Finding No. 2022-006: Cash Disbursements and Classifications (Material Weakness) Statement of condition Allowable costs Activities allowed or unallowed During the year ended June 30, 2022, the Organization: ? did not properly capitalize certain expenditures as fixed assets in accordance with the Organization's capitalization policy and properly depreciate those fixed assets; ? did not properly classify certain expenditures between expense accounts; ? did not properly classify certain receipts among revenue accounts; ? did not properly cut off disbursements at fiscal year end, resulting in expenses not being recorded within the current audit period; and ? did not accurately record gross potential rent, due to and from affiliates, and receivables. Criteria The Regulatory Agreement requires the Organization to maintain the books on a U.S. GAAP basis, including properly classified expenses and fixed assets, complete accrued expenditures, proper capitalization of fixed assets, and accurate recording of revenue, due to and from affiliates, and receivables. Cause Review procedures were not sufficient to ensure the Organization's books were maintained on a U.S. GAAP basis. Effect Failure to maintain the books on a U.S. GAAP basis could result in improper financial and HUD reporting. Recommendation Management should revisit and enhance its internal controls and procedures over subsequent expenditures to ensure expenses are captured in the correct fiscal period. Management should implement an additional period-end review to ensure proper classification of expenses and fixed assets, complete accrued expenditures, proper capitalization of fixed assets, and accurate recording of revenue, due to and from affiliates, and receivables. Identification of repeat finding The finding is a repeat of Finding No. 2021-006. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will ensure that moving forward there are controls in place to ensure expenses are captured in the correct fiscal period and that at year end there is a final review of the transactions to ensure that everything is not only properly entered, but properly classified as well.
Finding No. 2022-007: Tenant File Maintenance (Material Weakness) Statement of condition Eligibility In connection with the procedures applied to a sample of five tenant lease files, we noted the following instances of noncompliance with HUD regulations regarding tenant eligibility and the maintenance of lease files: ? For all of the tenant lease files selected, the Organization did not maintain the lead-based paint disclosure in their lease files. ? For one of the tenant lease files selected, the Organization did not maintain the background checks in the lease file. Criteria Tenant lease files are required to be maintained and tenant eligibility determined in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs. Cause Management?s policies with respect to the determination of tenant eligibility and the maintenance of tenant lease files in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, were not consistently followed. Effect The procedures for determining tenant eligibility and maintaining tenant lease files were not consistently applied in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs. This noncompliance could result in units being rented to ineligible tenants or errors in the rent subsidies paid by HUD. Recommendation Management should review and enhance procedures and monitor compliance with those procedures to ensure that tenant eligibility is correctly determined and that tenant lease files are properly maintained in accordance with the requirements of HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs. Identification of repeat finding The finding is a repeat of Finding No. 2021-007. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put controls and procedures in place that ensure all tenant files are maintained in accordance with the HUD Handbook.
Finding No. 2022-008: Verification of Tenant Assets (Significant Deficiency) Statement of condition Eligibility During the year ended June 30, 2022, management did not perform a verification of tenant assets as part of tenant certification and recertification procedures. Criteria In accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, HUD projects are required to verify tenant assets to ensure appropriate subsidy calculations. Cause The Organization's tenants are multi-handicapped blind low-income adults. The cash accounts held by the tenants are maintained by the Sponsor on behalf of the tenants and therefore other assets are not verified. Effect Subsidy receipts could be overstated. Recommendation Management should revisit and enhance its certification and annual recertification procedures to include a verification of tenant assets. Identification of repeat finding The finding is a repeat of Finding No. 2021-008. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place procedures to ensure verification of tenant assets is done during recertification.
Finding No. 2022-009: Work Order Log (Significant Deficiency) Statement of condition Activities allowed or unallowed During the year ended June 30, 2022, management did not maintain a log of work orders processed. Criteria HUD projects are required to maintain a log of work orders processed. Cause The Organization did not have a system in place to summarize and collect work orders for the fiscal year. Effect Significant repairs could be delayed and repairs could be falsified or duplicated. Recommendation Management should revisit and enhance its internal controls and procedures over work orders to ensure a log is maintained on a timely basis. Identification of repeat finding The finding is a repeat of Finding No. 2021-009. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status Remediated subsequent to year end. Reporting views of responsible officials and planned corrective actions Management put in place an electronic work order system that keeps track of the work orders for the property and has put controls in place to actively monitor the system to ensure appropriate repairs are being completed in a timely manner.
Finding No. 2022-001: Restricted Cash (Material Weakness) Statement of condition Special Tests and Provisions During the year ended June 30, 2022, management did not segregate certain tenant security deposits, replacement reserve amounts and the residual receipts deposits into segregated, restricted cash accounts. For three months of the fiscal year, the monthly replacement reserve deposit was funded in the subsequent month. Security deposit funding liability was not properly tracked. Criteria In accordance with the U.S. Department of Housing and Urban Development ("HUD") Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, HUD projects are required to establish and maintain at all times fully funded, separate bank accounts in the name of the entity for all security deposits collected and for residual receipts deposits. The Regulatory Agreement requires a monthly deposit of $27 in the replacement reserve. Security deposits owed to tenants are required to be tracked for accurate financial and HUD reporting. Cause Certain tenant security deposits and the residual receipts deposits were deposited into the replacement reserve account or operating cash account and were not transferred into segregated accounts as of June 30, 2022. The Sponsor funds tenant security deposits and the deposits funded during the year were included within the amounts owed to the Sponsor instead of within the tenant security deposit liability. The monthly replacement reserve transfer was delayed by several days into the subsequent month due to it being on a set interval of time rather than on a monthly date. Effect Management commingled certain tenant security deposits and residual receipts deposits with its replacement reserve and operating cash accounts, resulting in the potential use of tenant security deposit cash or residual receipts deposits to fund repairs or replacements without obtaining the required prior approval of HUD. Inaccurate tracking of the tenant security deposit liability could result in understated liability and improper refunding of tenant security deposits. Late deposits to the replacement reserve could result in underfunding of the replacement reserve. Recommendation Management should review and enhance policies, procedures and internal controls to ensure that all tenant security deposits and residual receipts deposits are segregated into separate, restricted cash accounts. Management should revisit its review procedures for tracking tenant security deposits and its timing schedule for making deposits to the replacement reserve. Identification of repeat finding The finding is a repeat of Finding No. 2021-001. Auditor non-compliance code D - Commingling funds Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will ensure that security deposits are tracked so they can be recorded accordingly when there is a move in and/or move out. Moving forward management will put in place controls to ensure that the calculation is done at the end of the fiscal year.
Finding No. 2022-002: Cash Disbursements (Material Weakness) Statement of condition Allowable costs Activities allowed or unallowed During the year ended June 30, 2022, management disbursed funds of $36,691 to a related party in excess of amounts allowed by the Regulatory Agreement. Criteria The Regulatory Agreement prohibits the distribution of cash or assets other than as approved by HUD. Cause Review procedures were insufficient to ensure that the amounts disbursed to related parties were within the amounts allowed per the Regulatory Agreement. Effect The Organization could have insufficient funds to operate the project and the surplus cash computation, which determines the repayment of a note payable, could be inaccurate without the restoration of the funds to the operating cash held by the Organization. Recommendation Management should revisit and enhance its internal control and review procedures regarding relatedparty payment calculations to ensure funds are not over-disbursed in the future. Management should also ensure the funds are returned to the Organization. Identification of repeat finding The finding is a repeat of Finding No. 2021-002. Auditor non-compliance code H - Unauthorized distribution of project assets Questioned costs $36,691 Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management has put in place controls and procedures to ensure that funds are not over-disbursed in the future. Management will return the funds to the HUD entity.
Finding No. 2022-003: Financial Reporting (Material Weakness) Statement of condition Reporting The lack of appropriate policies, procedures, and internal processes led to untimely year end close and recording procedures, inaccurate tying of net deficit, inaccurate rental assistance payment requests, and late filing of required reporting. Certain information technology controls and procedures were not documented, properly designed, or followed appropriately, including, but not limited to: segregation of administrative user roles from the accounting function, user access review, removal of terminated users, physical access, complementary user entity controls assessment, backup restoration testing, penetration testing, and cybersecurity awareness training. Criteria The Organization is required to have internal controls and procedures in place in order to timely and accurately report the results of its operations, close its books, and timely file its reports with the applicable federal agencies. These procedures include documenting levels of review, reconciling accounting records at month-end and year-end close, and maintaining a well-documented, designed, and applied information technology environment. Cause Management did not have sufficient internal controls in place to accurately and timely report the results of the Organization's operations and maintain the information technology environment. Effect Insufficient controls, late closing and reconciliation of accounting records, and insufficiently maintained information technology environment could result in accounting errors and theft. A lack of controls over financial reporting can result in untimely filing of required reports or incomplete filings with the regulatory and oversight entities. Recommendation We recommend that management re-evaluate its policies and procedures to ensure an appropriate member of management is in place to review the year-end and month-end close processes, as well as journal entries, reconciliations, and other accounting records. Management should appoint an individual to be responsible for the Organization's financial statements and reporting obligations. Management should evaluate its controls and procedures over the information technology environment to ensure they are properly documented, designed, and followed, including but not limited to: ensuring segregation of administrative user roles from the accounting function, performing a regular review of user access, ensuring terminated users are removed from all systems and software, ensuring restriction of physical access to the system, performing an assessment of complementary user entity controls for relevant software vendors, performing backup restoration tests and penetration tests, and providing cybersecurity awareness training. Identification of repeat finding The finding is a repeat of Finding No. 2021-003. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place controls and procedures to ensure financial reporting is complete, accurate, and timely.
