Audit 391607

Finding 2025-006: Replacement Reserves Material Weakness/Noncompliance Special Tests and Provisions Assistance Listing 14.157 Repeat Finding: 2024-002 Criteria: The Section 202 Capital Advance Program, Eastlawn East, should have procedures to account for its replacement reserve monthly and to review for any errors. All withdrawals from the reserve must be approved by HUD prior to the withdrawal occurring. Condition: The Eastlawn East program is required to make monthly deposits into the replacement reserve bank account. This account is also reconciled by the Eastlawn East program’s staff and the reconciliation is reviewed by the Executive Director. The Eastlawn East program should have made 12 monthly deposits but made 18. Procedures should have been in place during the reconciliation to identify more than one deposit occurred during the month but Eastlawn East program is merely making sure the balance reconciles and not reviewing the activity. We further noted a 19th replacement reserve deposit was paid from the checking account but it was placed into the replacement reserve of another program. The Eastlawn East program’s fee accountant correctly recorded the payment as a receivable back from the other program but the Eastlawn East program failed to realize it occurred and the funds had not yet been returned as of June 30, 2025. We further noted the Eastlawn East program withdrew $13,329.48 from the replacement reserve during the year for which it was unable to provide documentation that the withdrawal was approved by HUD. The Eastlawn East program indicated that neither HUD or the bank was able to provide documentation either that it was approved. Cause: The Eastlawn East program did not have procedures ensure only required deposits and approved withdrawals occurred. Effect or Potential Effect: The Eastlawn East program was in noncompliance with the rules and regulations governing its replacement reserve. The excess deposits to the replacement reserve are hampering the Eastlawn East program’s ability to timely pay its liabilities as funds which should not have been restricted now are. Recommendation: The Eastlawn East program should establish procedures where only the required deposits are made and withdrawals are only made when approved. This should be part of the monthly bank reconciliation process. The Eastlawn East program should contact HUD and determine what actions are necessary for the unapproved withdrawal. View of the Responsible Officials of the Auditee: The auditee's management agrees with the finding.

Finding 2025-007: Reporting Material Weakness/Noncompliance Special Tests and Provisions Assistance Listing 14.157 Criteria: The Project must establish and maintain effective internal controls over compliance and ensure timely submission of required financial and performance reports. Further, owners participating in HUD programs must submit owner-certified annual financial statements within 90 days of fiscal year end. Condition: The Section 202 Capital Advance Program did not file its required owner-certified financial submission to REAC within 90 days of fiscal year end. The submission was delayed because year-end financial records were not completed in time to meet HUD’s reporting deadline. Cause: The program lacked adequate controls and processes to ensure timely completion of financial records and submission. Specifically, management did not establish sufficient procedures or monitoring mechanisms to track reporting deadlines and ensure readiness of financial data. Effect or Potential Effect: The following are effects and potential effects of failure to report timely: • Noncompliance with HUD program requirements and Uniform Guidance reporting standards. • Increased risk of HUD sanctions, including potential administrative findings or restrictions on future funding. • Reduced reliability and timeliness of financial information available to HUD for oversight and program monitoring. Recommendation: We recommend that program management: • Strengthen internal controls over financial reporting by implementing a structured closing calendar and monitoring system to ensure timely completion of year-end records. • Assign responsibility to designated staff for tracking HUD reporting deadlines and preparing submissions. • Review with its fee accountant what steps can be taken to ensure timely financial records. View of the Responsible Officials of the Auditee: The auditee's management agrees with the finding.