Assistance Listing Number, Federal Agency, and Program Name 14.157 U.S. Department of Housing and Urban Development Supportive Housing for the Elderly (Section 202) Capital Advance Federal Award Identification Number and Year N/A Pass through Entity N/A Finding Type Material weakness and material noncompliance with laws and regulations Repeat Finding No Criteria 2 CFR 200.508 states in part: "The auditee must:... (b) Prepare financial statements, including the schedule of expenditures of Federal awards in accordance with § 200.510." 2 CFR 200.510(b) states in part: The auditee must also prepare a schedule of expenditures of Federal awards for the period covered by the auditee's financial statements. The schedule must include the total Federal awards expended as determined in accordance with § 200.502. The schedule must... (5) For loan or loan guarantee programs described in § 200.502(b), identify in the notes to the schedule the balances outstanding at the end of the audit period. This requirement is in addition to including the total Federal awards expended for loan or loan guarantee programs in the schedule." Condition During the years ended June 30, 2023, 2024, and 2025, National Church Residences entered into capital advance grant agreements (Section 202) with HUD, which were directly funded to affiliates of National Church Residences, and, in turn, National Church Residences entered into notes receivable from the related parties in the same amount as the capital advance. The loan expenditures and outstanding loan balances related to the ALN 14.157 U.S. Department of Housing and Urban Development Supportive Housing for the Elderly (Section 202) Capital Advance were not included on the SEFA for the years ended June 30, 2025, 2024, and 2023. Questioned Costs None If Questioned Costs are Not Determinable, Description of Why Known Questioned Costs Were Undetermined or Otherwise Could Not be Reported N/A Identification of How Questioned Costs Were Computed N/A Context Federal expenditures related to ALN 14.157 U.S. Department of Housing and Urban Development Supportive Housing for the Elderly (Section 202) Capital Advance were not included on the SEFA prior to audit entries for the years ended June 30, 2025, 2024, and 2023. Cause and Effect Management had not established a system of internal control that would have ensured proper reporting of the SEFA. Without a proper system of internal control in place that operated effectively, material misstatements of the SEFA remained undetected. Prior to audit entries being made, the SEFA was understated by $9,411,680, $8,049,840, and $3,111,409 at June 30, 2025, 2024, and 2023, respectively. Recommendation National Church Residences accounting and development should consider all relative accounting guidance and agreements for related party transactions and grant/debt agreements (including capital advances) to ensure all federal expenditures are properly included on the SEFA. Views of Responsible Officials and Corrective Action Plan National Church Residences is in the process of establishing additional layers of internal controls to help ensure that all new agreements and any subsequent modifications are captured timely, completely, and accurately within the special purpose financial statements and SEFA.