Finding No. 2022-004: Residual Receipts Deposit (Material Weakness) Statement of condition Special Tests and Provisions The surplus cash calculated balance of $34,540 at June 30, 2021 was not deposited into the residual receipts reserve during the year ended June 30, 2022. Criteria The Regulatory Agreement requires that any surplus cash amount be deposited into a residual receipts reserve and retained until released as approved by HUD. Cause Review procedures were insufficient to ensure that the computation of surplus cash was performed accurately and timely, resulting in the calculated surplus cash amount not being deposited into the residual receipts reserve. Effect Funds required to be deposited into the residual receipts reserve could be used to fund operations or for alternative purposes without HUD's authorization. Recommendation Management should revisit its internal controls and procedures for the computation of surplus cash to ensure it is performed accurately and timely and that any calculated surplus cash amount be deposited into the residual receipts reserve timely. Identification of repeat finding The finding is not a repeat finding. Auditor non-compliance code B - Failure to make required residual receipts deposits Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will open a new residual account for this HUD entity and will put controls in place to ensure that the calculated surplus cash balance is deposited into the account, if applicable, annually.
Finding No. 2022-005: Expense Allocations (Material Weakness) Statement of condition Allowable costs Activities allowed or unallowed Special tests and provisions Management has not reviewed its allocated costs calculations for accuracy and completeness of insurance and payroll costs incurred by the Organization. Criteria The Organization is required to have controls and procedures in place in order to accurately record costs incurred by the Organization. Cause Management did not have appropriate controls in place to review the allocation percentages for completeness and accuracy. Effect Out-of-date allocations could result in understated or overstated expenses and liabilities of the Organization, as well as theft. Recommendation Management should review and enhance its internal controls over payroll and insurance allocations to ensure the costs recorded by the Organization are representative of its share of the charges. Identification of repeat finding The finding is a repeat of Finding No. 2021-005. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place controls and procedures to annually evaluate the percentage of time staff dedicate to the organization to determine the correct allocation for payroll.
Finding No. 2022-006: Cash Disbursements and Classifications (Material Weakness) Statement of condition Allowable costs Activities allowed or unallowed During the year ended June 30, 2022, the Organization: ? did not properly capitalize certain expenditures as fixed assets in accordance with the Organization's capitalization policy and properly depreciate those fixed assets; ? did not properly classify certain expenditures between expense accounts; ? did not properly classify certain receipts among revenue accounts; ? did not properly cut off disbursements at fiscal year end, resulting in expenses not being recorded within the current audit period; and ? did not accurately record gross potential rent, due to and from affiliates, and receivables. Criteria The Regulatory Agreement requires the Organization to maintain the books on a U.S. GAAP basis, including properly classified expenses and fixed assets, complete accrued expenditures, proper capitalization of fixed assets, and accurate recording of revenue, due to and from affiliates, and receivables. Cause Review procedures were not sufficient to ensure the Organization's books were maintained on a U.S. GAAP basis. Effect Failure to maintain the books on a U.S. GAAP basis could result in improper financial and HUD reporting. Recommendation Management should revisit and enhance its internal controls and procedures over subsequent expenditures to ensure expenses are captured in the correct fiscal period. Management should implement an additional period-end review to ensure proper classification of expenses and fixed assets, complete accrued expenditures, proper capitalization of fixed assets, and accurate recording of revenue, due to and from affiliates, and receivables. Identification of repeat finding The finding is a repeat of Finding No. 2021-006. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will ensure that moving forward there are controls in place to ensure expenses are captured in the correct fiscal period and that at year end there is a final review of the transactions to ensure that everything is not only properly entered, but properly classified as well.
Finding No. 2022-007: Tenant File Maintenance (Material Weakness) Statement of condition Eligibility In connection with the procedures applied to a sample of five tenant lease files, we noted the following instances of noncompliance with HUD regulations regarding tenant eligibility and the maintenance of lease files: ? For all of the tenant lease files selected, the Organization did not maintain the lead-based paint disclosure in their lease files. ? For one of the tenant lease files selected, the Organization did not maintain the background checks in the lease file. Criteria Tenant lease files are required to be maintained and tenant eligibility determined in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs. Cause Management?s policies with respect to the determination of tenant eligibility and the maintenance of tenant lease files in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, were not consistently followed. Effect The procedures for determining tenant eligibility and maintaining tenant lease files were not consistently applied in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs. This noncompliance could result in units being rented to ineligible tenants or errors in the rent subsidies paid by HUD. Recommendation Management should review and enhance procedures and monitor compliance with those procedures to ensure that tenant eligibility is correctly determined and that tenant lease files are properly maintained in accordance with the requirements of HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs. Identification of repeat finding The finding is a repeat of Finding No. 2021-007. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put controls and procedures in place that ensure all tenant files are maintained in accordance with the HUD Handbook.
Finding No. 2022-008: Verification of Tenant Assets (Significant Deficiency) Statement of condition Eligibility During the year ended June 30, 2022, management did not perform a verification of tenant assets as part of tenant certification and recertification procedures. Criteria In accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, HUD projects are required to verify tenant assets to ensure appropriate subsidy calculations. Cause The Organization's tenants are multi-handicapped blind low-income adults. The cash accounts held by the tenants are maintained by the Sponsor on behalf of the tenants and therefore other assets are not verified. Effect Subsidy receipts could be overstated. Recommendation Management should revisit and enhance its certification and annual recertification procedures to include a verification of tenant assets. Identification of repeat finding The finding is a repeat of Finding No. 2021-008. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place procedures to ensure verification of tenant assets is done during recertification.
Finding No. 2022-009: Work Order Log (Significant Deficiency) Statement of condition Activities allowed or unallowed During the year ended June 30, 2022, management did not maintain a log of work orders processed. Criteria HUD projects are required to maintain a log of work orders processed. Cause The Organization did not have a system in place to summarize and collect work orders for the fiscal year. Effect Significant repairs could be delayed and repairs could be falsified or duplicated. Recommendation Management should revisit and enhance its internal controls and procedures over work orders to ensure a log is maintained on a timely basis. Identification of repeat finding The finding is a repeat of Finding No. 2021-009. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status Remediated subsequent to year end. Reporting views of responsible officials and planned corrective actions Management put in place an electronic work order system that keeps track of the work orders for the property and has put controls in place to actively monitor the system to ensure appropriate repairs are being completed in a timely manner.
Finding No. 2022-001: Restricted Cash (Material Weakness) Statement of condition Special Tests and Provisions During the year ended June 30, 2022, management did not segregate certain tenant security deposits, replacement reserve amounts and the residual receipts deposits into segregated, restricted cash accounts. For three months of the fiscal year, the monthly replacement reserve deposit was funded in the subsequent month. Security deposit funding liability was not properly tracked. Criteria In accordance with the U.S. Department of Housing and Urban Development ("HUD") Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, HUD projects are required to establish and maintain at all times fully funded, separate bank accounts in the name of the entity for all security deposits collected and for residual receipts deposits. The Regulatory Agreement requires a monthly deposit of $27 in the replacement reserve. Security deposits owed to tenants are required to be tracked for accurate financial and HUD reporting. Cause Certain tenant security deposits and the residual receipts deposits were deposited into the replacement reserve account or operating cash account and were not transferred into segregated accounts as of June 30, 2022. The Sponsor funds tenant security deposits and the deposits funded during the year were included within the amounts owed to the Sponsor instead of within the tenant security deposit liability. The monthly replacement reserve transfer was delayed by several days into the subsequent month due to it being on a set interval of time rather than on a monthly date. Effect Management commingled certain tenant security deposits and residual receipts deposits with its replacement reserve and operating cash accounts, resulting in the potential use of tenant security deposit cash or residual receipts deposits to fund repairs or replacements without obtaining the required prior approval of HUD. Inaccurate tracking of the tenant security deposit liability could result in understated liability and improper refunding of tenant security deposits. Late deposits to the replacement reserve could result in underfunding of the replacement reserve. Recommendation Management should review and enhance policies, procedures and internal controls to ensure that all tenant security deposits and residual receipts deposits are segregated into separate, restricted cash accounts. Management should revisit its review procedures for tracking tenant security deposits and its timing schedule for making deposits to the replacement reserve. Identification of repeat finding The finding is a repeat of Finding No. 2021-001. Auditor non-compliance code D - Commingling funds Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will ensure that security deposits are tracked so they can be recorded accordingly when there is a move in and/or move out. Moving forward management will put in place controls to ensure that the calculation is done at the end of the fiscal year.
