Audit 371719

HUD insured mortgage program Section 223(f), ALN 14.155 Criteria: Under HUD regulations, recipients are required to maintain and make available all records necessary to demonstrate compliance with program requirements. HUD requires documentation of tenant eligibility, income verification, and rent determination. The Uniform Guidance requires recipients to maintain records that adequately identify the source and application of funds. Statement of Condition: We reviewed 10% of the total population of tenant files. During our review, we noted that documentation to support tenant eligibility determination was missing or incomplete. We consider this condition to be a significant deficiency. Cause: The deficiencies occurred due to inconsistent file management practices and ineffective internal review procedures to ensure that all required eligibility documentation is obtained and retained. Effect: Missing or incomplete files increase the risk of improper eligibility determinations, inaccurate rent calculations, questioned costs, and HUD noncompliance. Recommendation: We recommend that management strengthen internal controls over tenant file documentation by conducting periodic supervisory reviews of files to ensure that all required documentation is present and complete and by providing staff training on HUD eligibility and documentation requirements. Views of Responsible Officials: We agree with the auditor’s finding. The issue was primarily due to staff turnover of nearly 90% since August 2024, with new staff receiving little to no training on HUD requirements and The Arc’s Standard Operating Procedures, continued use of a failed software system through a five-year contract that ended May 31, 2025, and failed management practices prior to March 2025. Corrective procedures are now in place, and we believe these steps will resolve the matter going forward. Supervisors will initiate corrective actions to strengthen tenant file documentation and compliance with HUD requirements. Staff have received refresher training on eligibility and documentation procedures and will receive ongoing training and mentoring as needed. A thorough review of all properties has been conducted and supervisory reviews of tenant files will be conducted on a periodic basis going forward. Missing or incomplete documentation in existing files will be addressed where feasible. These measures are expected to resolve the deficiency and prevent recurrence in future audits.

HUD insured mortgage program Section 223(f), ALN 14.155 Criteria: In accordance with HUD regulations and the Uniform Guidance, recipients are required to submit audited financial statements to HUD and to submit the Single Audit reporting package to the Federal Audit Clearinghouse (FAC) within nine months after fiscal year end. Statement of Condition: The Organization did not submit its audited financial statements to HUD or its Single Audit reporting package to the FAC by the required due date. Cause: The delays in completing the audit resulted from the Organization’s difficulty completing year-end closing of the books due to issues from a change to new software and staff turnover during the year. Additional delays resulted from the Organization’s difficulty locating occupancy records requested by the auditor. Effect: Failure to submit required reports by the established deadlines places the Organization in noncompliance with federal requirements and may result in sanctions or restrictions on program funding. Recommendation: We recommend that management implement procedures to ensure that financial reconciliations are completed timely and that software issues are promptly identified and resolved. We also recommend that management strengthen recordkeeping procedures to ensure that occupancy records are maintained, organized, and provided timely to auditors. Views of Responsible Officials: We agree with the auditor’s finding. The issue was primarily due to staff turnover of nearly 90% since August 2024, with new staff receiving little to no training on HUD requirements and The Arc’s Standard Operating Procedures, continued use of a failed software system through a five-year contract that ended May 31, 2025, and failed management practices prior to March 2025. Corrective procedures are now in place, and we believe these steps will resolve the matter going forward. Supervisors will initiate corrective actions to strengthen tenant file documentation and compliance with HUD requirements. Staff have received refresher training on eligibility and documentation procedures and will receive ongoing training and mentoring as needed. A thorough review of all properties has been conducted and supervisory reviews of tenant files will be conducted on a periodic basis going forward. Missing or incomplete documentation in existing files will be addressed where feasible. These measures are expected to resolve the deficiency and prevent recurrence in future audits.

HUD insured mortgage program Section 223(f), ALN 14.155 Criteria: The Project’s occupancy rate should be adequate to maintain Project operations. Statement of Condition: The Project’s vacancy expense was 41% of rental revenue for the year ended September 30, 2024. Cause: Fourteen of the Project’s 48 units were vacant the entire year, four were vacant most of the year and several other units were vacant at various times during the year. Effect: Decreased revenue may result in excessive future usage of replacement reserve and debt service savings reserve funds. Decreased revenue may also negatively impact the Project’s ability to fund future Project operations. Recommendation: The Project should continue its efforts to obtain tenants and decrease vacancies. Views of Responsible Officials: We agree with the finding. The Project will continue its attempts to decrease vacancies.