Finding 2022-001 - U.S. Department of Housing and Urban Development, Mortgage Insurance Rental and Cooperative Housing for Moderate Income Families and Elderly, Market Interest Rate, CFDA #14.135
Statement of Condition: Internal control processes over financial accounting did not ensure that all transactions were properly recorded. Internal control processes over financial accounting did not ensure that key accounts were reconciled or reviewed on a periodic basis.
Criteria: The HUD Handbook 4370.2 REV-1, Chapter 2 requires the books and accounts to be complete and accurate. HUD Handbook 4370.2 REV-1, Chapter 2, Section 12 requires monthly reconciliations of all cash accounts. Additionally, 2 CFR Part 200 Section 200.302 Financial Management states that the financial management system of each non-federal entity must provide accurate, current, and complete disclosure of the financial results of each Federal award in accordance with the reporting requirements. Additionally, 2 CFR Part 200 Section 200.303(a), Internal Controls, requires that non-federal entities must establish and maintain effective internal controls over the federal award that provides reasonable assurance that the non-federal entity is managing the award in compliance with federal statutes, regulations and the terms and conditions.
Effect: Noncompliance with HUD and Uniform Guidance requirements and the possibility of undetected material misstatements and/or undetected misappropriation of assets.
Cause: Management oversight.
Context: An understanding of processes and internal controls was performed with the Corporation's management and tests were performed to determine if the processes and internal controls were implemented and effective. As part of this process we noted the following processes and internal controls were not effective and/or implemented. 1) Only two of the six bank accounts were reconciled. The outsourced bookkeeper only performed a bank reconciliation for the operating and security deposit cash accounts. 2) The accounts receivable, tenants and accounts receivable, HUD were not reconciled. 3) The monthly review process of the Corporation's financial information is not fully supported by evidence of such review.
Questioned Costs: N/A
Recommendation: We recommend management review/enhance its accounting and internal control procedures to ensure that all key accounts are reconciled and reviewed with supporting evidence of such review.
Views of Responsible Officials and Corrective Action Plan: Management agrees with the finding and will review the accounting and financial procedures, system of internal controls and policies.
Finding 2022-002 - U.S. Department of Housing and Urban Development, Mortgage Insurance Rental and Cooperative Housing for Moderate Income Families and Elderly, Market Interest Rate, CFDA #14.135
Statement of Condition: During the year ended December 31, 2022, supporting documentation was not available for all requested disbursements.
Criteria: The HUD Handbook 4370.2 REV-1, Chapter 2 Section 12 states 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 to make the disbursement. Checks must be approved by an individual authorized to approve checks.
Effect: Noncompliance with HUD regulations.
Cause: Management oversight.
Context: A sample of forty cash disbursements totaling $74,421 were tested to determine if the cash disbursements were in accordance with HUD Handbook 4370.2. Of the forty cash disbursements, one cash disbursement of $1,022 tested did not have supporting documentation, therefore were unable to be tested for compliance with HUD Handbook 4370.2 and deemed noncompliant. By extrapolating our identified error rate on cash disbursements tested that were noncompliant (1.38%) over the total population of cash disbursements for the year ended December 31, 2022 of $935,047, $12,904 of cash disbursements could be noncompliant based on the above error rate.
Questioned Costs: $12,904
Recommendation: We recommend that management ensure supporting documentation is maintained for all disbursements from project operations.
Views of Responsible Officials and Corrective Action Plan: Management acknowledges the requested disbursement did not have supporting documentation available. Management will ensure supporting documentation is maintained for all disbursements from project operations.
Finding 2022-003 - U.S. Department of Housing and Urban Development, Mortgage Insurance Rental and Cooperative Housing for Moderate Income Families and Elderly, Market Interest Rate, CFDA #14.135
Statement of Condition: During the year ended December 31, 2022, the Corporation did not make the required mortgage payments on the second mortgage or surplus cash note from available surplus cash at December 31, 2019 as defined by the Loan and Regulatory Agreements. Based on surplus cash of $69,197 at December 31, 2019, mortgage payments were due as follows: $62,277 of interest and principal on second mortgage and $5,190 of interest and principal on the surplus cash note.
