Audit 354066

Finding # 2024-001 Federal Grantor: U.S. Department of Housing and Urban Development AL # / Program: 14.181 - Supportive Housing for Persons with Disabilities Type of Finding: Financial Statement Finding - Material Weaknesess in Internal Control Finding Resolution Status: In Process Information on Universe Population Size: N/A Sample size information: N/A Criteria: Nonfederal entities must establish internal control procedures such that there is a reasonable possibility that a material misstatement in the financial statements will be prevented, or detected and corrected on a timely basis. Statement of Condition / Context: During performance of audit procedures we noted insufficient processes and controls relating to the calculation of monthly gross rent potential and the recording of gross rent potential in the general ledger. We noted an unsubstantiated entry was recorded during the year ending June 30, 2023 for vacancies. We noted that in the Owner Certified financial statements submitted to HUD in the REAC FASSUB for the year ended June 30, 2024, there was an unsubstantiated entry for vacancies of $27,297. We noted a significant year end journal entry was recorded to adjust tenant rental income and tenant subsidy assistance income. Cause: Insufficient processes and inadequate design of internal controls over financial reporting. Effect or Potential Effect: The financial statements could be materially misstated. Auditor Non-Compliance Code: S - Internal control deficiencies Questioned Costs: No questioned costs associated with this finding. Recommendations: We recommend that Management implement a process whereby monthly gross rent potential is calculated monthly based on contract rents, including manager rent free unit and vacancies, if any. This calculation should be automated and subject to system checks in the Yardi Breeze application or similar property management software. The monthly gross rent potential should then be recorded timely, ideally the beginning of every month, in the general ledger. The entry should then be reviewed by an individual who did not prepare the monthly gross rent potential or prepare the journal entry prior to posting. Finding # 2024-001 (continued) Response Indicator: Agree Completion Date: 6/30/2025 Reporting Views of Responsible Officials and Planned Corrective Action: "By April 1, 2025, HCEB will implement a process whereby monthly gross rent potential is calculated monthly based on contract rents, including manager rent free unit and vacancies, if any. This calculation will be automated and subject to system checks in HCEB’s Yardi Breeze software, utilizing the following workflow: • Portfolio Assistant calculates the monthly gross rent potential within Yardi Breeze based on contract rents. • Portfolio Assistant will alert the General Ledger A/R accountant when the task is completed, and the General Ledger A/R accountant will download the information and will record in the general ledger. • Once the monthly gross rent potential general ledger entry is complete, it will be reviewed by the Controller or their designee. "

Finding # 2024-002 Federal Grantor: U.S. Department of Housing and Urban Development AL # / Program: 14.181 - Supportive Housing for Persons with Disabilities Type of Finding: Federal Award Finding - Activities Allowed or Unallowed and Special Tests and Provisions Finding Resolution Status: In Process Information on Universe Population Size: N/A Sample size information: N/A Criteria: Capital Advance Program Regulatory Agreement on form HUD-92466-CA paragraph 7. (d) prohibits the 'distribution of income or project assets'. Statement of Condition / Context: The project made interest payments using project funds from the operating account to the California Department of Housing and Community Development (HCD) totaling $4,034. The project made payments using project funds from the operating account for legal services of the Owner/Agent totaling $9,818. Owner/Agent should use funds in the Debt Service Reserve to pay the HCD annual payment. Legal services not directly benefiting the project should be paid by Owner/Agent funds. Cause: A lack of processes and controls over the use of project funds from the operating account allowed for project funds to pay Owner/Agent expenses. Effect or Potential Effect: The project is out of compliance with the Capital Advance Program Regulatory Agreement on form HUD-92466-CA. Auditor Non-Compliance Code: H - Unauthorized distribution of project assets Questioned Costs: $13,852 Recommendations: We recommend the Owner/Agent refund the project operating account the questioned costs and review its processes and controls over the use of project funds. Response Indicator: Agree Completion Date: 3/7/2025 Reporting Views of Responsible Officials: By March 7, 2025, HCEB will request HCD approval to refund the project operating account from the project debt service reserve account. Once HCD approval is received, the transfer will occur. Going forward, approval requests, payments, and transfers from the debt service reserve account will occur in Q4 of each fiscal year.

