Audit 399609

Federal Program – U.S. Department of Housing and Urban Development Assistance Listing Number 14.181 – Supportive Housing for Persons with Disabilities (Section 811) Material Weakness & Noncompliance Category of Finding – Special Tests and Provisions Criteria - HUD regulations and Metro Apartments, Inc.’s Project Rental Assistance Contract (PRAC) require that withdrawals from the project’s replacement reserve be specifically approved by HUD prior to disbursement and limited to the approved amount. Replacement reserve funds are restricted and may only be used for eligible purposes authorized by HUD. Condition - Metro Apartments, Inc. submitted a replacement reserve withdrawal request to HUD totaling $39,746 for maintenance-related expenses. HUD approved $13,839 of the request and denied the remaining $25,907. Contrary to HUD’s approval, the organization withdrew the entire $39,746 from the replacement reserve. Cause - Management did not ensure that replacement reserve withdrawals were restricted to the amounts approved by HUD, resulting in a withdrawal that exceeded the approved amount. Effect - The organization withdrew $25,907 from restricted replacement reserve funds without HUD authorization, resulting in noncompliance with Special Tests and Provisions applicable to the Supportive Housing for Persons with Disabilities Program. This noncompliance could result in HUD requiring repayment of unapproved amounts or taking other corrective actions. Questioned Costs - $25,907 - representing the portion of the replacement reserve withdrawal that exceeded the amount approved by HUD. Identification of repeat finding – No Recommendation - We recommend that management strengthen controls over replacement reserve withdrawals to ensure that disbursements are limited to amounts specifically approved by HUD. Management should implement procedures to review HUD approval documentation prior to withdrawal and reconcile approved amounts to actual disbursements. Views of responsible officials and planned corrective actions - Management agrees with the finding. Management acknowledges that the withdrawal exceeded the amount approved by HUD and is reviewing internal procedures to ensure replacement reserve withdrawals comply with HUD approval requirements. Management will coordinate with HUD to resolve the unapproved portion of the withdrawal and take corrective action as necessary.

Federal Program – U.S. Department of Housing and Urban Development Assistance Listing Number 14.181 – Supportive Housing for Persons with Disabilities (Section 811) Material Weakness & Noncompliance Category of Finding – Eligibility Criteria - The Compliance Supplement requires owners and management agents of properties with Section 811 project rental assistance contracts to complete annual income recertifications for all tenants. These recertifications must be conducted timely, with notices sent at least 120 days prior to the effective date and all required documentation collected to ensure accurate rent calculations and continued eligibility. Condition - During the audit, a review of tenant files revealed that income recertifications were either not completed or not completed in a timely manner. Specifically: 2 out of 3 tenant files reviewed lacked completed income recertifications within the required timeframe. 2 out of 3 tenant files we reviewed did not contain evidence that tenants were notified of their obligation to provide updated income and family composition information. Context - Of the total population of 23 units, 3 units were tested. Questioned costs are not applicable to this finding. Based on our sample, inquiry of employees and a master list of late annual recertifications provided by management, we understand this finding to be prevalent at the Organization throughout the year. Cause - The identified deficiencies appear to be due to inadequate oversight and ineffective tracking of the recertification process by property management. Factors contributing to the issue include not utilizing a tracking system to track recertification deadlines and timely distribution of recertification notices; insufficient staff training on federal compliance requirements; and staff turnover resulting in inconsistent adherence to required procedures. Effect - Failure to complete or timely conduct income recertifications can lead to several compliance and financial risks, including: incorrect rent calculations, resulting in overpayment or underpayment of housing assistance subsidies; loss of subsidy for tenants who fail to complete recertification, potentially leading to eviction risks; increased administrative burden to resolve delayed recertifications and financial discrepancies; and risk of noncompliance findings in HUD’s Management and Occupancy Reviews (MORs), potentially leading to corrective actions or penalties. Identification of repeat finding – Yes, 2024-001 and 2023-001 Recommendation - This is a repeat finding from 2023 and 2024. To ensure compliance with federal recertification requirements, management should utilize available tracking systems to monitor and enforce recertification deadlines; provide staff training on HUD Handbook 4350.3 recertification procedures and requirements; establish a quality control process to verify recertifications are completed on time and properly documented in tenant files; and conduct periodic internal audits to identify and correct any deficiencies in the recertification process. Views of responsible officials and planned corrective actions - The Organization agrees with the finding and has continued to implement strategies to address the finding. To address this finding, ownership has moved its portfolio, with the exception of one project, to third party property managers as of January 1, 2026. These agents have a track record of completing certifications on time and in accordance with applicable regulations. Ownership periodically reviews the agents’ procedures to ensure that they complete tenant files on time and have routine internal audits of tenant files to ensure compliance with HUD regulations.