Finding No. 2022-002: Cash Disbursements (Material Weakness) Statement of condition Allowable costs Activities allowed or unallowed During the year ended June 30, 2022, management disbursed funds of $36,691 to a related party in excess of amounts allowed by the Regulatory Agreement. Criteria The Regulatory Agreement prohibits the distribution of cash or assets other than as approved by HUD. Cause Review procedures were insufficient to ensure that the amounts disbursed to related parties were within the amounts allowed per the Regulatory Agreement. Effect The Organization could have insufficient funds to operate the project and the surplus cash computation, which determines the repayment of a note payable, could be inaccurate without the restoration of the funds to the operating cash held by the Organization. Recommendation Management should revisit and enhance its internal control and review procedures regarding relatedparty payment calculations to ensure funds are not over-disbursed in the future. Management should also ensure the funds are returned to the Organization. Identification of repeat finding The finding is a repeat of Finding No. 2021-002. Auditor non-compliance code H - Unauthorized distribution of project assets Questioned costs $36,691 Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management has put in place controls and procedures to ensure that funds are not over-disbursed in the future. Management will return the funds to the HUD entity.
Finding No. 2022-003: Financial Reporting (Material Weakness) Statement of condition Reporting The lack of appropriate policies, procedures, and internal processes led to untimely year end close and recording procedures, inaccurate tying of net deficit, inaccurate rental assistance payment requests, and late filing of required reporting. Certain information technology controls and procedures were not documented, properly designed, or followed appropriately, including, but not limited to: segregation of administrative user roles from the accounting function, user access review, removal of terminated users, physical access, complementary user entity controls assessment, backup restoration testing, penetration testing, and cybersecurity awareness training. Criteria The Organization is required to have internal controls and procedures in place in order to timely and accurately report the results of its operations, close its books, and timely file its reports with the applicable federal agencies. These procedures include documenting levels of review, reconciling accounting records at month-end and year-end close, and maintaining a well-documented, designed, and applied information technology environment. Cause Management did not have sufficient internal controls in place to accurately and timely report the results of the Organization's operations and maintain the information technology environment. Effect Insufficient controls, late closing and reconciliation of accounting records, and insufficiently maintained information technology environment could result in accounting errors and theft. A lack of controls over financial reporting can result in untimely filing of required reports or incomplete filings with the regulatory and oversight entities. Recommendation We recommend that management re-evaluate its policies and procedures to ensure an appropriate member of management is in place to review the year-end and month-end close processes, as well as journal entries, reconciliations, and other accounting records. Management should appoint an individual to be responsible for the Organization's financial statements and reporting obligations. Management should evaluate its controls and procedures over the information technology environment to ensure they are properly documented, designed, and followed, including but not limited to: ensuring segregation of administrative user roles from the accounting function, performing a regular review of user access, ensuring terminated users are removed from all systems and software, ensuring restriction of physical access to the system, performing an assessment of complementary user entity controls for relevant software vendors, performing backup restoration tests and penetration tests, and providing cybersecurity awareness training. Identification of repeat finding The finding is a repeat of Finding No. 2021-003. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place controls and procedures to ensure financial reporting is complete, accurate, and timely.
Finding No. 2022-004: Residual Receipts Deposit (Material Weakness) Statement of condition Special Tests and Provisions The surplus cash calculated balance of $34,540 at June 30, 2021 was not deposited into the residual receipts reserve during the year ended June 30, 2022. Criteria The Regulatory Agreement requires that any surplus cash amount be deposited into a residual receipts reserve and retained until released as approved by HUD. Cause Review procedures were insufficient to ensure that the computation of surplus cash was performed accurately and timely, resulting in the calculated surplus cash amount not being deposited into the residual receipts reserve. Effect Funds required to be deposited into the residual receipts reserve could be used to fund operations or for alternative purposes without HUD's authorization. Recommendation Management should revisit its internal controls and procedures for the computation of surplus cash to ensure it is performed accurately and timely and that any calculated surplus cash amount be deposited into the residual receipts reserve timely. Identification of repeat finding The finding is not a repeat finding. Auditor non-compliance code B - Failure to make required residual receipts deposits Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will open a new residual account for this HUD entity and will put controls in place to ensure that the calculated surplus cash balance is deposited into the account, if applicable, annually.
Finding No. 2022-005: Expense Allocations (Material Weakness) Statement of condition Allowable costs Activities allowed or unallowed Special tests and provisions Management has not reviewed its allocated costs calculations for accuracy and completeness of insurance and payroll costs incurred by the Organization. Criteria The Organization is required to have controls and procedures in place in order to accurately record costs incurred by the Organization. Cause Management did not have appropriate controls in place to review the allocation percentages for completeness and accuracy. Effect Out-of-date allocations could result in understated or overstated expenses and liabilities of the Organization, as well as theft. Recommendation Management should review and enhance its internal controls over payroll and insurance allocations to ensure the costs recorded by the Organization are representative of its share of the charges. Identification of repeat finding The finding is a repeat of Finding No. 2021-005. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place controls and procedures to annually evaluate the percentage of time staff dedicate to the organization to determine the correct allocation for payroll.
Finding No. 2022-006: Cash Disbursements and Classifications (Material Weakness) Statement of condition Allowable costs Activities allowed or unallowed During the year ended June 30, 2022, the Organization: ? did not properly capitalize certain expenditures as fixed assets in accordance with the Organization's capitalization policy and properly depreciate those fixed assets; ? did not properly classify certain expenditures between expense accounts; ? did not properly classify certain receipts among revenue accounts; ? did not properly cut off disbursements at fiscal year end, resulting in expenses not being recorded within the current audit period; and ? did not accurately record gross potential rent, due to and from affiliates, and receivables. Criteria The Regulatory Agreement requires the Organization to maintain the books on a U.S. GAAP basis, including properly classified expenses and fixed assets, complete accrued expenditures, proper capitalization of fixed assets, and accurate recording of revenue, due to and from affiliates, and receivables. Cause Review procedures were not sufficient to ensure the Organization's books were maintained on a U.S. GAAP basis. Effect Failure to maintain the books on a U.S. GAAP basis could result in improper financial and HUD reporting. Recommendation Management should revisit and enhance its internal controls and procedures over subsequent expenditures to ensure expenses are captured in the correct fiscal period. Management should implement an additional period-end review to ensure proper classification of expenses and fixed assets, complete accrued expenditures, proper capitalization of fixed assets, and accurate recording of revenue, due to and from affiliates, and receivables. Identification of repeat finding The finding is a repeat of Finding No. 2021-006. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will ensure that moving forward there are controls in place to ensure expenses are captured in the correct fiscal period and that at year end there is a final review of the transactions to ensure that everything is not only properly entered, but properly classified as well.
Finding No. 2022-007: Tenant File Maintenance (Material Weakness) Statement of condition Eligibility In connection with the procedures applied to a sample of five tenant lease files, we noted the following instances of noncompliance with HUD regulations regarding tenant eligibility and the maintenance of lease files: ? For all of the tenant lease files selected, the Organization did not maintain the lead-based paint disclosure in their lease files. ? For one of the tenant lease files selected, the Organization did not maintain the background checks in the lease file. Criteria Tenant lease files are required to be maintained and tenant eligibility determined in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs. Cause Management?s policies with respect to the determination of tenant eligibility and the maintenance of tenant lease files in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, were not consistently followed. Effect The procedures for determining tenant eligibility and maintaining tenant lease files were not consistently applied in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs. This noncompliance could result in units being rented to ineligible tenants or errors in the rent subsidies paid by HUD. Recommendation Management should review and enhance procedures and monitor compliance with those procedures to ensure that tenant eligibility is correctly determined and that tenant lease files are properly maintained in accordance with the requirements of HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs. Identification of repeat finding The finding is a repeat of Finding No. 2021-007. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put controls and procedures in place that ensure all tenant files are maintained in accordance with the HUD Handbook.