Finding # 2024-003 Federal Grantor: U.S. Department of Housing and Urban Development AL# / Program: 14.181 - Supportive Housing for Persons with Disabilities Type of Finding: Federal Award Finding - Activities Allowed or Unhallowed and Special Tests and Provisions Finding Resolution Status: In Process Information on Universe Population Size: N/A Sample size information: N/A Criteria: The Organization's disbursements must be supported by approved bills, invoices, or other supporting documentation in the name of the Project that demonstrate costs have a direct benefit, are specific and necessary, are reasonable, and not also charged to other grants or programs. Statement of Condition / Context: Audit fees paid to Armanino LLP were not supported by a contract in the name of the Project that demonstrated direct benefit to the Project and that fees were reasonable. Cause: Procurement policy and internal controls over procurement were insufficient to require a separate contract in the name of the Project that demonstrated direct benefit to the Project and that fees were reasonable. Effect or Potential Effect: The project is out of compliance with the Capital Advance Program Regulatory Agreement on form HUD-92466-CA. Auditor Non-Compliance Code: H - Unauthorized distribution of project assets Questioned Costs: $21,897 Recommendations: We recommend that Management review is procurement policy and internal controls over procurement to ensure disbursements are supported with adequate documentation. Response Indicator Agree Completion Date 6/30/2025 Reporting Views of Responsible Officials and Planned Corrective Action: Going forward, the LSH audit engagement letter will not include other entities.

Finding # 2024-004 Federal Grantor: U.S. Department of Housing and Urban Development AL# / Program: 14.181 - Supportive Housing for Persons with Disabilities Type of Finding: Federal Award Finding - Activates Allowed and Unallowed and Special Tests and Provisions Finding Resolution Status: In Process Information on Universe Population Size: N/A Sample size information: N/A Criteria: HUD Handbook 4381.5_Rev.2 - Chapter 3 identifies allowed management fees and special fees allowed to be paid. Management Agent has a HUD-9839-B that was for a fixed-term ending 8/31/2010. The allowed management percentage fee is 9.30% with a yield of $51.90 PUPM. In addition expenses for bookkeeping attributable to the Agent's company are paid out of the fee. HUD Multifamily West Region maximum fee per unit per month is $13. Statement of Condition / Context: Management fees paid to the management agent exceed the yield of $51.90 PUPM. Management has not obtained a renewed HUD-9839-B to support a yield of greater than $51.90 PUPM. Bookkeeping fee paid to agent exceeded the maximum fee per unit per month of $13. Cause: Internal controls over compliance are insufficient to maintain compliance with HUD Handbook 4.81.5_Rev.2 The design or operation of controls over the calculation and payment of allowed management fees are not sufficient to prevent or detect or correct unallowed payments. Effect or Potential Effect: The Project is not in compliance with the Housing for Persons with Disabilities Section 811 of the Housing Act of 1959 Regulatory Agreement. Auditor Non-Compliance Code: J - Unauthorized Management Fees. Questioned Costs: $17,616 Recommendations: We recommend that Management refund the overpayments and establish procedures to ensure that the management fees and bookkeeping fees do not exceed the maximum PUPM fee allowed by HUD. Response Indicator Agree Completion Date 3/7/2025 Reporting Views of Responsible Officials and Planned Corrective Action: HCEB will submit annual Management Agent Certifications reflecting the approved Property Management Fee annually once the PRAC budget is approved by HUD. For the current fiscal year, HCEB will submit the Management Agent Certification to HUD for approval by March 7, 2025.

Finding # 2024-005 Federal Grantor: U.S. Department of Housing and Urban Development AL # / Program: 14.181 - Supportive Housing for Persons with Disabilities Type of Finding: Federal Award - Eligibility Finding Resolution Status: In Process Information on Universe Population Size: Lincoln Street Housing, Inc. owns a project with a total of 10 units of supportive housing for persons with disabilities in Fremont. Sample size information: Audit procedures were performed on 3 tenant lease files. Criteria: Per HUD Handbook 4350.3, Chapter 7, Section 7-4A "Owners must obtain third-party verification directly from the third party source for the following items: (a) Annual income from wages, unemployment, and Social Security benefits, (b) Reported family annual income from sources not reporting income data to the EIV system". Statement of Condition / Context: Of the 3 files tested, noted 2 of the files did not have third party verification support for amounts listed on the Form HUD-50059 recertifications as required by HUD Handbooks and Regulations. Cause: Internal control over compliance with program compliance requirements are not operating effectively. Effect or Potential Effect: The Project is out of compliance with the Capital Advance Program Regulatory Agreement on form HUD-92466-CA. Auditor Non-Compliance Code: R - Section 8 Program Administration Questioned Costs: No questioned costs associated with this finding. Recommendations: Management to review HUD Handbook 4350.3, Chapter 7, Section 1, 7-4A and ensure that annual recertification are performed and maintained in tenant file. Response Indicator: Agree Completion Date: 6/30/2025 Reporting Views of Responsible Officials and Planned Corrective Action: By April 30, 2025, HCEB will engage A&E Housing Group to complete a file audit for the 10 units of supportive housing for persons with disabilities in Fremont in accordance with HUD Handbook 4350.3, Chapter 7, Section 1, 7-4A. All missing documents will be completed, reviewed, and signed by the households.

