statements. Adjustments were necessary for basis areas such as due from the owner, replacement reserve, insurance escrow MIP escrow, fixed assets, accumulated depreciation, accounts payable, accrued wages payable, accrued payroll taxes, net assets, revenue, and expenses.
Cause: Management Agent did not properly reconcile the statement of financial positions accounts (balance sheet) on a monthly basis. It appears that there is no systematic method of ensuring that timely and complete monthly reconciliation and closing procedures take place. This situation leads to a continuing and growing backlog of transactions and journal entries that are not posted into the accounting system, which renders the accounting information virtually useless in making well-informed business decisions. This accounting function disorganization will ultimately cause significant errors in the financial records and financial statements as well as allow for possible irregularities, including fraud, to exist and continue without notice.
Effect: The Project audited financial statements were not performed on a timely basis. The audit financial statements are due nine months and/or September 30, 2022. Also, many of the statements of financial position accounts (“balance sheet accounts”) were materially misstated.
Recommendation: It is important to reconcile subsidiary ledgers or supporting schedules to the general ledger to ensure the accuracy of financial information and minimize the risk of misstatement or misappropriation. We strongly recommend that a policy be implemented whereby all subsidiary ledgers and/or supporting schedules are reconciled to the general ledger on a monthly basis. We also recommend that appropriate management-level personnel review the reconciliations for accuracy and document evidence of their review for audit purposes.
Views of Responsible Officials and Corrective Action Plan: No disagreements with the audit finding.
Criteria: Per Financial Operations and Accounting Procedures for Insured Handbook 4370.20, Chapter 2. Financial Operations and Accounting 2-2 Objective of the HUD- Prescribed Accounting System General Objectives of the HUD accounting system include “Reporting on all financial transactions using HUD guidelines and Generally Accepted Accounting Principles (GAAP).” Per Financial Operations and Accounting Procedures for Insured Handbook 4370.20, Chapter 2. Maintenance of Books and Account 2-3, “Book and accounts must be complete and accurate. The books of the original entry must be kept current at all times, posting must be made at least monthly to ledger accounts. Standard journal entries may be established for recurring items and posted monthly.
Condition: The Project’s general ledger is currently maintained on the cash basis of accounting and accrual adjustments are performed at year-end to convert the cash basis of accounting to the accrual basis of accounting. The accrual basis is the method of accounting where revenues are recognized when earned and expenses are recognized when incurred. We understand that maintaining the general ledger on the accrual basis of accounting is more difficult than using the cash basis. However, the accrual basis provides more meaningful financial information to management and complies with generally accepted accounting principles. Failure to maintain the Project’s general ledger on the accrual basis of accounting distorts the interim financial statements and may lead to critical financial decisions being made on erroneous data.
Cause: The Project books and records are kept on the cash basis of accounting which is not generally accepted accounting principles.
Effect: During our testing of cash disbursements, we noted that the majority of the expenditures are recorded when paid as opposed to when the transactions are incurred. The majority of expenditures are recorded one month to three months after the transactions are incurred. During our testing of Accounts Receivable for Tennant and HUD and Revenue, we noted the Rent Potential on an accrued basis.is unrecorded on a monthly basis. The monthly rental income is recorded when rent income is deposited. At year-end, there is no Detail Schedule for 1130 Tenant Accounts Receivable and 1135 Accounts Receivable-HUD. In summary, the majority of the audit adjustment entries were to convert the books and records to the accrual basis of accounting.
Recommendation: We recommend that the Project implement the use of accrual basis accounting and utilize QuickBooks Accounts Payable Module to record vendor’s invoices as Accounts Payable and make payments We also recommend that the Owner hire a Management Agent Company that has the dual capacity to perform the HUD property management and HUD accounting functions.
Views of Responsible Officials and Corrective Action Plan: No disagreements with the audit finding.
Criteria: Per Financial Operations and Accounting Procedures for Insured Handbook 4370.20, Chapter 2. Maintenance of Books and Account 2-3, “Book and accounts must be complete and accurate.”
Condition: During the testing of the Cash Operating bank reconciliation as of December 31, 2021, we noted that the 1121 Operating Cash per book-$27,441.81 does not agree with the reconciliation balance-$19,056.41. A difference of $8,385.40
.
Cause: This is caused by not agreeing the Cash Operating per book to bank reconciliation, An investigation must be performed correct the cash balance.
Recommendation: We recommend that the Project investigate why the Cash Operating balance per book does not agree with the bank reconciliation.
Views of Responsible Officials and Corrective Action Plan: No disagreements with the audit finding.
Criteria: Per Financial Operations and Accounting Procedures for Insured Handbook 4370.20, Chapter 2. Maintenance of Books and Account 2-3, “Book and accounts must be complete and accurate.”