Finding No. 2022-008: Verification of Tenant Assets (Significant Deficiency) Statement of condition Eligibility During the year ended June 30, 2022, management did not perform a verification of tenant assets as part of tenant certification and recertification procedures. Criteria In accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, HUD projects are required to verify tenant assets to ensure appropriate subsidy calculations. Cause The Organization's tenants are multi-handicapped blind low-income adults. The cash accounts held by the tenants are maintained by the Sponsor on behalf of the tenants and therefore other assets are not verified. Effect Subsidy receipts could be overstated. Recommendation Management should revisit and enhance its certification and annual recertification procedures to include a verification of tenant assets. Identification of repeat finding The finding is a repeat of Finding No. 2021-008. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place procedures to ensure verification of tenant assets is done during recertification.
Finding No. 2022-009: Work Order Log (Significant Deficiency) Statement of condition Activities allowed or unallowed During the year ended June 30, 2022, management did not maintain a log of work orders processed. Criteria HUD projects are required to maintain a log of work orders processed. Cause The Organization did not have a system in place to summarize and collect work orders for the fiscal year. Effect Significant repairs could be delayed and repairs could be falsified or duplicated. Recommendation Management should revisit and enhance its internal controls and procedures over work orders to ensure a log is maintained on a timely basis. Identification of repeat finding The finding is a repeat of Finding No. 2021-009. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status Remediated subsequent to year end. Reporting views of responsible officials and planned corrective actions Management put in place an electronic work order system that keeps track of the work orders for the property and has put controls in place to actively monitor the system to ensure appropriate repairs are being completed in a timely manner.
Finding No. 2022-001: Restricted Cash (Material Weakness) Statement of condition Special Tests and Provisions During the year ended June 30, 2022, management did not segregate certain tenant security deposits, replacement reserve amounts and the residual receipts deposits into segregated, restricted cash accounts. For three months of the fiscal year, the monthly replacement reserve deposit was funded in the subsequent month. Security deposit funding liability was not properly tracked. Criteria In accordance with the U.S. Department of Housing and Urban Development ("HUD") Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, HUD projects are required to establish and maintain at all times fully funded, separate bank accounts in the name of the entity for all security deposits collected and for residual receipts deposits. The Regulatory Agreement requires a monthly deposit of $27 in the replacement reserve. Security deposits owed to tenants are required to be tracked for accurate financial and HUD reporting. Cause Certain tenant security deposits and the residual receipts deposits were deposited into the replacement reserve account or operating cash account and were not transferred into segregated accounts as of June 30, 2022. The Sponsor funds tenant security deposits and the deposits funded during the year were included within the amounts owed to the Sponsor instead of within the tenant security deposit liability. The monthly replacement reserve transfer was delayed by several days into the subsequent month due to it being on a set interval of time rather than on a monthly date. Effect Management commingled certain tenant security deposits and residual receipts deposits with its replacement reserve and operating cash accounts, resulting in the potential use of tenant security deposit cash or residual receipts deposits to fund repairs or replacements without obtaining the required prior approval of HUD. Inaccurate tracking of the tenant security deposit liability could result in understated liability and improper refunding of tenant security deposits. Late deposits to the replacement reserve could result in underfunding of the replacement reserve. Recommendation Management should review and enhance policies, procedures and internal controls to ensure that all tenant security deposits and residual receipts deposits are segregated into separate, restricted cash accounts. Management should revisit its review procedures for tracking tenant security deposits and its timing schedule for making deposits to the replacement reserve. Identification of repeat finding The finding is a repeat of Finding No. 2021-001. Auditor non-compliance code D - Commingling funds Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will ensure that security deposits are tracked so they can be recorded accordingly when there is a move in and/or move out. Moving forward management will put in place controls to ensure that the calculation is done at the end of the fiscal year.
Finding No. 2022-002: Cash Disbursements (Material Weakness) Statement of condition Allowable costs Activities allowed or unallowed During the year ended June 30, 2022, management disbursed funds of $36,691 to a related party in excess of amounts allowed by the Regulatory Agreement. Criteria The Regulatory Agreement prohibits the distribution of cash or assets other than as approved by HUD. Cause Review procedures were insufficient to ensure that the amounts disbursed to related parties were within the amounts allowed per the Regulatory Agreement. Effect The Organization could have insufficient funds to operate the project and the surplus cash computation, which determines the repayment of a note payable, could be inaccurate without the restoration of the funds to the operating cash held by the Organization. Recommendation Management should revisit and enhance its internal control and review procedures regarding relatedparty payment calculations to ensure funds are not over-disbursed in the future. Management should also ensure the funds are returned to the Organization. Identification of repeat finding The finding is a repeat of Finding No. 2021-002. Auditor non-compliance code H - Unauthorized distribution of project assets Questioned costs $36,691 Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management has put in place controls and procedures to ensure that funds are not over-disbursed in the future. Management will return the funds to the HUD entity.
Finding No. 2022-003: Financial Reporting (Material Weakness) Statement of condition Reporting The lack of appropriate policies, procedures, and internal processes led to untimely year end close and recording procedures, inaccurate tying of net deficit, inaccurate rental assistance payment requests, and late filing of required reporting. Certain information technology controls and procedures were not documented, properly designed, or followed appropriately, including, but not limited to: segregation of administrative user roles from the accounting function, user access review, removal of terminated users, physical access, complementary user entity controls assessment, backup restoration testing, penetration testing, and cybersecurity awareness training. Criteria The Organization is required to have internal controls and procedures in place in order to timely and accurately report the results of its operations, close its books, and timely file its reports with the applicable federal agencies. These procedures include documenting levels of review, reconciling accounting records at month-end and year-end close, and maintaining a well-documented, designed, and applied information technology environment. Cause Management did not have sufficient internal controls in place to accurately and timely report the results of the Organization's operations and maintain the information technology environment. Effect Insufficient controls, late closing and reconciliation of accounting records, and insufficiently maintained information technology environment could result in accounting errors and theft. A lack of controls over financial reporting can result in untimely filing of required reports or incomplete filings with the regulatory and oversight entities. Recommendation We recommend that management re-evaluate its policies and procedures to ensure an appropriate member of management is in place to review the year-end and month-end close processes, as well as journal entries, reconciliations, and other accounting records. Management should appoint an individual to be responsible for the Organization's financial statements and reporting obligations. Management should evaluate its controls and procedures over the information technology environment to ensure they are properly documented, designed, and followed, including but not limited to: ensuring segregation of administrative user roles from the accounting function, performing a regular review of user access, ensuring terminated users are removed from all systems and software, ensuring restriction of physical access to the system, performing an assessment of complementary user entity controls for relevant software vendors, performing backup restoration tests and penetration tests, and providing cybersecurity awareness training. Identification of repeat finding The finding is a repeat of Finding No. 2021-003. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place controls and procedures to ensure financial reporting is complete, accurate, and timely.
Finding No. 2022-004: Residual Receipts Deposit (Material Weakness) Statement of condition Special Tests and Provisions The surplus cash calculated balance of $34,540 at June 30, 2021 was not deposited into the residual receipts reserve during the year ended June 30, 2022. Criteria The Regulatory Agreement requires that any surplus cash amount be deposited into a residual receipts reserve and retained until released as approved by HUD. Cause Review procedures were insufficient to ensure that the computation of surplus cash was performed accurately and timely, resulting in the calculated surplus cash amount not being deposited into the residual receipts reserve. Effect Funds required to be deposited into the residual receipts reserve could be used to fund operations or for alternative purposes without HUD's authorization. Recommendation Management should revisit its internal controls and procedures for the computation of surplus cash to ensure it is performed accurately and timely and that any calculated surplus cash amount be deposited into the residual receipts reserve timely. Identification of repeat finding The finding is not a repeat finding. Auditor non-compliance code B - Failure to make required residual receipts deposits Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will open a new residual account for this HUD entity and will put controls in place to ensure that the calculated surplus cash balance is deposited into the account, if applicable, annually.
Finding No. 2022-005: Expense Allocations (Material Weakness) Statement of condition Allowable costs Activities allowed or unallowed Special tests and provisions Management has not reviewed its allocated costs calculations for accuracy and completeness of insurance and payroll costs incurred by the Organization. Criteria The Organization is required to have controls and procedures in place in order to accurately record costs incurred by the Organization. Cause Management did not have appropriate controls in place to review the allocation percentages for completeness and accuracy. Effect Out-of-date allocations could result in understated or overstated expenses and liabilities of the Organization, as well as theft. Recommendation Management should review and enhance its internal controls over payroll and insurance allocations to ensure the costs recorded by the Organization are representative of its share of the charges. Identification of repeat finding The finding is a repeat of Finding No. 2021-005. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place controls and procedures to annually evaluate the percentage of time staff dedicate to the organization to determine the correct allocation for payroll.