Finding # 2024-006 Federal Grantor: U.S. Department of Housing and Urban Development AL # / Program : 14.181 - Supportive Housing for Persons with Disabilities Type of Finding: Federal Award - Eligibility Finding Resolution Status: In Process Information on Universe Population Size: Lincoln Street Housing, Inc. owns a project with a total of 10 units of supportive housing for persons with disabilities in Fremont. Sample size information: Audit procedures were performed on 3 tenant lease files. Criteria: HUD Handbook 4350.3, Chapter 6, Section 1 Part 6-5B, "the head of household, spouse, any individual listed as co-head, and all adult members of the household must sign the lease, HUD issued lease addendums, and owner's lease addendums". Statement of Condition / Context: Of the 3 files tested, noted 2 files did not have all tenants listed on the lease and HUD addendums as required by HUD Handbook and Regulations. Cause: Internal control over compliance with program compliance requirements are not operating effectively. Effect or Potential Effect: The Project is out of compliance with the Capital Advance Program Regulatory Agreement on form HUD-92466-CA. Auditor Non-Compliance Code: R - Section 8 Program Administration Questioned Costs: No questioned costs associated with this finding. Recommendations: Management to review HUD Handbook 4350.3, Chapter 6, Section 1 6-5B and ensure that leases and addendums are performed and maintained in tenant file. Response Indicator: Agree Completion Date: 6/30/2025 Reporting Views of Responsible Officials and Planned Corrective Action: "By April 30, 2025, HCEB will engage A&E Housing Group to complete a file audit for the 10 units of supportive housing for persons with disabilities in Fremont in accordance with HUD Handbook 4350.3, Chapter 6, Section 1 6-5B. All tenants will be listed on the leases and required HUD addendums. "

Finding # 2024-007 Federal Grantor: U.S. Department of Housing and Urban Development AL # / Program : 14.181 - Supportive Housing for Persons with Disabilities Type of Finding: Federal Award - Eligibility - Material Weakness Finding Resolution Status: In Process Information on Universe Population Size: N/A Sample size information: N/A Criteria: Form HUD-52670 must contain accurate tenant information based on HUD Handbooks and Regulations. Statement of Condition / Context: The July 2023 form HUD-52670 submitted to HUD contained tenant eligibility information and calculated assistance payment information that was incomplete or unsubstantiated. Cause: Internal control over compliance with program compliance requirements are not operating effectively. Effect or Potential Effect: The effect is material non-compliance with HUD Handbooks and Regulations and the program listed above. Auditor Non-Compliance Code: R - Section 8 Program Administration Questioned Costs: $6,202 Recommendations: We recommend management review the current internal control procedures and implement additional procedures to ensure annual recertifications are performed as required by HUD. Response Indicator: Agree Completion Date: 6/30/2025 Reporting Views of Responsible Officials and Planned Corrective Action: "The June 2023 voucher was not correct when initially submitted. HCEB has attempted over the past 18 months to correct the June 2023 voucher, working closely with our Yardi support and HUD-SF team. Once the June 2023 voucher is paid, July 2023 and subsequent vouchers will be matched to Yardi records and submitted to TRACS processing. "

Finding # 2024-008 Federal Grantor: U.S. Department of Housing and Urban Development AL # / Program: 14.181 - Supportive Housing for Persons with Disabilities Type of Finding: Federal Award - Eligibility Finding Resolution Status: In Process Information on Universe Population Size: Lincoln Street Housing, Inc. owns a project with a total of 10 units of supportive housing for persons with disabilities in Fremont. Sample size information: Audit procedures were performed on 3 tenant lease files. Criteria: Per HUD Handbook 4350.3, Chapter 7, Section 1, 7-4A "Owners must conduct a recertification of family income and composition at least annually." Statement of Condition / Context: Of the 3 files tested, noted 1 file was missing the required annual recertification for the period under audit as required by HUD Handbook and Regulations. Cause: Internal control over compliance with program compliance requirements are not operating effectively. Effect or Potential Effect: The Project is out of compliance with the Capital Advance Program Regulatory Agreement on form HUD-92466-CA. Auditor Non-Compliance Code: R - Section 8 Program Administration Questioned Costs: No questioned costs associated with this finding. Recommendations: We recommend the owner/agent review its policies and procedures to ensure that annual recertification are performed and maintained in tenant file. Response Indicator: Agree Completion Date: 6/30/2025 Reporting Views of Responsible Officials and Planned Corrective Action: The file in question contained completed recertification forms that were missing tenant signatures. HCEB will obtain signatures and place the recertification forms into the tenant file. All future completed recertifications will include tenant signatures.

