Audit 360895

Untimely Update of Tenant Rent Records in HUD 50059: Internal Control Weakness Impacting HUD Compliance Findings Resolution Status: In Process Information on Universe Population Size: 32 Tenants Sample Size Information: 5 Samples Auditor Non-Compliance Code Drop-Down: Eligibility Criteria: According to HUD regulations, property owners are required to maintain accurate and up-to-date rent records. This is essential for ensuring compliance with HUD's requirements and avoiding discrepancies that could lead to improper subsidy payments, audit findings, or regulatory noncompliance. Specifically, HUD Handbook 4350.3 outlines the need for accurate tenant rent records and rent calculations to accurately match with the HUD Form 50059. Additionally, HUD emphasizes the importance of timely updates to tenant rent records to reflect any changes in rent amounts. Failure to comply with these requirements, even for a short period, needs to be documented to ensure transparency and accountability. Condition: During eligibility testing, the following discrepancies were identified between HUD 50059 vs. Rent Roll as to: 1. HUD Assisted Payment and Tenant Rent: All of 5 tenant files reviewed contained discrepancies between the HUD-assisted payment amounts recorded on Form HUD 50059 and the subsidy amounts reflected on the rent roll. Additionally, 3 of these files showed inconsistencies between the tenant rent as stated on Form HUD-50059 and the resident rent reported on the rent roll. 2. Security Deposit- For 3 tenant files, the security deposit amounts indicated in the HUD 50059 forms were not reflected in the Rent Roll. Cause of Condition: The discrepancies were primarily due to: a) Insufficient review procedures to ensure consistency between Form 50059, Rent Roll and tenant files. b) Absence of internal controls or periodic reconciliations to identify and correct discrepancies. Potential Effect of Condition: Failure to maintain accurate tenant subsidy records in HUD Form 50059 may result in: - HUD non-compliance, which could trigger audit findings, corrective actions, or potential penalties. - Improper subsidy payments, leading to potential financial adjustments or repayments. Questioned costs: The auditors have identified questioned costs of $4,807 for annual rental subsidies. These questioned costs pertain only to the sample tested. Reporting Views of Responsible Officials: The Organization agrees with the findings and recommendations and will adhere to the corrective action plan. Context: All 5 selected samples for testing contained discrepancies in rent and subsidy amounts recorded on Form HUD-50059 compared to the Rent Roll, suggesting a 100% occurrence within the sample tested. This indicates a potential systemic issue rather than an isolated instance. The inconsistencies arose across multiple rent-related categories (tenant rent, HUD-assisted payments, and security deposits), reflecting a breakdown in reconciliation and review procedures. Recommendation: To address the identified discrepancies and improve compliance, we recommend the following actions: 1. Establish a Routine Reconciliation Process – Implement a structured process to regularly reconcile HUD-50059 forms with the rent roll, ensuring that subsidy amounts are accurate and promptly updated. 2. Enhance Internal Controls – Introduce stricter review and approval workflows for tenant eligibility documentation and rent roll updates to prevent inconsistencies. 3. Conduct Staff Training – Provide periodic training for staff on HUD compliance requirements and the importance of maintaining accurate tenant and rent records. 4. Implement Regular Audits – Schedule internal reviews and audits to detect and correct discrepancies early, reducing the risk of compliance issues. 5. Improve Documentation Procedures – Strengthen record-keeping policies to ensure that updates to subsidy amounts and rent adjustments are consistently documented and retained. By implementing these recommendations, the organization can enhance compliance, improve data accuracy, and reduce risks associated with subsidy discrepancies. Management Response: Management is currently conducting a comprehensive review of the process to ensure alignment with compliance requirements and identify areas for improvement.