Finding No. 2022-006: Cash Disbursements and Classifications (Material Weakness) Statement of condition Allowable costs Activities allowed or unallowed During the year ended June 30, 2022, the Organization: ? did not properly capitalize certain expenditures as fixed assets in accordance with the Organization's capitalization policy and properly depreciate those fixed assets; ? did not properly classify certain expenditures between expense accounts; ? did not properly classify certain receipts among revenue accounts; ? did not properly cut off disbursements at fiscal year end, resulting in expenses not being recorded within the current audit period; and ? did not accurately record gross potential rent, due to and from affiliates, and receivables. Criteria The Regulatory Agreement requires the Organization to maintain the books on a U.S. GAAP basis, including properly classified expenses and fixed assets, complete accrued expenditures, proper capitalization of fixed assets, and accurate recording of revenue, due to and from affiliates, and receivables. Cause Review procedures were not sufficient to ensure the Organization's books were maintained on a U.S. GAAP basis. Effect Failure to maintain the books on a U.S. GAAP basis could result in improper financial and HUD reporting. Recommendation Management should revisit and enhance its internal controls and procedures over subsequent expenditures to ensure expenses are captured in the correct fiscal period. Management should implement an additional period-end review to ensure proper classification of expenses and fixed assets, complete accrued expenditures, proper capitalization of fixed assets, and accurate recording of revenue, due to and from affiliates, and receivables. Identification of repeat finding The finding is a repeat of Finding No. 2021-006. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will ensure that moving forward there are controls in place to ensure expenses are captured in the correct fiscal period and that at year end there is a final review of the transactions to ensure that everything is not only properly entered, but properly classified as well.
Finding No. 2022-007: Tenant File Maintenance (Material Weakness) Statement of condition Eligibility In connection with the procedures applied to a sample of five tenant lease files, we noted the following instances of noncompliance with HUD regulations regarding tenant eligibility and the maintenance of lease files: ? For all of the tenant lease files selected, the Organization did not maintain the lead-based paint disclosure in their lease files. ? For one of the tenant lease files selected, the Organization did not maintain the background checks in the lease file. Criteria Tenant lease files are required to be maintained and tenant eligibility determined in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs. Cause Management?s policies with respect to the determination of tenant eligibility and the maintenance of tenant lease files in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, were not consistently followed. Effect The procedures for determining tenant eligibility and maintaining tenant lease files were not consistently applied in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs. This noncompliance could result in units being rented to ineligible tenants or errors in the rent subsidies paid by HUD. Recommendation Management should review and enhance procedures and monitor compliance with those procedures to ensure that tenant eligibility is correctly determined and that tenant lease files are properly maintained in accordance with the requirements of HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs. Identification of repeat finding The finding is a repeat of Finding No. 2021-007. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put controls and procedures in place that ensure all tenant files are maintained in accordance with the HUD Handbook.
Finding No. 2022-008: Verification of Tenant Assets (Significant Deficiency) Statement of condition Eligibility During the year ended June 30, 2022, management did not perform a verification of tenant assets as part of tenant certification and recertification procedures. Criteria In accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, HUD projects are required to verify tenant assets to ensure appropriate subsidy calculations. Cause The Organization's tenants are multi-handicapped blind low-income adults. The cash accounts held by the tenants are maintained by the Sponsor on behalf of the tenants and therefore other assets are not verified. Effect Subsidy receipts could be overstated. Recommendation Management should revisit and enhance its certification and annual recertification procedures to include a verification of tenant assets. Identification of repeat finding The finding is a repeat of Finding No. 2021-008. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place procedures to ensure verification of tenant assets is done during recertification.
Finding No. 2022-009: Work Order Log (Significant Deficiency) Statement of condition Activities allowed or unallowed During the year ended June 30, 2022, management did not maintain a log of work orders processed. Criteria HUD projects are required to maintain a log of work orders processed. Cause The Organization did not have a system in place to summarize and collect work orders for the fiscal year. Effect Significant repairs could be delayed and repairs could be falsified or duplicated. Recommendation Management should revisit and enhance its internal controls and procedures over work orders to ensure a log is maintained on a timely basis. Identification of repeat finding The finding is a repeat of Finding No. 2021-009. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status Remediated subsequent to year end. Reporting views of responsible officials and planned corrective actions Management put in place an electronic work order system that keeps track of the work orders for the property and has put controls in place to actively monitor the system to ensure appropriate repairs are being completed in a timely manner.
Finding No. 2022-001: Restricted Cash (Material Weakness) Statement of condition Special Tests and Provisions During the year ended June 30, 2022, management did not segregate certain tenant security deposits, replacement reserve amounts and the residual receipts deposits into segregated, restricted cash accounts. For three months of the fiscal year, the monthly replacement reserve deposit was funded in the subsequent month. Security deposit funding liability was not properly tracked. Criteria In accordance with the U.S. Department of Housing and Urban Development ("HUD") Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, HUD projects are required to establish and maintain at all times fully funded, separate bank accounts in the name of the entity for all security deposits collected and for residual receipts deposits. The Regulatory Agreement requires a monthly deposit of $27 in the replacement reserve. Security deposits owed to tenants are required to be tracked for accurate financial and HUD reporting. Cause Certain tenant security deposits and the residual receipts deposits were deposited into the replacement reserve account or operating cash account and were not transferred into segregated accounts as of June 30, 2022. The Sponsor funds tenant security deposits and the deposits funded during the year were included within the amounts owed to the Sponsor instead of within the tenant security deposit liability. The monthly replacement reserve transfer was delayed by several days into the subsequent month due to it being on a set interval of time rather than on a monthly date. Effect Management commingled certain tenant security deposits and residual receipts deposits with its replacement reserve and operating cash accounts, resulting in the potential use of tenant security deposit cash or residual receipts deposits to fund repairs or replacements without obtaining the required prior approval of HUD. Inaccurate tracking of the tenant security deposit liability could result in understated liability and improper refunding of tenant security deposits. Late deposits to the replacement reserve could result in underfunding of the replacement reserve. Recommendation Management should review and enhance policies, procedures and internal controls to ensure that all tenant security deposits and residual receipts deposits are segregated into separate, restricted cash accounts. Management should revisit its review procedures for tracking tenant security deposits and its timing schedule for making deposits to the replacement reserve. Identification of repeat finding The finding is a repeat of Finding No. 2021-001. Auditor non-compliance code D - Commingling funds Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will ensure that security deposits are tracked so they can be recorded accordingly when there is a move in and/or move out. Moving forward management will put in place controls to ensure that the calculation is done at the end of the fiscal year.
Finding No. 2022-002: Cash Disbursements (Material Weakness) Statement of condition Allowable costs Activities allowed or unallowed During the year ended June 30, 2022, management disbursed funds of $36,691 to a related party in excess of amounts allowed by the Regulatory Agreement. Criteria The Regulatory Agreement prohibits the distribution of cash or assets other than as approved by HUD. Cause Review procedures were insufficient to ensure that the amounts disbursed to related parties were within the amounts allowed per the Regulatory Agreement. Effect The Organization could have insufficient funds to operate the project and the surplus cash computation, which determines the repayment of a note payable, could be inaccurate without the restoration of the funds to the operating cash held by the Organization. Recommendation Management should revisit and enhance its internal control and review procedures regarding relatedparty payment calculations to ensure funds are not over-disbursed in the future. Management should also ensure the funds are returned to the Organization. Identification of repeat finding The finding is a repeat of Finding No. 2021-002. Auditor non-compliance code H - Unauthorized distribution of project assets Questioned costs $36,691 Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management has put in place controls and procedures to ensure that funds are not over-disbursed in the future. Management will return the funds to the HUD entity.
Finding No. 2022-003: Financial Reporting (Material Weakness) Statement of condition Reporting The lack of appropriate policies, procedures, and internal processes led to untimely year end close and recording procedures, inaccurate tying of net deficit, inaccurate rental assistance payment requests, and late filing of required reporting. Certain information technology controls and procedures were not documented, properly designed, or followed appropriately, including, but not limited to: segregation of administrative user roles from the accounting function, user access review, removal of terminated users, physical access, complementary user entity controls assessment, backup restoration testing, penetration testing, and cybersecurity awareness training. Criteria The Organization is required to have internal controls and procedures in place in order to timely and accurately report the results of its operations, close its books, and timely file its reports with the applicable federal agencies. These procedures include documenting levels of review, reconciling accounting records at month-end and year-end close, and maintaining a well-documented, designed, and applied information technology environment. Cause Management did not have sufficient internal controls in place to accurately and timely report the results of the Organization's operations and maintain the information technology environment. Effect Insufficient controls, late closing and reconciliation of accounting records, and insufficiently maintained information technology environment could result in accounting errors and theft. A lack of controls over financial reporting can result in untimely filing of required reports or incomplete filings with the regulatory and oversight entities. Recommendation We recommend that management re-evaluate its policies and procedures to ensure an appropriate member of management is in place to review the year-end and month-end close processes, as well as journal entries, reconciliations, and other accounting records. Management should appoint an individual to be responsible for the Organization's financial statements and reporting obligations. Management should evaluate its controls and procedures over the information technology environment to ensure they are properly documented, designed, and followed, including but not limited to: ensuring segregation of administrative user roles from the accounting function, performing a regular review of user access, ensuring terminated users are removed from all systems and software, ensuring restriction of physical access to the system, performing an assessment of complementary user entity controls for relevant software vendors, performing backup restoration tests and penetration tests, and providing cybersecurity awareness training. Identification of repeat finding The finding is a repeat of Finding No. 2021-003. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place controls and procedures to ensure financial reporting is complete, accurate, and timely.