Finding # 2024-009 Federal Grantor: U.S. Department of Housing and Urban Development AL # / Program: 14.181 - Supportive Housing for Persons with Disabilities Type of Finding: Federal Award - Eligibility Finding Resolution Status: In Process Information on Universe Population Size: Lincoln Street Housing, Inc. owns a project with a total of 10 units of supportive housing for persons with disabilities in Fremont. Sample size information: Audit procedures were performed on 3 tenant lease files. Criteria: The PHA or owner must provide housing that is decent, safe, and sanitary. To achieve this end, the PHA must perform housing quality inspections at the time of initial occupancy and at least annually thereafter to ensure that the units are decent, safe, and sanitary (24 CFR sections 880.612, 881.601, 882.516, 882.808(n), 883.701, 884.217, 886.123, and 886.323). Statement of Condition / Context: Of the 3 files test, all 3 files were missing documentation that annual unit inspections occurred as required by HUD Handbooks and Regulations. Cause: Internal control over compliance with program compliance requirements are not operating effectively. Effect or Potential Effect: The Project is out of compliance with the Capital Advance Program Regulatory Agreement on form HUD-92466-CA. Auditor Non-Compliance Code: R - Section 8 Program Administration Questioned Costs: No questioned costs associated with this finding. Recommendations: We recommend the Owner/Agent review controls over compliance with unit inspection requirements. Response Indicator: Agree Completion Date: 6/30/2025 Reporting Views of Responsible Officials and Planned Corrective Action: "Annual inspections for FY2024 were not completed. FY2025 inspections were completed in August 2024, and annual inspections were completed annually prior to FY 2024. Inspections will continue to be completed annually going forward. "

Finding # 2024-010 Federal Grantor: U.S. Department of Housing and Urban Development AL # / Program : 14.181 - Supportive Housing for Persons with Disabilities Type of Finding: Federal Award - Eligibility Finding Resolution Status: In Process Information on Universe Population Size: Lincoln Street Housing, Inc. owns a project with a total of 10 units of supportive housing for persons with disabilities in Fremont. Sample size information: Audit procedures were performed on 3 tenant lease files. Criteria: HUD Handbook 4350.3, Rev-1, Chg.4, Chapter 9, 9-9 A-C, requires owners/agents to maintain Enterprise Income Verification (EIV) reports in tenant files to demonstrate owners/agents compliance with EIV usage. Statement of Condition / Context: Of the 3 files test, all 3 files were missing the required EIV reports and it was unclear if the EIV reports were ran at the time of recertification as required by HUD Handbooks and Regulations. Cause: Internal control over compliance with program compliance requirements are not operating effectively. Effect or Potential Effect: The Project is out of compliance with the Capital Advance Program Regulatory Agreement on form HUD-92466-CA. Auditor Non-Compliance Code: R - Section 8 Program Administration Questioned Costs: No questioned costs associated with this finding. Recommendations: We recommend the Owner/Agent review controls over compliance with the EIV reporting requirements. Response Indicator: Agree Completion Date: 6/30/2025 Reporting Views of Responsible Officials and Planned Corrective Action: EIV reports for LSH were inconsistently run in FY 2024. Moving forward, EIV reports will be run monthly and during annual and interim recertifications. The Portfolio Assistant will complete Rules of Behavior for Use of EIV certification and will be responsible for completing this task, effective March 1, 2025.

Finding # 2024-011 Repeat finding: Repeat of prior year finding 2023-001 Federal Grantor: U.S. Department of Housing and Urban Development AL # / Program: 14.181 - Supportive Housing for Persons with Disabilities Type of Finding: Federal Award Finding - Special Tests and Provisions Finding Resolution Status: In Process Information on Universe Population Size: Project is required to make twelve (12) monthly deposits to the reserve for replacements of $3,000. Sample size information: Tests were performed on the 12 required monthly deposits. Project is delinquent on all 12 required monthly deposits totaling $36,000. Criteria: The Housing for Persons with Disabilities Section 811 of the Housing Act of 1959 Regulatory Agreement signed by the Project on September 13, 2005 and changed by HUD-95250 dated December 2, 2022 requires the Project to make twelve (12) monthly deposits to the reserve for replacements of $3,000. Statement of Condition / Context: The Project is not in compliance with the Housing for Persons with Disabilities Section 811 of the Housing Act of 1959 Regulatory Agreement. Cause: A deficiency in controls over compliance with the compliance requirements in the Housing for Persons with Disabilities Section 811 of the Housing Act of 1959 Regulatory Agreement. Effect or Potential Effect: The Project is not in compliance with the Housing for Persons with Disabilities Section 811 of the Housing Act of 1959 Regulatory Agreement. Auditor Non-Compliance Code: N - Reserve for Replacements deposits Questioned Costs: No questioned costs associated with this finding. Recommendations: We recommend that Management review their controls over compliance with the compliance requirements in the Housing for Persons with Disabilities Section 811 of the Housing Act of 1959 Regulatory Agreement. Response Indicator: Agree Completion Date: 5/31/2025 Reporting Views of Responsible Officials and Planned Corrective Action: "HCEB will engage A&E Housing Group to review HCEB's controls over compliance in accordance with the Project's Housing for Persons with Disabilities Section 811 of the Housing Act of 1959 Regulatory Agreement. Internal controls will be documented and monitored by the HCEB Asset Manager by May 31, 2025. "