Criteria: The Loan Agreement and the Regulatory Agreement with HUD requires the Corporation to distribute surplus cash as follows: 1) Payment of incentive performance fee of 3.82%; 2) 90% of the remaining balance to pay interest and principal on the second mortgage; 3) 75% of the remaining balance to pay interest and principal on the surplus cash note; 4) any remaining amount as a distribution to the sponsor.
Effect: Noncompliance with HUD regulations and mortgage default.
Cause: Calculation of surplus cash for December 31, 2019 was not made until 2021 and there was no cash available for payments.
Context: A test to compare the required mortgage payments to the actual mortgage payments was performed. Based on surplus cash of $69,197 at December 31, 2019, mortgage payments were due as follows: $62,277 of interest and principal on second mortgage and $5,190 of interest and principal on the surplus cash note.
Questioned Costs: $0
Recommendation: We recommend that management monitor the annual surplus cash and all required payments from any surplus cash.
Views of Responsible Officials and Corrective Action Plan: Management acknowledges the required mortgage and surplus cash note payments were not made. Management will submit a request to re-evaluate payments due based on no surplus cash available.
Finding 2022-004 - U.S. Department of Housing and Urban Development, Mortgage Insurance Rental and Cooperative Housing for Moderate Income Families and Elderly, Market Interest Rate, CFDA #14.135
Statement of Condition: The Corporation did not submit the data collection form and required reporting package to the Federal Audit Clearinghouse (FAC) for the year ended December 31, 2021 by the required due date.
Criteria: The Uniform Guidance, 2 CFR Part 200 Section 200.512(d), Report Submission, requires any non-federal entity that expends Federal awards which must be audited under Subpart F of 2 CFR to electronically submit to the FAC the data collection form and the reporting package described in 2 CFR Part 200 Section 200.512. The Uniform Guidance, 2 CFR Part 200 Section 200.512(a)(1), Report Submission, requires the data collection form and the reporting package described in 2 CFR Part 200 Section 200.512 to be submitted within the earlier of 30 calendar days after the receipt of the auditor's report(s) or nine months after the end of the audit period.
Effect: Noncompliance with Uniform Guidance regulations.
Cause: Limited available cash flow.
Context : A test was performed to review the two most recent fiscal year audits performed under the Uniform Guidance and the required data collection forms were submitted to the FAC by the required due dates to determine if the Corporation qualified as a low-risk auditee. For the year ended December 31, 2020, an audit was performed under the Uniform Guidance and the data collection form was submitted February 28, 2022 which is after the due date of September 30, 2021. For the year ended December 31, 2021, an audit was performed under the Uniform Guidance and the data collection form was submitted January 5, 2023 which is after the due date of September 30, 2022.
Questioned Costs: N/A
Recommendation: We recommend management ensure that the data collection forms are submitted electronically to the FAC each fiscal year going forward.
Views of Responsible Officials and Corrective Action Plan: Management acknowledges the data collection form for the years ended December 31, 2020 and 2021 were submitted late. The project was unable to pay the prior audit fees timely due to limited available cash flow causing a delay in the audits. Management will work to improve cash flow for timely payment of the required annual audits.
Finding 2022-005 - U.S. Department of Housing and Urban Development, Mortgage Insurance Rental and Cooperative Housing for Moderate Income Families and Elderly, Market Interest Rate, CFDA #14.135
Statement of Condition: The Corporation did not submit the annual financial report to HUD for the year ended December 31, 2021 by the required deadline.
Criteria: The Regulatory Agreement requires the Corporation to submit to HUD the annual financial report within 90 days following the end of each fiscal year.
Effect: Noncompliance with Regulatory Agreement, monetary penalties and default under the note and mortgage.
Cause: Limited available cash flow.
Context: A test was performed to review the prior year submission of the annual financial report to HUD was submitted to HUD within 90 days following the end of the prior fiscal year. For the year ended December 31, 2021, the annual financial report to HUD was submitted on November 3, 2022, which is after the due date of March 30, 2022.