Finding No. 2022-004: Residual Receipts Deposit (Material Weakness) Statement of condition Special Tests and Provisions The surplus cash calculated balance of $34,540 at June 30, 2021 was not deposited into the residual receipts reserve during the year ended June 30, 2022. Criteria The Regulatory Agreement requires that any surplus cash amount be deposited into a residual receipts reserve and retained until released as approved by HUD. Cause Review procedures were insufficient to ensure that the computation of surplus cash was performed accurately and timely, resulting in the calculated surplus cash amount not being deposited into the residual receipts reserve. Effect Funds required to be deposited into the residual receipts reserve could be used to fund operations or for alternative purposes without HUD's authorization. Recommendation Management should revisit its internal controls and procedures for the computation of surplus cash to ensure it is performed accurately and timely and that any calculated surplus cash amount be deposited into the residual receipts reserve timely. Identification of repeat finding The finding is not a repeat finding. Auditor non-compliance code B - Failure to make required residual receipts deposits Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will open a new residual account for this HUD entity and will put controls in place to ensure that the calculated surplus cash balance is deposited into the account, if applicable, annually.
Finding No. 2022-005: Expense Allocations (Material Weakness) Statement of condition Allowable costs Activities allowed or unallowed Special tests and provisions Management has not reviewed its allocated costs calculations for accuracy and completeness of insurance and payroll costs incurred by the Organization. Criteria The Organization is required to have controls and procedures in place in order to accurately record costs incurred by the Organization. Cause Management did not have appropriate controls in place to review the allocation percentages for completeness and accuracy. Effect Out-of-date allocations could result in understated or overstated expenses and liabilities of the Organization, as well as theft. Recommendation Management should review and enhance its internal controls over payroll and insurance allocations to ensure the costs recorded by the Organization are representative of its share of the charges. Identification of repeat finding The finding is a repeat of Finding No. 2021-005. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place controls and procedures to annually evaluate the percentage of time staff dedicate to the organization to determine the correct allocation for payroll.
Finding No. 2022-006: Cash Disbursements and Classifications (Material Weakness) Statement of condition Allowable costs Activities allowed or unallowed During the year ended June 30, 2022, the Organization: ? did not properly capitalize certain expenditures as fixed assets in accordance with the Organization's capitalization policy and properly depreciate those fixed assets; ? did not properly classify certain expenditures between expense accounts; ? did not properly classify certain receipts among revenue accounts; ? did not properly cut off disbursements at fiscal year end, resulting in expenses not being recorded within the current audit period; and ? did not accurately record gross potential rent, due to and from affiliates, and receivables. Criteria The Regulatory Agreement requires the Organization to maintain the books on a U.S. GAAP basis, including properly classified expenses and fixed assets, complete accrued expenditures, proper capitalization of fixed assets, and accurate recording of revenue, due to and from affiliates, and receivables. Cause Review procedures were not sufficient to ensure the Organization's books were maintained on a U.S. GAAP basis. Effect Failure to maintain the books on a U.S. GAAP basis could result in improper financial and HUD reporting. Recommendation Management should revisit and enhance its internal controls and procedures over subsequent expenditures to ensure expenses are captured in the correct fiscal period. Management should implement an additional period-end review to ensure proper classification of expenses and fixed assets, complete accrued expenditures, proper capitalization of fixed assets, and accurate recording of revenue, due to and from affiliates, and receivables. Identification of repeat finding The finding is a repeat of Finding No. 2021-006. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will ensure that moving forward there are controls in place to ensure expenses are captured in the correct fiscal period and that at year end there is a final review of the transactions to ensure that everything is not only properly entered, but properly classified as well.
Finding No. 2022-007: Tenant File Maintenance (Material Weakness) Statement of condition Eligibility In connection with the procedures applied to a sample of five tenant lease files, we noted the following instances of noncompliance with HUD regulations regarding tenant eligibility and the maintenance of lease files: ? For all of the tenant lease files selected, the Organization did not maintain the lead-based paint disclosure in their lease files. ? For one of the tenant lease files selected, the Organization did not maintain the background checks in the lease file. Criteria Tenant lease files are required to be maintained and tenant eligibility determined in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs. Cause Management?s policies with respect to the determination of tenant eligibility and the maintenance of tenant lease files in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, were not consistently followed. Effect The procedures for determining tenant eligibility and maintaining tenant lease files were not consistently applied in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs. This noncompliance could result in units being rented to ineligible tenants or errors in the rent subsidies paid by HUD. Recommendation Management should review and enhance procedures and monitor compliance with those procedures to ensure that tenant eligibility is correctly determined and that tenant lease files are properly maintained in accordance with the requirements of HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs. Identification of repeat finding The finding is a repeat of Finding No. 2021-007. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put controls and procedures in place that ensure all tenant files are maintained in accordance with the HUD Handbook.
Finding No. 2022-008: Verification of Tenant Assets (Significant Deficiency) Statement of condition Eligibility During the year ended June 30, 2022, management did not perform a verification of tenant assets as part of tenant certification and recertification procedures. Criteria In accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, HUD projects are required to verify tenant assets to ensure appropriate subsidy calculations. Cause The Organization's tenants are multi-handicapped blind low-income adults. The cash accounts held by the tenants are maintained by the Sponsor on behalf of the tenants and therefore other assets are not verified. Effect Subsidy receipts could be overstated. Recommendation Management should revisit and enhance its certification and annual recertification procedures to include a verification of tenant assets. Identification of repeat finding The finding is a repeat of Finding No. 2021-008. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place procedures to ensure verification of tenant assets is done during recertification.
Finding No. 2022-009: Work Order Log (Significant Deficiency) Statement of condition Activities allowed or unallowed During the year ended June 30, 2022, management did not maintain a log of work orders processed. Criteria HUD projects are required to maintain a log of work orders processed. Cause The Organization did not have a system in place to summarize and collect work orders for the fiscal year. Effect Significant repairs could be delayed and repairs could be falsified or duplicated. Recommendation Management should revisit and enhance its internal controls and procedures over work orders to ensure a log is maintained on a timely basis. Identification of repeat finding The finding is a repeat of Finding No. 2021-009. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status Remediated subsequent to year end. Reporting views of responsible officials and planned corrective actions Management put in place an electronic work order system that keeps track of the work orders for the property and has put controls in place to actively monitor the system to ensure appropriate repairs are being completed in a timely manner.
Finding No. 2022-001: Restricted Cash (Material Weakness) Statement of condition Special Tests and Provisions During the year ended June 30, 2022, management did not segregate certain tenant security deposits, replacement reserve amounts and the residual receipts deposits into segregated, restricted cash accounts. For three months of the fiscal year, the monthly replacement reserve deposit was funded in the subsequent month. Security deposit funding liability was not properly tracked. Criteria In accordance with the U.S. Department of Housing and Urban Development ("HUD") Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, HUD projects are required to establish and maintain at all times fully funded, separate bank accounts in the name of the entity for all security deposits collected and for residual receipts deposits. The Regulatory Agreement requires a monthly deposit of $27 in the replacement reserve. Security deposits owed to tenants are required to be tracked for accurate financial and HUD reporting. Cause Certain tenant security deposits and the residual receipts deposits were deposited into the replacement reserve account or operating cash account and were not transferred into segregated accounts as of June 30, 2022. The Sponsor funds tenant security deposits and the deposits funded during the year were included within the amounts owed to the Sponsor instead of within the tenant security deposit liability. The monthly replacement reserve transfer was delayed by several days into the subsequent month due to it being on a set interval of time rather than on a monthly date. Effect Management commingled certain tenant security deposits and residual receipts deposits with its replacement reserve and operating cash accounts, resulting in the potential use of tenant security deposit cash or residual receipts deposits to fund repairs or replacements without obtaining the required prior approval of HUD. Inaccurate tracking of the tenant security deposit liability could result in understated liability and improper refunding of tenant security deposits. Late deposits to the replacement reserve could result in underfunding of the replacement reserve. Recommendation Management should review and enhance policies, procedures and internal controls to ensure that all tenant security deposits and residual receipts deposits are segregated into separate, restricted cash accounts. Management should revisit its review procedures for tracking tenant security deposits and its timing schedule for making deposits to the replacement reserve. Identification of repeat finding The finding is a repeat of Finding No. 2021-001. Auditor non-compliance code D - Commingling funds Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will ensure that security deposits are tracked so they can be recorded accordingly when there is a move in and/or move out. Moving forward management will put in place controls to ensure that the calculation is done at the end of the fiscal year.