Condition: The Project did not provide the Resident Balance By Fiscal Period-December 31, 2021 to reconcile to the 1130 Tenant Receivable, 1130 Accounts Receivable HUD, 2210 Prepaid Revenue, and 2191 Tenant Deposit Held in Trust (Contra). The Resident Balance by Fiscal Period is the subsidiary ledger for the accounts noted.
Criteria: Per Financial Operations and Accounting Procedures for Insured Handbook 4370.20, Chapter 2. Maintenance of Books and Account 2-3, “Book and accounts must be complete and accurate.”
Effect: The Project accounts noted were not reconciled to Resident Balance By Fiscal Period as of December 31, 2021 to determine the proper account balances.
Recommendation: We recommend that the Management Agent establish policy and procedures to reconcile the Resident Balance by Fiscal Period on a monthly basis to the following accounts to determine a complete and accurate account balance:
5. 1130 Tenant Accounts Receivable.
6. 1135 Accounts Receivable-HUD.
7. 2210 Prepaid Revenue.
8. 2191 Tenant Deposit Held in Trust (Contra).
Views of Responsible Officials and Corrective Action Plan: No disagreements with the audit finding.
Criteria:
Per The Management Agent Handbook 4381.5, REV-2, CHG-2, Section 1: Management Fees and Review Requirements,” Fee derived from project income (residentials commercial, and miscellaneous) must be quoted and calculated as a percentage of the amount of income collected by the agent. Multiplying the fee percentage by the Income collected gives the actual amount of fee paid to the agent. This requirement serves two purposes:
1) It gives the agent an incentive to maximize collections.
2) It automatically increases the agent’s potential fee yield as project rents increase. These increases help offset increases in the agent’s cost due to inflation.
Condition: Management Agent fees are paid basis on the Yield CAP -$59,184. The 5% of resident income collected fee is noted in the Project Owner’s Certification of Owner-Managed Multifamily Housing Projects dated October 13, 2016. The Yield CAP is established so the Management Fee basis on collections does not exceed the Yield CAP. The Management Agent does not attach to monthly payment of the Management Fee a Schedule of Resident Income Collected to compute to the Management Fee to support the payment of the Management Fee.
Cause: The Project did not follow the HUD directive regarding the calculated Management Fee as a percentage of the amount of income collected by the agent.
Effect: Management Agent did not follow HUD directive for computation of Management Fees.
Criteria: Per Financial Operations and Accounting Procedures for Insured Handbook 4370.20, Chapter 2. Financial Operations and Accounting 2-12 Cash Management Controls-B Disbursement Controls, are the following disbursement controls:
1. A request for a check must have supporting documentation (i.e., invoice itemizing amount requested with an authorized signature) in order for approval to be obtained top to make the disbursements.
2. Checks must be approved by individual; authorized to approve checks.
3. The authorized check signer should review supporting documentation before signing checks.
4. Supporting vouchers shall be marked cancelled to prevent resubmission.
5. A monthly reconciliation shall be performed to ensure that all outstanding checks disbursed are accounted for (i.e., cashed, outstanding, or void).
6. Invoices should be marked “paid” and the check number and date should be posted to the invoice. Supporting vouchers shall also be marked “paid” to prevent resubmission.
Condition: During our testing of cash disbursements, we noted the following:
1. Vendor’s invoice is unavailable for examination purposes. 24 (twenty-four) exceptions were noted
2. No approval note or accounts number & account description noted on vendor’s invoices per all vendors’ invoices. 15 (fifteen ) exceptions were noted.
3. Cancelled check was unavailable for examination purposes. 40 (forty) exceptions were noted.
Effect: The Management Agent did not follow HUD Disbursement Control procedures.
Recommendation: We recommend the following:
1. Management Agent follows HUD Disbursements Control procedures.
2. The review of canceled checks is impossible under this account, which greatly weakens internal controls over cash. The Management Agent make arrangements with their bank to have scanned canceled checks as an attachment to the online bank statements. The ability to review all canceled checks is critically important to maintaining a strong system of cash controls.
3. Utilized the Accounts Payable system in QuickBooks to record vendors’ invoices and make payments.
Views of Responsible Officials and Corrective Action Plan: No disagreements with the audit finding.
Criteria: Per HUD Handbook Multifamily Asset Management and Project Servicing (4350.01), Chapter 21-4 Section 2. Required Insurance For All HUD-Assisted and HUD-Held Multifamily Projects, “HUD Insured and HUD-Held Projects. Throughout the life of the mortgage insurance contract, the mortgagee of a HUD-insured project (or the Field Office Loan Management Branch Chief for a HUD-held project) must assure that the mortgagor maintains fire and other hazard (as determined by HUD) insurance on the property pledged as security for the loan.