Questioned Costs: N/A
Recommendation: We recommend management ensure that the annual financial reports to HUD are submitted by the required due dates.
Views of Responsible Officials and Corrective Action Plan: Management acknowledges the annual financial report to HUD for the year ended December 31, 2021 was submitted late. The project was unable to pay the prior audit fees timely due to limited available cash flow causing a delay in the audits. Management will work to improve cash flow for timely payment of the required annual audits.
Finding 2022-006 - U.S. Department of Housing and Urban Development, Mortgage Insurance Rental and Cooperative Housing for Moderate Income Families and Elderly, Market Interest Rate, CFDA #14.135
Statement of Condition: During the year ending December 31, 2022 a reserve for replacements request included an estimate of repairs for $18,925.89 which was approved by HUD. No expense for the related amount was recorded or paid by the Project for the amount approved by HUD, therefore, the funds received from the reserve for replacements were expended for purposes other than approved by HUD.
Criteria: The Regulatory Agreement requires disbursements from the reserve for replacements to be expended for HUD approved purposes.
Effect: Noncompliance with the Regulatory Agreement.
Cause: Management override of controls.
Context: A test was performed to verify withdrawals from the reserve for replacements were expended for the HUD approved expenditure. A HUD approved reserve for replacements withdrawal included an amount for $18,925.89 for estimated repairs and no expense was recorded or paid in the amount of $18,925.89. The operating cash account had a balance of $10,665 as of December 31, 2022, therefore, $8,260.89 of the reserve for replacement funds were expended for purposes other than approved by HUD.
Questioned Costs: $8,261
Recommendation: We recommend that management refund any reserve for replacements withdrawals that are not expended for the HUD approved purpose.
Views of Responsible Officials and Corrective Action Plan: Management acknowledges that no expense was recorded for the $18,925.89. Management will monitor HUD approved reserve for replacements withdrawals and that they are expended for approved items.
Finding 2022-001 - U.S. Department of Housing and Urban Development, Mortgage Insurance Rental and Cooperative Housing for Moderate Income Families and Elderly, Market Interest Rate, CFDA #14.135
Statement of Condition: Internal control processes over financial accounting did not ensure that all transactions were properly recorded. Internal control processes over financial accounting did not ensure that key accounts were reconciled or reviewed on a periodic basis.
Criteria: The HUD Handbook 4370.2 REV-1, Chapter 2 requires the books and accounts to be complete and accurate. HUD Handbook 4370.2 REV-1, Chapter 2, Section 12 requires monthly reconciliations of all cash accounts. Additionally, 2 CFR Part 200 Section 200.302 Financial Management states that the financial management system of each non-federal entity must provide accurate, current, and complete disclosure of the financial results of each Federal award in accordance with the reporting requirements. Additionally, 2 CFR Part 200 Section 200.303(a), Internal Controls, requires that non-federal entities must establish and maintain effective internal controls over the federal award that provides reasonable assurance that the non-federal entity is managing the award in compliance with federal statutes, regulations and the terms and conditions.
Effect: Noncompliance with HUD and Uniform Guidance requirements and the possibility of undetected material misstatements and/or undetected misappropriation of assets.
Cause: Management oversight.
Context: An understanding of processes and internal controls was performed with the Corporation's management and tests were performed to determine if the processes and internal controls were implemented and effective. As part of this process we noted the following processes and internal controls were not effective and/or implemented. 1) Only two of the six bank accounts were reconciled. The outsourced bookkeeper only performed a bank reconciliation for the operating and security deposit cash accounts. 2) The accounts receivable, tenants and accounts receivable, HUD were not reconciled. 3) The monthly review process of the Corporation's financial information is not fully supported by evidence of such review.
Questioned Costs: N/A
Recommendation: We recommend management review/enhance its accounting and internal control procedures to ensure that all key accounts are reconciled and reviewed with supporting evidence of such review.