Finding # 2024-001 Federal Grantor: U.S. Department of Housing and Urban Development AL # / Program: 14.181 - Supportive Housing for Persons with Disabilities Type of Finding: Financial Statement Finding - Material Weaknesess in Internal Control Finding Resolution Status: In Process Information on Universe Population Size: N/A Sample size information: N/A Criteria: Nonfederal entities must establish internal control procedures such that there is a reasonable possibility that a material misstatement in the financial statements will be prevented, or detected and corrected on a timely basis. Statement of Condition / Context: During performance of audit procedures we noted insufficient processes and controls relating to the calculation of monthly gross rent potential and the recording of gross rent potential in the general ledger. We noted an unsubstantiated entry was recorded during the year ending June 30, 2023 for vacancies. We noted that in the Owner Certified financial statements submitted to HUD in the REAC FASSUB for the year ended June 30, 2024, there was an unsubstantiated entry for vacancies of $27,297. We noted a significant year end journal entry was recorded to adjust tenant rental income and tenant subsidy assistance income. Cause: Insufficient processes and inadequate design of internal controls over financial reporting. Effect or Potential Effect: The financial statements could be materially misstated. Auditor Non-Compliance Code: S - Internal control deficiencies Questioned Costs: No questioned costs associated with this finding. Recommendations: We recommend that Management implement a process whereby monthly gross rent potential is calculated monthly based on contract rents, including manager rent free unit and vacancies, if any. This calculation should be automated and subject to system checks in the Yardi Breeze application or similar property management software. The monthly gross rent potential should then be recorded timely, ideally the beginning of every month, in the general ledger. The entry should then be reviewed by an individual who did not prepare the monthly gross rent potential or prepare the journal entry prior to posting. Finding # 2024-001 (continued) Response Indicator: Agree Completion Date: 6/30/2025 Reporting Views of Responsible Officials and Planned Corrective Action: "By April 1, 2025, HCEB will implement a process whereby monthly gross rent potential is calculated monthly based on contract rents, including manager rent free unit and vacancies, if any. This calculation will be automated and subject to system checks in HCEB’s Yardi Breeze software, utilizing the following workflow: • Portfolio Assistant calculates the monthly gross rent potential within Yardi Breeze based on contract rents. • Portfolio Assistant will alert the General Ledger A/R accountant when the task is completed, and the General Ledger A/R accountant will download the information and will record in the general ledger. • Once the monthly gross rent potential general ledger entry is complete, it will be reviewed by the Controller or their designee. "

Finding # 2024-002 Federal Grantor: U.S. Department of Housing and Urban Development AL # / Program: 14.181 - Supportive Housing for Persons with Disabilities Type of Finding: Federal Award Finding - Activities Allowed or Unallowed and Special Tests and Provisions Finding Resolution Status: In Process Information on Universe Population Size: N/A Sample size information: N/A Criteria: Capital Advance Program Regulatory Agreement on form HUD-92466-CA paragraph 7. (d) prohibits the 'distribution of income or project assets'. Statement of Condition / Context: The project made interest payments using project funds from the operating account to the California Department of Housing and Community Development (HCD) totaling $4,034. The project made payments using project funds from the operating account for legal services of the Owner/Agent totaling $9,818. Owner/Agent should use funds in the Debt Service Reserve to pay the HCD annual payment. Legal services not directly benefiting the project should be paid by Owner/Agent funds. Cause: A lack of processes and controls over the use of project funds from the operating account allowed for project funds to pay Owner/Agent expenses. Effect or Potential Effect: The project is out of compliance with the Capital Advance Program Regulatory Agreement on form HUD-92466-CA. Auditor Non-Compliance Code: H - Unauthorized distribution of project assets Questioned Costs: $13,852 Recommendations: We recommend the Owner/Agent refund the project operating account the questioned costs and review its processes and controls over the use of project funds. Response Indicator: Agree Completion Date: 3/7/2025 Reporting Views of Responsible Officials: By March 7, 2025, HCEB will request HCD approval to refund the project operating account from the project debt service reserve account. Once HCD approval is received, the transfer will occur. Going forward, approval requests, payments, and transfers from the debt service reserve account will occur in Q4 of each fiscal year.

