Audit 352519

Section III - Federal Award Findings and Questioned Costs Finding 2024-001: Significant Deficiency in Internal Controls over Compliance - Residual Receipts Federal Program: Project Based Rental Assistance (PBRA) (Section 8 Project-Based Cluster) Assistance Listing Number: 14.195 Federal Agency: U.S. Department of Housing and Urban Development Pass-through Agency: N/A Compliance Requirement: Special Tests and Provisions, Residual Receipts Account Questioned Costs: N/A Criteria: Notice H-2012-14 (the Notice), issued by the U.S. Department of Housing and Urban Development (HUD) on August 3, 2012, states that residual receipts account balances in-excess-of $250 per unit must be applied monthly to offset HAP up to the full amount of the monthly subsidy request and must continue until the residual receipts account reaches a balance of $250 per unit. At the end of the project's fiscal year, all surplus cash remaining after payment of any permissible distributions must be deposited into the project's residual receipt account. Condition/Context: On April 1, 2024, the balance of the residual receipts account balance exceeded the $12,500 allowable based upon the Notice ($250 x 50 Units = $12,500) by $42,633. At that time, the Company was required to submit HUD-9250 forms requesting residual receipts account distributions to offset rent subsidy payments each month until the residual receipts balance did not exceed $12,500. The Company did not request the required HAP offsets until September 3, 2024, as a result, the Company received rent subsidy payments of $4,755 from HUD that should have been offset by excess residual receipts deposits in 2024. At December 31, 2024, residual receipts exceeded $12,500 by $42,662, of which $37,907 related to the bank failing to disburse HUD approved HAP offsets that reduced rent subsidies for November and December prior to year end. Effect: The Company received $4,755 of HAP payments from HUD that should have been offset by the excess residual receipts deposits in 2024. Additionally, the balance in the residual receipts account exceeded the $12,500 allowable at December 31, 2024. Cause: The internal controls established by the Company to monitor compliance with HUD compliance requirements failed to detect noncompliance with requirement of the Notice. In part, the internal control failure was caused by turnover of key employees during the year ended December 31, 2024. Recommendation: We recommend that management implement procedures to ensure that even when the Company experiences turnover of key staff, to ensure monitoring of compliance with HUD requirements continues. View of Responsible Officials: Management of the Company agrees with this finding.

Section III - Federal Award Findings and Questioned Costs Finding 2024-001: Significant Deficiency in Internal Controls over Compliance - Residual Receipts Federal Program: Project Based Rental Assistance (PBRA) (Section 8 Project-Based Cluster) Assistance Listing Number: 14.195 Federal Agency: U.S. Department of Housing and Urban Development Pass-through Agency: N/A Compliance Requirement: Special Tests and Provisions, Residual Receipts Account Questioned Costs: N/A Criteria: Notice H-2012-14 (the Notice), issued by the U.S. Department of Housing and Urban Development (HUD) on August 3, 2012, states that residual receipts account balances in-excess-of $250 per unit must be applied monthly to offset HAP up to the full amount of the monthly subsidy request and must continue until the residual receipts account reaches a balance of $250 per unit. At the end of the project's fiscal year, all surplus cash remaining after payment of any permissible distributions must be deposited into the project's residual receipt account. Condition/Context: On April 1, 2024, the balance of the residual receipts account balance exceeded the $12,500 allowable based upon the Notice ($250 x 50 Units = $12,500) by $42,633. At that time, the Company was required to submit HUD-9250 forms requesting residual receipts account distributions to offset rent subsidy payments each month until the residual receipts balance did not exceed $12,500. The Company did not request the required HAP offsets until September 3, 2024, as a result, the Company received rent subsidy payments of $4,755 from HUD that should have been offset by excess residual receipts deposits in 2024. At December 31, 2024, residual receipts exceeded $12,500 by $42,662, of which $37,907 related to the bank failing to disburse HUD approved HAP offsets that reduced rent subsidies for November and December prior to year end. Effect: The Company received $4,755 of HAP payments from HUD that should have been offset by the excess residual receipts deposits in 2024. Additionally, the balance in the residual receipts account exceeded the $12,500 allowable at December 31, 2024. Cause: The internal controls established by the Company to monitor compliance with HUD compliance requirements failed to detect noncompliance with requirement of the Notice. In part, the internal control failure was caused by turnover of key employees during the year ended December 31, 2024. Recommendation: We recommend that management implement procedures to ensure that even when the Company experiences turnover of key staff, to ensure monitoring of compliance with HUD requirements continues. View of Responsible Officials: Management of the Company agrees with this finding.