Inadequate Controls over Tenant Selection and Waiting List Management: Internal Control Weakness Impacting HUD Compliance Findings Resolution Status: In Process Information on Universe Population Size: 32 Tenants Sample Size Information: 3 Samples Auditor Non-Compliance Code Drop-Down: Eligibility Criteria: - HUD Occupancy Handbook 4350.3 REV-1 (Chapter 4: Waiting List and Tenant Selection) Owners must develop a method to maintain documentation of the waiting list composition, application status, and actions taken. Once unit size and preference order are determined, owners must select applicants from the waiting list in chronological order to fill vacancies. - Ohio Housing Finance Agency (OHFA) Program Compliance Handbook – The marketing requirement for low-income units can be met through various strategies, one of which is maintaining a waiting list and selecting residents from the list in accordance with established procedures. Condition: During eligibility testing, we were unable to verify compliance with HUD regulations requiring selection from the waiting list in accordance with the administrative plan (24 CFR section 891.410 and 24 CFR 982.204). The waitlist application dates generated from the Project’s software reflect the initial data load from RealPage to Fortress and did not include essential waitlist notes. This lack of documentation prevented us from verifying that tenant selection adhered to HUD requirements and selected from waiting list in correct order. Cause of Condition: The issue occurred due to an incomplete data transfer during the migration from RealPage to Fortress. Internal controls over the data migration process were insufficient to ensure that all required information, such as waitlist notes, was successfully transferred. Potential Effect of Condition: - Noncompliance with HUD regulations for maintaining an accurate and chronological waitlist. - Inability to demonstrate compliance with tenant selection requirements, which may result in findings of noncompliance, questioned costs, or penalties. - Increased risk of unfair or improper tenant selection due to incomplete records. Questioned costs: The auditors have identified questioned costs of $8,510 for annual rental subsidies. These questioned costs pertain only to the sample tested. Reporting Views of Responsible Officials: The Organization agrees with the findings and recommendations and will adhere to the corrective action plan. Context: In all 3 cases reviewed (100% of the sample), auditors were unable to verify compliance with HUD's requirements regarding tenant selection from the waiting list due to incomplete data. The underlying issue stemmed from a system migration from RealPage to Fortress, during which key documentation—specifically waitlist notes and chronological application data—was not properly transferred. As a result, the project lacked adequate evidence to demonstrate that tenant selection was made in accordance with HUD regulations and the organization’s administrative plan. This indicates a potentially systemic issue with data integrity and control procedures during software transitions, rather than isolated instances of noncompliance. Recommendation: 1. Implement a process to review and verify the accuracy and completeness of data during system migrations, including waitlist information and notes. 2. Reconstruct missing waitlist data by reviewing available source records, if feasible. 3. Develop and document a written policy for waitlist maintenance and data integrity to ensure ongoing compliance with HUD regulations. Management Response: Management is currently conducting a comprehensive review of the process to ensure alignment with compliance requirements and identify areas for improvement.

Delay in Deposit of Surplus Cash into Residual Receipts Account: Internal Control Weakness Impacting HUD Compliance Findings Resolution Status: In Process Information on Universe Population Size: N/A Sample Size Information: N/A Auditor Non-Compliance Code Drop-Down: Cash Management Criteria: According to HUD Handbook 4370.2 REV-1, Chapter 2, Paragraph 2-17, Owners of HUD-assisted projects are required to deposit surplus cash into the Residual Receipts account within 60 days after the end of the fiscal year unless otherwise directed by HUD. The surplus cash must be calculated using HUD Form 93486 (Computation of Surplus Cash) and the amount must be deposited promptly to ensure funds are preserved for project use and available for HUD approved purposes. Condition: Based on the REAC surplus cash computation provided by the client, there was a reportable surplus cash balance as of the fiscal year-end. However, upon tracing subsequent bank statements, the audit team was unable to identify the corresponding deposit into the Residual Receipts account. No supporting documentation was provided during the audit to substantiate whether the deposit was made or delayed with HUD approval. Cause of Condition: Management has deferred the deposit of surplus cash into the Residual Receipts account pending the issuance of the final audit report. HUD regulations generally require the deposit of surplus cash based on the project's year-end computation and do not condition the timing of the deposit on the finalization of audited financial