Audit 369576

Federal Agency U.S. Department of Housing and Urban Development Finding Reference Number 2024 001 Major Federal Program Section 811 Supportive Housing for Persons with Disabilities (14.181) Type of Finding Significant Deficiency, Noncompliance Compliance Requirement Special Tests and Provisions Replacement Reserves Account Criteria Line 10(a) of the HUD Regulatory Agreement states the following, "Borrower shall deposit a monthly amount of $__________. The amount of the monthly deposit may be increased or decreased from time to time at the written direction of HUD without a recorded amendment to this agreement" Title 2 U.S. Code of Federal Regulations Part 200 (2 CFR 200), Uniform Administrative Requirements, Cost Principles, and Audit Requirements, Section 200.303(a) states that non federal entities must establish and maintain effective internal control over the federal award that provides reasonable assurance that the non federal entity is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition During Special Tests and Provisions Replacement Reserves, the auditors identified deposits made to two HUD Replacement Reserve accounts that did not agree to amounts within the current HUD agreements. For one account, the deposit required was $275, and the Arc's deposit was $262. For the second account, the Arc deposited $394 instead of $410 as required, such that the deposits were being made timely, however for an incorrect amount. Effect The Arc was not in compliance with the Special Tests and Provisions Replacement Reserves requirement. Cause Due to lack of internal controls surrounding the review of changes to the replacement reserve requirements, the new required deposit amount was not input in the Arc's software, resulting in deposits of incorrect amounts. Questioned Costs There are no questioned costs related to this finding. Statistical Sampling The sample was not intended to be, and was not, a statistically valid sample. Repeat Finding This is a repeat finding of 2023 001. Recommendation We recommend that the Arc enhance its policies and procedures to ensure responsible program personnel timely reviews HUD communications and then validates replacement reserve account deposit amounts are adjusted accordingly for any required changes. Views of Responsible Officials We agree with the finding and have established additional internal controls to ensure future compliance as outlined in our corrective action plan.

Criteria The compliance supplement states the following: “Any Surplus Funds in the project funds account (including earned interest) at the end of the fiscal year shall be deposited in a federally insured account within 60 days following the end of the fiscal year.” Surplus funds are required to be calculated and returned to HUD within 60 days of the end of the period. Condition During Special Tests and Provision Residual Receipts, the auditor identified that the Arc did not complete the preliminary audited financial statements that require a calculation of surplus funds as of December 31, 2024 unaudited information. This was the key control identified to ensure that excess funds were remitted, and as it was not completed until after 60 days of year end, the Arc was not able to remit the funds timely, if a return existed. Additionally, the Arc calculated that a return was required for one of their projects however this was related to issues related to the allocation of intercompany payables and receivables, and the Arc did have sufficient current obligations that they were not required to remit funds despite the calculation. Effect The Arc was not in compliance with the Special Tests and Provisions Residual Receipts requirement. Cause Due to lack of internal controls surrounding timely review of project level accounting and reporting, specifically with respect to surplus fund calculations. In addition, no reconciliations of intercompany payables and receivables were completed. Questioned Costs There are no questioned costs related to this finding. Statistical Sampling The sample was not intended to be, and was not, a statistically valid sample. Repeat Finding This is not a repeat finding. Recommendation We recommend that the Arc enhance its policies and procedures to ensure responsible program personnel timely completes preliminary assessment of the requirements to calculate surplus funds to ensure no funds are required to be remitted in the 60 day window of year end. Views of Responsible Officials We agree with the finding and have established additional internal controls to ensure future compliance as outlined in our corrective action plan.