Finding No. 2022-002: Cash Disbursements (Material Weakness) Statement of condition Allowable costs Activities allowed or unallowed During the year ended June 30, 2022, management disbursed funds of $36,691 to a related party in excess of amounts allowed by the Regulatory Agreement. Criteria The Regulatory Agreement prohibits the distribution of cash or assets other than as approved by HUD. Cause Review procedures were insufficient to ensure that the amounts disbursed to related parties were within the amounts allowed per the Regulatory Agreement. Effect The Organization could have insufficient funds to operate the project and the surplus cash computation, which determines the repayment of a note payable, could be inaccurate without the restoration of the funds to the operating cash held by the Organization. Recommendation Management should revisit and enhance its internal control and review procedures regarding relatedparty payment calculations to ensure funds are not over-disbursed in the future. Management should also ensure the funds are returned to the Organization. Identification of repeat finding The finding is a repeat of Finding No. 2021-002. Auditor non-compliance code H - Unauthorized distribution of project assets Questioned costs $36,691 Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management has put in place controls and procedures to ensure that funds are not over-disbursed in the future. Management will return the funds to the HUD entity.
Finding No. 2022-003: Financial Reporting (Material Weakness) Statement of condition Reporting The lack of appropriate policies, procedures, and internal processes led to untimely year end close and recording procedures, inaccurate tying of net deficit, inaccurate rental assistance payment requests, and late filing of required reporting. Certain information technology controls and procedures were not documented, properly designed, or followed appropriately, including, but not limited to: segregation of administrative user roles from the accounting function, user access review, removal of terminated users, physical access, complementary user entity controls assessment, backup restoration testing, penetration testing, and cybersecurity awareness training. Criteria The Organization is required to have internal controls and procedures in place in order to timely and accurately report the results of its operations, close its books, and timely file its reports with the applicable federal agencies. These procedures include documenting levels of review, reconciling accounting records at month-end and year-end close, and maintaining a well-documented, designed, and applied information technology environment. Cause Management did not have sufficient internal controls in place to accurately and timely report the results of the Organization's operations and maintain the information technology environment. Effect Insufficient controls, late closing and reconciliation of accounting records, and insufficiently maintained information technology environment could result in accounting errors and theft. A lack of controls over financial reporting can result in untimely filing of required reports or incomplete filings with the regulatory and oversight entities. Recommendation We recommend that management re-evaluate its policies and procedures to ensure an appropriate member of management is in place to review the year-end and month-end close processes, as well as journal entries, reconciliations, and other accounting records. Management should appoint an individual to be responsible for the Organization's financial statements and reporting obligations. Management should evaluate its controls and procedures over the information technology environment to ensure they are properly documented, designed, and followed, including but not limited to: ensuring segregation of administrative user roles from the accounting function, performing a regular review of user access, ensuring terminated users are removed from all systems and software, ensuring restriction of physical access to the system, performing an assessment of complementary user entity controls for relevant software vendors, performing backup restoration tests and penetration tests, and providing cybersecurity awareness training. Identification of repeat finding The finding is a repeat of Finding No. 2021-003. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place controls and procedures to ensure financial reporting is complete, accurate, and timely.
Finding No. 2022-004: Residual Receipts Deposit (Material Weakness) Statement of condition Special Tests and Provisions The surplus cash calculated balance of $34,540 at June 30, 2021 was not deposited into the residual receipts reserve during the year ended June 30, 2022. Criteria The Regulatory Agreement requires that any surplus cash amount be deposited into a residual receipts reserve and retained until released as approved by HUD. Cause Review procedures were insufficient to ensure that the computation of surplus cash was performed accurately and timely, resulting in the calculated surplus cash amount not being deposited into the residual receipts reserve. Effect Funds required to be deposited into the residual receipts reserve could be used to fund operations or for alternative purposes without HUD's authorization. Recommendation Management should revisit its internal controls and procedures for the computation of surplus cash to ensure it is performed accurately and timely and that any calculated surplus cash amount be deposited into the residual receipts reserve timely. Identification of repeat finding The finding is not a repeat finding. Auditor non-compliance code B - Failure to make required residual receipts deposits Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will open a new residual account for this HUD entity and will put controls in place to ensure that the calculated surplus cash balance is deposited into the account, if applicable, annually.
Finding No. 2022-005: Expense Allocations (Material Weakness) Statement of condition Allowable costs Activities allowed or unallowed Special tests and provisions Management has not reviewed its allocated costs calculations for accuracy and completeness of insurance and payroll costs incurred by the Organization. Criteria The Organization is required to have controls and procedures in place in order to accurately record costs incurred by the Organization. Cause Management did not have appropriate controls in place to review the allocation percentages for completeness and accuracy. Effect Out-of-date allocations could result in understated or overstated expenses and liabilities of the Organization, as well as theft. Recommendation Management should review and enhance its internal controls over payroll and insurance allocations to ensure the costs recorded by the Organization are representative of its share of the charges. Identification of repeat finding The finding is a repeat of Finding No. 2021-005. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place controls and procedures to annually evaluate the percentage of time staff dedicate to the organization to determine the correct allocation for payroll.
Finding No. 2022-006: Cash Disbursements and Classifications (Material Weakness) Statement of condition Allowable costs Activities allowed or unallowed During the year ended June 30, 2022, the Organization: ? did not properly capitalize certain expenditures as fixed assets in accordance with the Organization's capitalization policy and properly depreciate those fixed assets; ? did not properly classify certain expenditures between expense accounts; ? did not properly classify certain receipts among revenue accounts; ? did not properly cut off disbursements at fiscal year end, resulting in expenses not being recorded within the current audit period; and ? did not accurately record gross potential rent, due to and from affiliates, and receivables. Criteria The Regulatory Agreement requires the Organization to maintain the books on a U.S. GAAP basis, including properly classified expenses and fixed assets, complete accrued expenditures, proper capitalization of fixed assets, and accurate recording of revenue, due to and from affiliates, and receivables. Cause Review procedures were not sufficient to ensure the Organization's books were maintained on a U.S. GAAP basis. Effect Failure to maintain the books on a U.S. GAAP basis could result in improper financial and HUD reporting. Recommendation Management should revisit and enhance its internal controls and procedures over subsequent expenditures to ensure expenses are captured in the correct fiscal period. Management should implement an additional period-end review to ensure proper classification of expenses and fixed assets, complete accrued expenditures, proper capitalization of fixed assets, and accurate recording of revenue, due to and from affiliates, and receivables. Identification of repeat finding The finding is a repeat of Finding No. 2021-006. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will ensure that moving forward there are controls in place to ensure expenses are captured in the correct fiscal period and that at year end there is a final review of the transactions to ensure that everything is not only properly entered, but properly classified as well.
Finding No. 2022-007: Tenant File Maintenance (Material Weakness) Statement of condition Eligibility In connection with the procedures applied to a sample of five tenant lease files, we noted the following instances of noncompliance with HUD regulations regarding tenant eligibility and the maintenance of lease files: ? For all of the tenant lease files selected, the Organization did not maintain the lead-based paint disclosure in their lease files. ? For one of the tenant lease files selected, the Organization did not maintain the background checks in the lease file. Criteria Tenant lease files are required to be maintained and tenant eligibility determined in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs. Cause Management?s policies with respect to the determination of tenant eligibility and the maintenance of tenant lease files in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, were not consistently followed. Effect The procedures for determining tenant eligibility and maintaining tenant lease files were not consistently applied in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs. This noncompliance could result in units being rented to ineligible tenants or errors in the rent subsidies paid by HUD. Recommendation Management should review and enhance procedures and monitor compliance with those procedures to ensure that tenant eligibility is correctly determined and that tenant lease files are properly maintained in accordance with the requirements of HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs. Identification of repeat finding The finding is a repeat of Finding No. 2021-007. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put controls and procedures in place that ensure all tenant files are maintained in accordance with the HUD Handbook.