statements. As such, this practice has resulted in a delay in complying with the regulatory requirement. Potential Effect of Condition: Failure to timely deposit surplus cash into the Residual Receipts account constitutes noncompliance with HUD requirements and exposes the project to risk of findings during HUD reviews. Additionally, it may impact on the project's ability to demonstrate sound financial management and regulatory adherence. Questioned Cost: 23,139. The questioned cost represents the full amount of surplus cash calculated by the client as of year-end, which was not deposited into the Residual Receipts account within the HUD-required 60-day timeframe. Reporting Views of Responsible Officials: The Organization agrees with the findings and recommendations and will adhere to the corrective action plan. Context: HUD regulations require surplus cash to be deposited into the Residual Receipts account within 60 days following the end of the fiscal year. Based on the client’s REAC surplus cash computation as of September 30, 2024, the calculated surplus was $23,139. However, no corresponding deposit was identified in subsequent bank records reviewed by auditors. Additionally, no documentation was provided to show that HUD approval was sought or received for delaying the deposit. This delay appears to be due to a management practice of waiting until the final audit report is issued before initiating the deposit—contrary to HUD requirements, which base the timeline on unaudited year-end figures. Although the universe and sample size are not applicable in this finding (since it involves a single required year-end action), the condition affects the entire project's cash management compliance and reflects a procedural gap that could have broader implications in future years if not corrected. Recommendation: 1. Ensure that future surplus cash deposits to the Residual Receipts account are made within 60 days after fiscal year-end, based on the unaudited surplus cash computation. 2. Establish internal procedures to track and schedule these deposits in advance of the deadline, regardless of the audit completion status. 3. If a deferral is necessary, formally submit a written request to HUD explaining the reason for the delay and obtain documented approval. 4. Maintain supporting documentation of all communications and approvals related to any delayed or deferred deposits for audit and compliance purposes. Management's Response: Management acknowledges the auditor’s observation and deposit will be made.

Untimely Update of Tenant Rent Records in HUD 50059: Internal Control Weakness Impacting HUD Compliance Findings Resolution Status: In Process Information on Universe Population Size: 32 Tenants Sample Size Information: 5 Samples Auditor Non-Compliance Code Drop-Down: Eligibility Criteria: According to HUD regulations, property owners are required to maintain accurate and up-to-date rent records. This is essential for ensuring compliance with HUD's requirements and avoiding discrepancies that could lead to improper subsidy payments, audit findings, or regulatory noncompliance. Specifically, HUD Handbook 4350.3 outlines the need for accurate tenant rent records and rent calculations to accurately match with the HUD Form 50059. Additionally, HUD emphasizes the importance of timely updates to tenant rent records to reflect any changes in rent amounts. Failure to comply with these requirements, even for a short period, needs to be documented to ensure transparency and accountability. Condition: During eligibility testing, the following discrepancies were identified between HUD 50059 vs. Rent Roll as to: 1. HUD Assisted Payment and Tenant Rent: All of 5 tenant files reviewed contained discrepancies between the HUD-assisted payment amounts recorded on Form HUD 50059 and the subsidy amounts reflected on the rent roll. Additionally, 3 of these files showed inconsistencies between the tenant rent as stated on Form HUD-50059 and the resident rent reported on the rent roll. 2. Security Deposit- For 3 tenant files, the security deposit amounts indicated in the HUD 50059 forms were not reflected in the Rent Roll. Cause of Condition: The discrepancies were primarily due to: a) Insufficient review procedures to ensure consistency between Form 50059, Rent Roll and tenant files. b) Absence of internal controls or periodic reconciliations to identify and correct discrepancies. Potential Effect of Condition: Failure to maintain accurate tenant subsidy records in HUD Form 50059 may result in: - HUD non-compliance, which could trigger audit findings, corrective actions, or potential penalties. - Improper subsidy payments, leading to potential financial adjustments or repayments. Questioned costs: The auditors have identified questioned costs of $4,807 for annual rental subsidies. These questioned costs pertain only to the sample tested. Reporting Views of Responsible Officials: The Organization agrees with the findings and recommendations and will adhere to the corrective action plan. Context: All 5 selected samples for testing contained discrepancies in rent and subsidy amounts recorded on Form HUD-50059 compared to the Rent Roll, suggesting a 100% occurrence within the sample tested. This indicates a potential systemic issue rather than an isolated instance. The inconsistencies arose across multiple rent-related categories (tenant rent, HUD-assisted payments, and security deposits), reflecting a breakdown in reconciliation and review procedures. Recommendation: To address the identified discrepancies and improve compliance, we recommend the following actions: 1. Establish a Routine Reconciliation Process – Implement a structured process to regularly reconcile HUD-50059 forms with the rent roll, ensuring that subsidy amounts are accurate and promptly updated. 