Condition: During our testing of the Management Function, the Project could not provide general and liability insurance policies to assure that the Project maintains fire and hazard insurance on the property pledged as security for the loan.
Cause: Due to staff turnover, general & liability policies could not be located for testing of insurance coverage of the property.
Effect: The test of insurance could not be performed to determine whether liability coverage is sufficient with Chapter 21 of HUD Handbook 4350.1.
Recommendation: We recommend that the Project provide general & liability policies to determine liability coverage of the property during the audit period.
Views of Responsible Officials and Corrective Action Plan: No disagreements with the audit finding.
Criteria: The owner or management agent must obtain a fidelity bond in accordance with HUD Handbook 4381.5 The Management Agent Handbook Section 2. Procedures For HUD Approval of Management Agent 2.14 Bonding Requirement for Agents. The owner or the management agent must be insured for at least the value of two months’ gross potential income for the project.
Condition: During the testing of fidelity bond insurance coverage, we noted that the Project could not provide support for fidelity bond coverage for at least the value of two months’ gross potential income for the Project.
Cause: Due to staff turnover, the fidelity bond coverage for the proper coverage of two months’ gross potential income could not be located.
Effect: The test to determine whether the owner has obtained a fidelity bond in accordance with Chapter 2.14 of HUD Handbook 4381.5 could not be performed.
Recommendation: We recommend that the Project contact its fidelity bond company to determine if the Project has coverage for two months’ gross potential income during the audit period.
Views of Responsible Officials and Corrective Action Plan: No disagreements with the audit finding.
Criteria: Per the Compliance Requirement, “Owner shall not, without the prior written consent of HUD, convey, assign, transfer, dispose of, or encumber any of the mortgaged property or permit the conveyance, transfer, or encumbrance of such property.
Condition: The Corporation entered into a Paycheck Protection Program Loans (‘PPP”) for $71,645. The PPP loan was not forgiven due to not applying for forgiveness and/or not providing the banks' documentation needed to complete the forgiveness applications. Due to the PPP loan not being approved by HUD, payment of principal and interest of the PPPs cannot be paid with current Project funds. Therefore, a PPP loan is an Unauthorized Acquisitions of Liabilities
Cause: Due to the turnover of the Management Agent-Owner, there were no procedures in place to monitor and/or apply for the PPP Loan Forgiveness Applicant.
Effect: As of December 31, 2021, the PPP Loans totaling $71,645 are not unforgiven and must be repaid by the Corporation and not out of the Project’s contract rents.
Recommendation: We recommend that the Corporation contact Cross River Bank-$71,645 requesting PPP loan forgiveness due to financial hardship and/or submit the PPP Loan Forgiveness Application.
Views of Responsible Officials and Corrective Action Plan: No disagreements with the audit finding.
Criteria: Per the Compliance Requirement, “Owner shall not, without the prior written consent of HUD, convey, assign, transfer, dispose of, or encumber any of the mortgaged property or permit the conveyance, transfer, or encumbrance of such property.
Condition, The Corporation without written consent from HUD and/or approval from HUD enter into a line of credit of $40,000 with PNC bank.
Cause: The Corporation did not follow HUD directive regarding applying for a loan without prior written consent from HUD,
Effect: The Corporation is liable to pay the line of credit as of December 31, 2021 in the amount of $40,202.62 and cannot use the Project funds to pay-off the line of credit.
Recommendation: We recommend that the Corporation pay-off the line of credit with its own funds and not of the Projects.
Views of Responsible Officials and Corrective Action Plan: No disagreements with the audit finding.
Criteria: Payroll transactions are in conformance with 2 CFR part 200. The Payroll charge is supported by personnel activity reports e.g., payroll journals, payroll cash requirements, time and attendance records, and salary distribution reports for nonprofit organizations.
Condition: During our testing of Payroll, we noted Project terminated payroll service with QuickBooks as of the last payroll period ending 4/25/2021 and utilized a manual payroll and the payroll services from ADP for the remainder of the 2021 calendar year. The payroll cost for the period 7/1/2021 through 12/44/2021 was recorded basis on the bank debits. Therefore, the payroll cost was not allocated in the Project’s books and records by account number & description per HUD’s Chart of Accounts but was recorded as Payroll Expenses-$7,543.98, Taxes-$30,366.02, & Wages -$81,958.66 totaling $119,868.66 of unallocated payroll.
Also, the Project could not provide ADP payroll reports for the payroll period in question. To correct this, we utilized the payroll period ending 4/25/2021 to estimate the allocation of the payroll cost from 7/2021 through 12/24/2021 and 12/31/2021 accrued payroll and taxes.