Views of Responsible Officials and Corrective Action Plan: Management agrees with the finding and will review the accounting and financial procedures, system of internal controls and policies.
Finding 2022-002 - U.S. Department of Housing and Urban Development, Mortgage Insurance Rental and Cooperative Housing for Moderate Income Families and Elderly, Market Interest Rate, CFDA #14.135
Statement of Condition: During the year ended December 31, 2022, supporting documentation was not available for all requested disbursements.
Criteria: The HUD Handbook 4370.2 REV-1, Chapter 2 Section 12 states 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 to make the disbursement. Checks must be approved by an individual authorized to approve checks.
Effect: Noncompliance with HUD regulations.
Cause: Management oversight.
Context: A sample of forty cash disbursements totaling $74,421 were tested to determine if the cash disbursements were in accordance with HUD Handbook 4370.2. Of the forty cash disbursements, one cash disbursement of $1,022 tested did not have supporting documentation, therefore were unable to be tested for compliance with HUD Handbook 4370.2 and deemed noncompliant. By extrapolating our identified error rate on cash disbursements tested that were noncompliant (1.38%) over the total population of cash disbursements for the year ended December 31, 2022 of $935,047, $12,904 of cash disbursements could be noncompliant based on the above error rate.
Questioned Costs: $12,904
Recommendation: We recommend that management ensure supporting documentation is maintained for all disbursements from project operations.
Views of Responsible Officials and Corrective Action Plan: Management acknowledges the requested disbursement did not have supporting documentation available. Management will ensure supporting documentation is maintained for all disbursements from project operations.
Finding 2022-003 - U.S. Department of Housing and Urban Development, Mortgage Insurance Rental and Cooperative Housing for Moderate Income Families and Elderly, Market Interest Rate, CFDA #14.135
Statement of Condition: During the year ended December 31, 2022, the Corporation did not make the required mortgage payments on the second mortgage or surplus cash note from available surplus cash at December 31, 2019 as defined by the Loan and Regulatory Agreements. Based on surplus cash of $69,197 at December 31, 2019, mortgage payments were due as follows: $62,277 of interest and principal on second mortgage and $5,190 of interest and principal on the surplus cash note.
Criteria: The Loan Agreement and the Regulatory Agreement with HUD requires the Corporation to distribute surplus cash as follows: 1) Payment of incentive performance fee of 3.82%; 2) 90% of the remaining balance to pay interest and principal on the second mortgage; 3) 75% of the remaining balance to pay interest and principal on the surplus cash note; 4) any remaining amount as a distribution to the sponsor.
Effect: Noncompliance with HUD regulations and mortgage default.
Cause: Calculation of surplus cash for December 31, 2019 was not made until 2021 and there was no cash available for payments.
Context: A test to compare the required mortgage payments to the actual mortgage payments was performed. Based on surplus cash of $69,197 at December 31, 2019, mortgage payments were due as follows: $62,277 of interest and principal on second mortgage and $5,190 of interest and principal on the surplus cash note.
Questioned Costs: $0
Recommendation: We recommend that management monitor the annual surplus cash and all required payments from any surplus cash.
Views of Responsible Officials and Corrective Action Plan: Management acknowledges the required mortgage and surplus cash note payments were not made. Management will submit a request to re-evaluate payments due based on no surplus cash available.
Finding 2022-004 - U.S. Department of Housing and Urban Development, Mortgage Insurance Rental and Cooperative Housing for Moderate Income Families and Elderly, Market Interest Rate, CFDA #14.135
Statement of Condition: The Corporation did not submit the data collection form and required reporting package to the Federal Audit Clearinghouse (FAC) for the year ended December 31, 2021 by the required due date.
Criteria: The Uniform Guidance, 2 CFR Part 200 Section 200.512(d), Report Submission, requires any non-federal entity that expends Federal awards which must be audited under Subpart F of 2 CFR to electronically submit to the FAC the data collection form and the reporting package described in 2 CFR Part 200 Section 200.512. The Uniform Guidance, 2 CFR Part 200 Section 200.512(a)(1), Report Submission, requires the data collection form and the reporting package described in 2 CFR Part 200 Section 200.512 to be submitted within the earlier of 30 calendar days after the receipt of the auditor's report(s) or nine months after the end of the audit period.