2. Enhance Internal Controls – Introduce stricter review and approval workflows for tenant eligibility documentation and rent roll updates to prevent inconsistencies. 3. Conduct Staff Training – Provide periodic training for staff on HUD compliance requirements and the importance of maintaining accurate tenant and rent records. 4. Implement Regular Audits – Schedule internal reviews and audits to detect and correct discrepancies early, reducing the risk of compliance issues. 5. Improve Documentation Procedures – Strengthen record-keeping policies to ensure that updates to subsidy amounts and rent adjustments are consistently documented and retained. By implementing these recommendations, the organization can enhance compliance, improve data accuracy, and reduce risks associated with subsidy discrepancies. Management Response: Management is currently conducting a comprehensive review of the process to ensure alignment with compliance requirements and identify areas for improvement.

Inadequate Controls over Tenant Selection and Waiting List Management: Internal Control Weakness Impacting HUD Compliance Findings Resolution Status: In Process Information on Universe Population Size: 32 Tenants Sample Size Information: 3 Samples Auditor Non-Compliance Code Drop-Down: Eligibility Criteria: - HUD Occupancy Handbook 4350.3 REV-1 (Chapter 4: Waiting List and Tenant Selection) Owners must develop a method to maintain documentation of the waiting list composition, application status, and actions taken. Once unit size and preference order are determined, owners must select applicants from the waiting list in chronological order to fill vacancies. - Ohio Housing Finance Agency (OHFA) Program Compliance Handbook – The marketing requirement for low-income units can be met through various strategies, one of which is maintaining a waiting list and selecting residents from the list in accordance with established procedures. Condition: During eligibility testing, we were unable to verify compliance with HUD regulations requiring selection from the waiting list in accordance with the administrative plan (24 CFR section 891.410 and 24 CFR 982.204). The waitlist application dates generated from the Project’s software reflect the initial data load from RealPage to Fortress and did not include essential waitlist notes. This lack of documentation prevented us from verifying that tenant selection adhered to HUD requirements and selected from waiting list in correct order. Cause of Condition: The issue occurred due to an incomplete data transfer during the migration from RealPage to Fortress. Internal controls over the data migration process were insufficient to ensure that all required information, such as waitlist notes, was successfully transferred. Potential Effect of Condition: - Noncompliance with HUD regulations for maintaining an accurate and chronological waitlist. - Inability to demonstrate compliance with tenant selection requirements, which may result in findings of noncompliance, questioned costs, or penalties. - Increased risk of unfair or improper tenant selection due to incomplete records. Questioned costs: The auditors have identified questioned costs of $8,510 for annual rental subsidies. These questioned costs pertain only to the sample tested. Reporting Views of Responsible Officials: The Organization agrees with the findings and recommendations and will adhere to the corrective action plan. Context: In all 3 cases reviewed (100% of the sample), auditors were unable to verify compliance with HUD's requirements regarding tenant selection from the waiting list due to incomplete data. The underlying issue stemmed from a system migration from RealPage to Fortress, during which key documentation—specifically waitlist notes and chronological application data—was not properly transferred. As a result, the project lacked adequate evidence to demonstrate that tenant selection was made in accordance with HUD regulations and the organization’s administrative plan. This indicates a potentially systemic issue with data integrity and control procedures during software transitions, rather than isolated instances of noncompliance. Recommendation: 1. Implement a process to review and verify the accuracy and completeness of data during system migrations, including waitlist information and notes. 2. Reconstruct missing waitlist data by reviewing available source records, if feasible. 3. Develop and document a written policy for waitlist maintenance and data integrity to ensure ongoing compliance with HUD regulations. Management Response: Management is currently conducting a comprehensive review of the process to ensure alignment with compliance requirements and identify areas for improvement.