Finding # 2024-003 Federal Grantor: U.S. Department of Housing and Urban Development AL# / Program: 14.181 - Supportive Housing for Persons with Disabilities Type of Finding: Federal Award Finding - Activities Allowed or Unhallowed and Special Tests and Provisions Finding Resolution Status: In Process Information on Universe Population Size: N/A Sample size information: N/A Criteria: The Organization's disbursements must be supported by approved bills, invoices, or other supporting documentation in the name of the Project that demonstrate costs have a direct benefit, are specific and necessary, are reasonable, and not also charged to other grants or programs. Statement of Condition / Context: Audit fees paid to Armanino LLP were not supported by a contract in the name of the Project that demonstrated direct benefit to the Project and that fees were reasonable. Cause: Procurement policy and internal controls over procurement were insufficient to require a separate contract in the name of the Project that demonstrated direct benefit to the Project and that fees were reasonable. Effect or Potential Effect: The project is out of compliance with the Capital Advance Program Regulatory Agreement on form HUD-92466-CA. Auditor Non-Compliance Code: H - Unauthorized distribution of project assets Questioned Costs: $21,897 Recommendations: We recommend that Management review is procurement policy and internal controls over procurement to ensure disbursements are supported with adequate documentation. Response Indicator Agree Completion Date 6/30/2025 Reporting Views of Responsible Officials and Planned Corrective Action: Going forward, the LSH audit engagement letter will not include other entities.

Finding # 2024-004 Federal Grantor: U.S. Department of Housing and Urban Development AL# / Program: 14.181 - Supportive Housing for Persons with Disabilities Type of Finding: Federal Award Finding - Activates Allowed and Unallowed and Special Tests and Provisions Finding Resolution Status: In Process Information on Universe Population Size: N/A Sample size information: N/A Criteria: HUD Handbook 4381.5_Rev.2 - Chapter 3 identifies allowed management fees and special fees allowed to be paid. Management Agent has a HUD-9839-B that was for a fixed-term ending 8/31/2010. The allowed management percentage fee is 9.30% with a yield of $51.90 PUPM. In addition expenses for bookkeeping attributable to the Agent's company are paid out of the fee. HUD Multifamily West Region maximum fee per unit per month is $13. Statement of Condition / Context: Management fees paid to the management agent exceed the yield of $51.90 PUPM. Management has not obtained a renewed HUD-9839-B to support a yield of greater than $51.90 PUPM. Bookkeeping fee paid to agent exceeded the maximum fee per unit per month of $13. Cause: Internal controls over compliance are insufficient to maintain compliance with HUD Handbook 4.81.5_Rev.2 The design or operation of controls over the calculation and payment of allowed management fees are not sufficient to prevent or detect or correct unallowed payments. Effect or Potential Effect: The Project is not in compliance with the Housing for Persons with Disabilities Section 811 of the Housing Act of 1959 Regulatory Agreement. Auditor Non-Compliance Code: J - Unauthorized Management Fees. Questioned Costs: $17,616 Recommendations: We recommend that Management refund the overpayments and establish procedures to ensure that the management fees and bookkeeping fees do not exceed the maximum PUPM fee allowed by HUD. Response Indicator Agree Completion Date 3/7/2025 Reporting Views of Responsible Officials and Planned Corrective Action: HCEB will submit annual Management Agent Certifications reflecting the approved Property Management Fee annually once the PRAC budget is approved by HUD. For the current fiscal year, HCEB will submit the Management Agent Certification to HUD for approval by March 7, 2025.

Finding # 2024-005 Federal Grantor: U.S. Department of Housing and Urban Development AL # / Program: 14.181 - Supportive Housing for Persons with Disabilities Type of Finding: Federal Award - Eligibility Finding Resolution Status: In Process Information on Universe Population Size: Lincoln Street Housing, Inc. owns a project with a total of 10 units of supportive housing for persons with disabilities in Fremont. Sample size information: Audit procedures were performed on 3 tenant lease files. Criteria: Per HUD Handbook 4350.3, Chapter 7, Section 7-4A "Owners must obtain third-party verification directly from the third party source for the following items: (a) Annual income from wages, unemployment, and Social Security benefits, (b) Reported family annual income from sources not reporting income data to the EIV system". Statement of Condition / Context: Of the 3 files tested, noted 2 of the files did not have third party verification support for amounts listed on the Form HUD-50059 recertifications as required by HUD Handbooks and Regulations. Cause: Internal control over compliance with program compliance requirements are not operating effectively. Effect or Potential Effect: The Project is out of compliance with the Capital Advance Program Regulatory Agreement on form HUD-92466-CA. Auditor Non-Compliance Code: R - Section 8 Program Administration Questioned Costs: No questioned costs associated with this finding. Recommendations: Management to review HUD Handbook 4350.3, Chapter 7, Section 1, 7-4A and ensure that annual recertification are performed and maintained in tenant file. Response Indicator: Agree Completion Date: 6/30/2025 Reporting Views of Responsible Officials and Planned Corrective Action: By April 30, 2025, HCEB will engage A&E Housing Group to complete a file audit for the 10 units of supportive housing for persons with disabilities in Fremont in accordance with HUD Handbook 4350.3, Chapter 7, Section 1, 7-4A. All missing documents will be completed, reviewed, and signed by the households.