Effect: Noncompliance with Uniform Guidance regulations.
Cause: Limited available cash flow.
Context : A test was performed to review the two most recent fiscal year audits performed under the Uniform Guidance and the required data collection forms were submitted to the FAC by the required due dates to determine if the Corporation qualified as a low-risk auditee. For the year ended December 31, 2020, an audit was performed under the Uniform Guidance and the data collection form was submitted February 28, 2022 which is after the due date of September 30, 2021. For the year ended December 31, 2021, an audit was performed under the Uniform Guidance and the data collection form was submitted January 5, 2023 which is after the due date of September 30, 2022.
Questioned Costs: N/A
Recommendation: We recommend management ensure that the data collection forms are submitted electronically to the FAC each fiscal year going forward.
Views of Responsible Officials and Corrective Action Plan: Management acknowledges the data collection form for the years ended December 31, 2020 and 2021 were submitted late. The project was unable to pay the prior audit fees timely due to limited available cash flow causing a delay in the audits. Management will work to improve cash flow for timely payment of the required annual audits.
Finding 2022-005 - U.S. Department of Housing and Urban Development, Mortgage Insurance Rental and Cooperative Housing for Moderate Income Families and Elderly, Market Interest Rate, CFDA #14.135
Statement of Condition: The Corporation did not submit the annual financial report to HUD for the year ended December 31, 2021 by the required deadline.
Criteria: The Regulatory Agreement requires the Corporation to submit to HUD the annual financial report within 90 days following the end of each fiscal year.
Effect: Noncompliance with Regulatory Agreement, monetary penalties and default under the note and mortgage.
Cause: Limited available cash flow.
Context: A test was performed to review the prior year submission of the annual financial report to HUD was submitted to HUD within 90 days following the end of the prior fiscal year. For the year ended December 31, 2021, the annual financial report to HUD was submitted on November 3, 2022, which is after the due date of March 30, 2022.
Questioned Costs: N/A
Recommendation: We recommend management ensure that the annual financial reports to HUD are submitted by the required due dates.
Views of Responsible Officials and Corrective Action Plan: Management acknowledges the annual financial report to HUD for the year ended December 31, 2021 was submitted late. The project was unable to pay the prior audit fees timely due to limited available cash flow causing a delay in the audits. Management will work to improve cash flow for timely payment of the required annual audits.
Finding 2022-006 - U.S. Department of Housing and Urban Development, Mortgage Insurance Rental and Cooperative Housing for Moderate Income Families and Elderly, Market Interest Rate, CFDA #14.135
Statement of Condition: During the year ending December 31, 2022 a reserve for replacements request included an estimate of repairs for $18,925.89 which was approved by HUD. No expense for the related amount was recorded or paid by the Project for the amount approved by HUD, therefore, the funds received from the reserve for replacements were expended for purposes other than approved by HUD.
Criteria: The Regulatory Agreement requires disbursements from the reserve for replacements to be expended for HUD approved purposes.
Effect: Noncompliance with the Regulatory Agreement.
Cause: Management override of controls.
Context: A test was performed to verify withdrawals from the reserve for replacements were expended for the HUD approved expenditure. A HUD approved reserve for replacements withdrawal included an amount for $18,925.89 for estimated repairs and no expense was recorded or paid in the amount of $18,925.89. The operating cash account had a balance of $10,665 as of December 31, 2022, therefore, $8,260.89 of the reserve for replacement funds were expended for purposes other than approved by HUD.
Questioned Costs: $8,261
Recommendation: We recommend that management refund any reserve for replacements withdrawals that are not expended for the HUD approved purpose.
Views of Responsible Officials and Corrective Action Plan: Management acknowledges that no expense was recorded for the $18,925.89. Management will monitor HUD approved reserve for replacements withdrawals and that they are expended for approved items.