Finding No. 2022-008: Verification of Tenant Assets (Significant Deficiency) Statement of condition Eligibility During the year ended June 30, 2022, management did not perform a verification of tenant assets as part of tenant certification and recertification procedures. Criteria In accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, HUD projects are required to verify tenant assets to ensure appropriate subsidy calculations. Cause The Organization's tenants are multi-handicapped blind low-income adults. The cash accounts held by the tenants are maintained by the Sponsor on behalf of the tenants and therefore other assets are not verified. Effect Subsidy receipts could be overstated. Recommendation Management should revisit and enhance its certification and annual recertification procedures to include a verification of tenant assets. Identification of repeat finding The finding is a repeat of Finding No. 2021-008. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place procedures to ensure verification of tenant assets is done during recertification.
Finding No. 2022-009: Work Order Log (Significant Deficiency) Statement of condition Activities allowed or unallowed During the year ended June 30, 2022, management did not maintain a log of work orders processed. Criteria HUD projects are required to maintain a log of work orders processed. Cause The Organization did not have a system in place to summarize and collect work orders for the fiscal year. Effect Significant repairs could be delayed and repairs could be falsified or duplicated. Recommendation Management should revisit and enhance its internal controls and procedures over work orders to ensure a log is maintained on a timely basis. Identification of repeat finding The finding is a repeat of Finding No. 2021-009. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status Remediated subsequent to year end. Reporting views of responsible officials and planned corrective actions Management put in place an electronic work order system that keeps track of the work orders for the property and has put controls in place to actively monitor the system to ensure appropriate repairs are being completed in a timely manner.
Finding No. 2022-001: Restricted Cash (Material Weakness) Statement of condition Special Tests and Provisions During the year ended June 30, 2022, management did not segregate certain tenant security deposits, replacement reserve amounts and the residual receipts deposits into segregated, restricted cash accounts. For three months of the fiscal year, the monthly replacement reserve deposit was funded in the subsequent month. Security deposit funding liability was not properly tracked. Criteria In accordance with the U.S. Department of Housing and Urban Development ("HUD") Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, HUD projects are required to establish and maintain at all times fully funded, separate bank accounts in the name of the entity for all security deposits collected and for residual receipts deposits. The Regulatory Agreement requires a monthly deposit of $27 in the replacement reserve. Security deposits owed to tenants are required to be tracked for accurate financial and HUD reporting. Cause Certain tenant security deposits and the residual receipts deposits were deposited into the replacement reserve account or operating cash account and were not transferred into segregated accounts as of June 30, 2022. The Sponsor funds tenant security deposits and the deposits funded during the year were included within the amounts owed to the Sponsor instead of within the tenant security deposit liability. The monthly replacement reserve transfer was delayed by several days into the subsequent month due to it being on a set interval of time rather than on a monthly date. Effect Management commingled certain tenant security deposits and residual receipts deposits with its replacement reserve and operating cash accounts, resulting in the potential use of tenant security deposit cash or residual receipts deposits to fund repairs or replacements without obtaining the required prior approval of HUD. Inaccurate tracking of the tenant security deposit liability could result in understated liability and improper refunding of tenant security deposits. Late deposits to the replacement reserve could result in underfunding of the replacement reserve. Recommendation Management should review and enhance policies, procedures and internal controls to ensure that all tenant security deposits and residual receipts deposits are segregated into separate, restricted cash accounts. Management should revisit its review procedures for tracking tenant security deposits and its timing schedule for making deposits to the replacement reserve. Identification of repeat finding The finding is a repeat of Finding No. 2021-001. Auditor non-compliance code D - Commingling funds Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will ensure that security deposits are tracked so they can be recorded accordingly when there is a move in and/or move out. Moving forward management will put in place controls to ensure that the calculation is done at the end of the fiscal year.
Finding No. 2022-002: Cash Disbursements (Material Weakness) Statement of condition Allowable costs Activities allowed or unallowed During the year ended June 30, 2022, management disbursed funds of $36,691 to a related party in excess of amounts allowed by the Regulatory Agreement. Criteria The Regulatory Agreement prohibits the distribution of cash or assets other than as approved by HUD. Cause Review procedures were insufficient to ensure that the amounts disbursed to related parties were within the amounts allowed per the Regulatory Agreement. Effect The Organization could have insufficient funds to operate the project and the surplus cash computation, which determines the repayment of a note payable, could be inaccurate without the restoration of the funds to the operating cash held by the Organization. Recommendation Management should revisit and enhance its internal control and review procedures regarding relatedparty payment calculations to ensure funds are not over-disbursed in the future. Management should also ensure the funds are returned to the Organization. Identification of repeat finding The finding is a repeat of Finding No. 2021-002. Auditor non-compliance code H - Unauthorized distribution of project assets Questioned costs $36,691 Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management has put in place controls and procedures to ensure that funds are not over-disbursed in the future. Management will return the funds to the HUD entity.
Finding No. 2022-003: Financial Reporting (Material Weakness) Statement of condition Reporting The lack of appropriate policies, procedures, and internal processes led to untimely year end close and recording procedures, inaccurate tying of net deficit, inaccurate rental assistance payment requests, and late filing of required reporting. Certain information technology controls and procedures were not documented, properly designed, or followed appropriately, including, but not limited to: segregation of administrative user roles from the accounting function, user access review, removal of terminated users, physical access, complementary user entity controls assessment, backup restoration testing, penetration testing, and cybersecurity awareness training. Criteria The Organization is required to have internal controls and procedures in place in order to timely and accurately report the results of its operations, close its books, and timely file its reports with the applicable federal agencies. These procedures include documenting levels of review, reconciling accounting records at month-end and year-end close, and maintaining a well-documented, designed, and applied information technology environment. Cause Management did not have sufficient internal controls in place to accurately and timely report the results of the Organization's operations and maintain the information technology environment. Effect Insufficient controls, late closing and reconciliation of accounting records, and insufficiently maintained information technology environment could result in accounting errors and theft. A lack of controls over financial reporting can result in untimely filing of required reports or incomplete filings with the regulatory and oversight entities. Recommendation We recommend that management re-evaluate its policies and procedures to ensure an appropriate member of management is in place to review the year-end and month-end close processes, as well as journal entries, reconciliations, and other accounting records. Management should appoint an individual to be responsible for the Organization's financial statements and reporting obligations. Management should evaluate its controls and procedures over the information technology environment to ensure they are properly documented, designed, and followed, including but not limited to: ensuring segregation of administrative user roles from the accounting function, performing a regular review of user access, ensuring terminated users are removed from all systems and software, ensuring restriction of physical access to the system, performing an assessment of complementary user entity controls for relevant software vendors, performing backup restoration tests and penetration tests, and providing cybersecurity awareness training. Identification of repeat finding The finding is a repeat of Finding No. 2021-003. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place controls and procedures to ensure financial reporting is complete, accurate, and timely.
Finding No. 2022-004: Residual Receipts Deposit (Material Weakness) Statement of condition Special Tests and Provisions The surplus cash calculated balance of $34,540 at June 30, 2021 was not deposited into the residual receipts reserve during the year ended June 30, 2022. Criteria The Regulatory Agreement requires that any surplus cash amount be deposited into a residual receipts reserve and retained until released as approved by HUD. Cause Review procedures were insufficient to ensure that the computation of surplus cash was performed accurately and timely, resulting in the calculated surplus cash amount not being deposited into the residual receipts reserve. Effect Funds required to be deposited into the residual receipts reserve could be used to fund operations or for alternative purposes without HUD's authorization. Recommendation Management should revisit its internal controls and procedures for the computation of surplus cash to ensure it is performed accurately and timely and that any calculated surplus cash amount be deposited into the residual receipts reserve timely. Identification of repeat finding The finding is not a repeat finding. Auditor non-compliance code B - Failure to make required residual receipts deposits Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will open a new residual account for this HUD entity and will put controls in place to ensure that the calculated surplus cash balance is deposited into the account, if applicable, annually.
Finding No. 2022-005: Expense Allocations (Material Weakness) Statement of condition Allowable costs Activities allowed or unallowed Special tests and provisions Management has not reviewed its allocated costs calculations for accuracy and completeness of insurance and payroll costs incurred by the Organization. Criteria The Organization is required to have controls and procedures in place in order to accurately record costs incurred by the Organization. Cause Management did not have appropriate controls in place to review the allocation percentages for completeness and accuracy. Effect Out-of-date allocations could result in understated or overstated expenses and liabilities of the Organization, as well as theft. Recommendation Management should review and enhance its internal controls over payroll and insurance allocations to ensure the costs recorded by the Organization are representative of its share of the charges. Identification of repeat finding The finding is a repeat of Finding No. 2021-005. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place controls and procedures to annually evaluate the percentage of time staff dedicate to the organization to determine the correct allocation for payroll.