Effect: The Project could not provide personnel activity reports for the period 7/2021 through 12/22/2021 and 12/31/2021 accrual payroll and taxes and payroll cost per the books and records cannot be reconciled to the quarterly Form 941 Federal Employment Tax Returns.
Cause Due to the turnover of Management Agent personnel, the Project’s personnel activity reports were unavailable for examination purposes.
Recommendation: We recommend that Project contact ADP to obtain the missing personnel report for the period 7/1/2021 through 3/31/2022.
Criteria: Per the Compliance Requirements-Procurement and Suspension and Debarment-Compliance Requirement-Procurement, “Use the micro-purchase and small purchase methods only for procurements that meet the applicable criteria under 2 CFR section 200.329(a) and (b). Under the micro-purchase method, the aggregate dollar amount does not exceed $10,000 ($2,000 in case of acquisitions for construction subject to Wage Rate Requirement (Davis-Bacon Act)). Small purchase procedures are used for purchases that exceed the micro-purchase amount but do not exceed the simplified acquisition threshold. Micro-purchases may be awarded without soliciting competitive quotations if the non-federal entity considers the price to be reasonable (2 CFR section 200.32 (a). If small purchase procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources (CFR section 200.320 (b)). “
Condition: For the procurement of small purchases over $10,000, the Management Agent did not obtain price or rate quotations from an adequate number of qualified sources for the following procurements per the Uniform Guidance for a security vendor for the amount of $131,808.
Effect: The Project did not follow small purchase procedures set forth in Compliance Requirements-Procurement.
Cause: Due to the turnover of Management Agent personnel, the documentation to support small purchases was unavailable and/or not performed.
Recommendation: We recommend that the Project follows a small purchase method for procurement that exceeds $10,000.
Views of Responsible Officials and Corrective Action Plan: No disagreements with the audit finding.
Criteria: Owners who participate in HUD’s rent subsidy programs are responsible for accepting applications, maintaining a waiting list, determining eligibility, calculating the tenant’s contribution toward rent and utilities, calculating subsidy, and recertifying the tenant annually in accordance with HUD requirements.
Condition: The Project did not provide documentation requests for Testing Tenants’ Eligibility.
Effect: The following Eligibility testing was not performed:
1. Tenant Move-In.
2. Tenant Move-Out
3. Certification and Recertification procedures.
4. Rejected Applicants
Cause: The Auditor submitted the request for documentation to the Project for Eligibility Test and was not provided.
Recommendation: We recommend that the Project follows the above criteria for HUD’s rent subsidy program by following the policies and procedures for Tenants’ Eligibility.
Views of Responsible Officials and Corrective Action Plan: No disagreements with the audit finding.
Criteria: The auditor should schedule out HAP payments for the current year and reconcile them to the amount recorded in the financial statements. The auditor will also determine whether the HAP payments requested on Form-52670 Housing Owners Certification and Application for Housing Payments agree with HAP Contract.
Condition: The Project did not provide the Housing Assistance Payments for the entire year for testing purposes. Therefore, the auditor's reliance on the ACH deposit received from HUD to determine the amount recorded in the financial statements,
Effect: The actual HAP billing for the audit period was not available for examination purposes.
Cause: The Project did not provide the twelve months of HAP billing requested.
Recommendation: The Project must follow provide record retention for HAP billing per the HUD.
Views of Responsible Officials and Corrective Action Plan: Do disagreements with the audit finding.
Criteria: Per the HUD Handbook 4381.5 Management Agent Chapter 4.7d Addressing Resident Service Requests/Complaints, Proper use of a Service system reflects a commitment by the owner/agent to respond effectively to resident concerns.
1) Owner/agent who implements an acceptable Service Request system can receive the following considerations from HUD. It should provide enough flexibility for residents to either write or phone in their concerns.
a) HUD will not become involved in situations involving resident complaints (with the exception of immediate health and safety threats) until the owner/agent has had 30 days from the date of the resident’s service request to present a written response to the concern.
b) HUD would consider evidence of proper implementation of a Service Request system as a strong positive factor when rating the agent’s resident/management relations during management reviews.
Condition: During the Testing of Work Orders, the Project could not provide a Detail Schedule for Work Orders for the period January 1, 2021 through December 31, 2021 for testing.
Cause: The Project did not follow HUD directives regarding proper implementation of a Service Request system.
Effect: The Project did not maintain the tenants’ written Service Request system.
Recommendation: We recommend that the Project maintain a proper Service Request system per HUD directive.
Views of Responsible Officials and Corrective Action Plan: No disagreements with the audit finding.