Delay in Deposit of Surplus Cash into Residual Receipts Account: Internal Control Weakness Impacting HUD Compliance Findings Resolution Status: In Process Information on Universe Population Size: N/A Sample Size Information: N/A Auditor Non-Compliance Code Drop-Down: Cash Management Criteria: According to HUD Handbook 4370.2 REV-1, Chapter 2, Paragraph 2-17, Owners of HUD-assisted projects are required to deposit surplus cash into the Residual Receipts account within 60 days after the end of the fiscal year unless otherwise directed by HUD. The surplus cash must be calculated using HUD Form 93486 (Computation of Surplus Cash) and the amount must be deposited promptly to ensure funds are preserved for project use and available for HUD approved purposes. Condition: Based on the REAC surplus cash computation provided by the client, there was a reportable surplus cash balance as of the fiscal year-end. However, upon tracing subsequent bank statements, the audit team was unable to identify the corresponding deposit into the Residual Receipts account. No supporting documentation was provided during the audit to substantiate whether the deposit was made or delayed with HUD approval. Cause of Condition: Management has deferred the deposit of surplus cash into the Residual Receipts account pending the issuance of the final audit report. HUD regulations generally require the deposit of surplus cash based on the project's year-end computation and do not condition the timing of the deposit on the finalization of audited financial statements. As such, this practice has resulted in a delay in complying with the regulatory requirement. Potential Effect of Condition: Failure to timely deposit surplus cash into the Residual Receipts account constitutes noncompliance with HUD requirements and exposes the project to risk of findings during HUD reviews. Additionally, it may impact on the project's ability to demonstrate sound financial management and regulatory adherence. Questioned Cost: 23,139. The questioned cost represents the full amount of surplus cash calculated by the client as of year-end, which was not deposited into the Residual Receipts account within the HUD-required 60-day timeframe. Reporting Views of Responsible Officials: The Organization agrees with the findings and recommendations and will adhere to the corrective action plan. Context: HUD regulations require surplus cash to be deposited into the Residual Receipts account within 60 days following the end of the fiscal year. Based on the client’s REAC surplus cash computation as of September 30, 2024, the calculated surplus was $23,139. However, no corresponding deposit was identified in subsequent bank records reviewed by auditors. Additionally, no documentation was provided to show that HUD approval was sought or received for delaying the deposit. This delay appears to be due to a management practice of waiting until the final audit report is issued before initiating the deposit—contrary to HUD requirements, which base the timeline on unaudited year-end figures. Although the universe and sample size are not applicable in this finding (since it involves a single required year-end action), the condition affects the entire project's cash management compliance and reflects a procedural gap that could have broader implications in future years if not corrected. Recommendation: 1. Ensure that future surplus cash deposits to the Residual Receipts account are made within 60 days after fiscal year-end, based on the unaudited surplus cash computation. 2. Establish internal procedures to track and schedule these deposits in advance of the deadline, regardless of the audit completion status. 3. If a deferral is necessary, formally submit a written request to HUD explaining the reason for the delay and obtain documented approval. 4. Maintain supporting documentation of all communications and approvals related to any delayed or deferred deposits for audit and compliance purposes. Management's Response: Management acknowledges the auditor’s observation and deposit will be made.