Finding # 2024-006 Federal Grantor: U.S. Department of Housing and Urban Development AL # / Program : 14.181 - Supportive Housing for Persons with Disabilities Type of Finding: Federal Award - Eligibility Finding Resolution Status: In Process Information on Universe Population Size: Lincoln Street Housing, Inc. owns a project with a total of 10 units of supportive housing for persons with disabilities in Fremont. Sample size information: Audit procedures were performed on 3 tenant lease files. Criteria: HUD Handbook 4350.3, Chapter 6, Section 1 Part 6-5B, "the head of household, spouse, any individual listed as co-head, and all adult members of the household must sign the lease, HUD issued lease addendums, and owner's lease addendums". Statement of Condition / Context: Of the 3 files tested, noted 2 files did not have all tenants listed on the lease and HUD addendums as required by HUD Handbook and Regulations. Cause: Internal control over compliance with program compliance requirements are not operating effectively. Effect or Potential Effect: The Project is out of compliance with the Capital Advance Program Regulatory Agreement on form HUD-92466-CA. Auditor Non-Compliance Code: R - Section 8 Program Administration Questioned Costs: No questioned costs associated with this finding. Recommendations: Management to review HUD Handbook 4350.3, Chapter 6, Section 1 6-5B and ensure that leases and addendums are performed and maintained in tenant file. Response Indicator: Agree Completion Date: 6/30/2025 Reporting Views of Responsible Officials and Planned Corrective Action: "By April 30, 2025, HCEB will engage A&E Housing Group to complete a file audit for the 10 units of supportive housing for persons with disabilities in Fremont in accordance with HUD Handbook 4350.3, Chapter 6, Section 1 6-5B. All tenants will be listed on the leases and required HUD addendums. "

Finding # 2024-007 Federal Grantor: U.S. Department of Housing and Urban Development AL # / Program : 14.181 - Supportive Housing for Persons with Disabilities Type of Finding: Federal Award - Eligibility - Material Weakness Finding Resolution Status: In Process Information on Universe Population Size: N/A Sample size information: N/A Criteria: Form HUD-52670 must contain accurate tenant information based on HUD Handbooks and Regulations. Statement of Condition / Context: The July 2023 form HUD-52670 submitted to HUD contained tenant eligibility information and calculated assistance payment information that was incomplete or unsubstantiated. Cause: Internal control over compliance with program compliance requirements are not operating effectively. Effect or Potential Effect: The effect is material non-compliance with HUD Handbooks and Regulations and the program listed above. Auditor Non-Compliance Code: R - Section 8 Program Administration Questioned Costs: $6,202 Recommendations: We recommend management review the current internal control procedures and implement additional procedures to ensure annual recertifications are performed as required by HUD. Response Indicator: Agree Completion Date: 6/30/2025 Reporting Views of Responsible Officials and Planned Corrective Action: "The June 2023 voucher was not correct when initially submitted. HCEB has attempted over the past 18 months to correct the June 2023 voucher, working closely with our Yardi support and HUD-SF team. Once the June 2023 voucher is paid, July 2023 and subsequent vouchers will be matched to Yardi records and submitted to TRACS processing. "

Finding # 2024-008 Federal Grantor: U.S. Department of Housing and Urban Development AL # / Program: 14.181 - Supportive Housing for Persons with Disabilities Type of Finding: Federal Award - Eligibility Finding Resolution Status: In Process Information on Universe Population Size: Lincoln Street Housing, Inc. owns a project with a total of 10 units of supportive housing for persons with disabilities in Fremont. Sample size information: Audit procedures were performed on 3 tenant lease files. Criteria: Per HUD Handbook 4350.3, Chapter 7, Section 1, 7-4A "Owners must conduct a recertification of family income and composition at least annually." Statement of Condition / Context: Of the 3 files tested, noted 1 file was missing the required annual recertification for the period under audit as required by HUD Handbook and Regulations. Cause: Internal control over compliance with program compliance requirements are not operating effectively. Effect or Potential Effect: The Project is out of compliance with the Capital Advance Program Regulatory Agreement on form HUD-92466-CA. Auditor Non-Compliance Code: R - Section 8 Program Administration Questioned Costs: No questioned costs associated with this finding. Recommendations: We recommend the owner/agent review its policies and procedures to ensure that annual recertification are performed and maintained in tenant file. Response Indicator: Agree Completion Date: 6/30/2025 Reporting Views of Responsible Officials and Planned Corrective Action: The file in question contained completed recertification forms that were missing tenant signatures. HCEB will obtain signatures and place the recertification forms into the tenant file. All future completed recertifications will include tenant signatures.

