Audit 371924

Finding Number 2024-002 In Process Federal Agency U.S. Dept. of Housing and Urban Development Federal Program Name Section 202 Capital Advance Assistance Listing Number 14.157 Federal Award Identification Number and Year MN46S931002 - 1993 Award Period 2024 Compliance Requirement Affected G - Unauthorized Loans from Project Funds Type of Finding •Material Weakness in Internal Control over Compliance •Material Noncompliance (Qualified Opinion) Criteria Payroll expenses were over allocated to the property. In addition, management fees will be charged utilizing the HUD approved rate per the Management Agent's Certification Form HUD-9839-B. Condition During audit procedures, it was noted that payroll expenses from a shared employee allocated to the property exceeded the appropriate amount. Furthermore, the management fee charged exceeded the HUD-approved rate. These discrepancies resulted in a receivable from the management agent as of year-end. Questioned costs $23,289 Cause The transition in ownership and management on April 30th contributed to delays in fully understanding the Project’s requirements and properly configuring payroll allocations within the accounting system. Effect The Project was charged for payroll expenses exceeding the shared employee’s actual hours and for management fees above the approved rate during 2024. To correct these issues, a receivable was recorded at year-end, effectively resulting in an unauthorized loan to the management/ownership group. Repeat Finding No Recommendation Management should implement a monthly review process to ensure that management fees are billed in accordance with the terms of the management agreement. Additionally, payroll allocations should be reviewed monthly to confirm that only the appropriate share of expenses is charged to the Project. Views of Responsible Officials and Planned Corrective There is no disagreement with the audit finding. Management Response Management continues to review and establish month end and year end procedures to properly record management fees accordance with HUD approved rate. The payroll allocation issue arose due to a salary allocation being missed during the property management transition. Management continues to review and establish procedures related to payroll allocations to ensure correct expenses are allocated to the Project.

Finding Number 2024-003 In Process Federal Agency U.S. Dept. of Housing and Urban Development Federal Program Name Section 202 Capital Advance Assistance Listing Number 14.157 Federal Award Identification Number and Year MN46S931002 - 1993 Award Period 2024 Compliance Requirement Affected S - Internal Controls Type of Finding •Material Weakness in Internal Control over Compliance Criteria Management is responsible for ensuring there are controls in place and they are being followed. Condition The Project should ensure internal control processes are documented and followed. Cause A formal review process had not been adopted during 2024, after the transition in management. The HUD approved budget for the 24-25 grant period, one replacement reserve withdrawal, and the bank reconciliations for August through December did not have documented review or approval. Effect Potential for incorrect reporting. Repeat Finding No Recommendation The Project should establish and follow a consistent review process for budgets, replacement reserve withdrawals, and bank reconciliations. Views of Responsible Officials and Planned Corrective Actions There is no disagreement with the audit finding. Management Response Management continues to review and establish monthly processes related to review and approval of budgets, replacement reserve withdrawals, and bank reconciliations.

Finding Number 2024-004 In Process Federal Agency U.S. Dept. of Housing and Urban Development Federal Program Name Section 202 Capital Advance Assistance Listing Number 14.157 Federal Award Identification Number and Year MN46S931002 - 1993 Award Period 2024 Compliance Requirement Affected N - Reserve for Replacements Deposits Type of Finding Significant Deficiency in Compliance and Internal Control over Major Federal Program Criteria Management is responsible for maintaining required monthly deposits into the Replacement Reserve account in accordance with the form HUD-9250 Condition The project only made eleven of the 12 required deposits for 2024. Questioned Costs $11,422 Cause The October deposit was missed. Effect The Replacement Reserve was underfunded by one deposit during 2024. Repeat Finding No Recommendation The Project should establish and follow a consistent monthly review process to ensure all deposits are made on a timely basis. Views of Responsible Officials and Planned Corrective Actions There is no disagreement with the audit finding. Management Response Management continues to review and establish processes related to review and approval to ensure monthly replacement reserve deposits are made.