Finding # 2024-009 Federal Grantor: U.S. Department of Housing and Urban Development AL # / Program: 14.181 - Supportive Housing for Persons with Disabilities Type of Finding: Federal Award - Eligibility Finding Resolution Status: In Process Information on Universe Population Size: Lincoln Street Housing, Inc. owns a project with a total of 10 units of supportive housing for persons with disabilities in Fremont. Sample size information: Audit procedures were performed on 3 tenant lease files. Criteria: The PHA or owner must provide housing that is decent, safe, and sanitary. To achieve this end, the PHA must perform housing quality inspections at the time of initial occupancy and at least annually thereafter to ensure that the units are decent, safe, and sanitary (24 CFR sections 880.612, 881.601, 882.516, 882.808(n), 883.701, 884.217, 886.123, and 886.323). Statement of Condition / Context: Of the 3 files test, all 3 files were missing documentation that annual unit inspections occurred as required by HUD Handbooks and Regulations. Cause: Internal control over compliance with program compliance requirements are not operating effectively. Effect or Potential Effect: The Project is out of compliance with the Capital Advance Program Regulatory Agreement on form HUD-92466-CA. Auditor Non-Compliance Code: R - Section 8 Program Administration Questioned Costs: No questioned costs associated with this finding. Recommendations: We recommend the Owner/Agent review controls over compliance with unit inspection requirements. Response Indicator: Agree Completion Date: 6/30/2025 Reporting Views of Responsible Officials and Planned Corrective Action: "Annual inspections for FY2024 were not completed. FY2025 inspections were completed in August 2024, and annual inspections were completed annually prior to FY 2024. Inspections will continue to be completed annually going forward. "

Finding # 2024-010 Federal Grantor: U.S. Department of Housing and Urban Development AL # / Program : 14.181 - Supportive Housing for Persons with Disabilities Type of Finding: Federal Award - Eligibility Finding Resolution Status: In Process Information on Universe Population Size: Lincoln Street Housing, Inc. owns a project with a total of 10 units of supportive housing for persons with disabilities in Fremont. Sample size information: Audit procedures were performed on 3 tenant lease files. Criteria: HUD Handbook 4350.3, Rev-1, Chg.4, Chapter 9, 9-9 A-C, requires owners/agents to maintain Enterprise Income Verification (EIV) reports in tenant files to demonstrate owners/agents compliance with EIV usage. Statement of Condition / Context: Of the 3 files test, all 3 files were missing the required EIV reports and it was unclear if the EIV reports were ran at the time of recertification as required by HUD Handbooks and Regulations. Cause: Internal control over compliance with program compliance requirements are not operating effectively. Effect or Potential Effect: The Project is out of compliance with the Capital Advance Program Regulatory Agreement on form HUD-92466-CA. Auditor Non-Compliance Code: R - Section 8 Program Administration Questioned Costs: No questioned costs associated with this finding. Recommendations: We recommend the Owner/Agent review controls over compliance with the EIV reporting requirements. Response Indicator: Agree Completion Date: 6/30/2025 Reporting Views of Responsible Officials and Planned Corrective Action: EIV reports for LSH were inconsistently run in FY 2024. Moving forward, EIV reports will be run monthly and during annual and interim recertifications. The Portfolio Assistant will complete Rules of Behavior for Use of EIV certification and will be responsible for completing this task, effective March 1, 2025.

Finding # 2024-011 Repeat finding: Repeat of prior year finding 2023-001 Federal Grantor: U.S. Department of Housing and Urban Development AL # / Program: 14.181 - Supportive Housing for Persons with Disabilities Type of Finding: Federal Award Finding - Special Tests and Provisions Finding Resolution Status: In Process Information on Universe Population Size: Project is required to make twelve (12) monthly deposits to the reserve for replacements of $3,000. Sample size information: Tests were performed on the 12 required monthly deposits. Project is delinquent on all 12 required monthly deposits totaling $36,000. Criteria: The Housing for Persons with Disabilities Section 811 of the Housing Act of 1959 Regulatory Agreement signed by the Project on September 13, 2005 and changed by HUD-95250 dated December 2, 2022 requires the Project to make twelve (12) monthly deposits to the reserve for replacements of $3,000. Statement of Condition / Context: The Project is not in compliance with the Housing for Persons with Disabilities Section 811 of the Housing Act of 1959 Regulatory Agreement. Cause: A deficiency in controls over compliance with the compliance requirements in the Housing for Persons with Disabilities Section 811 of the Housing Act of 1959 Regulatory Agreement. Effect or Potential Effect: The Project is not in compliance with the Housing for Persons with Disabilities Section 811 of the Housing Act of 1959 Regulatory Agreement. Auditor Non-Compliance Code: N - Reserve for Replacements deposits Questioned Costs: No questioned costs associated with this finding. Recommendations: We recommend that Management review their controls over compliance with the compliance requirements in the Housing for Persons with Disabilities Section 811 of the Housing Act of 1959 Regulatory Agreement. Response Indicator: Agree Completion Date: 5/31/2025 Reporting Views of Responsible Officials and Planned Corrective Action: "HCEB will engage A&E Housing Group to review HCEB's controls over compliance in accordance with the Project's Housing for Persons with Disabilities Section 811 of the Housing Act of 1959 Regulatory Agreement. Internal controls will be documented and monitored by the HCEB Asset Manager by May 31, 2025. "