Audit 403406

Federal Agency: U.S. Department of Housing and Urban Development Federal Program Title: Supportive Housing for the Elderly Section 232 ALN Number: 14.129 Award Period: Year Ended December 31, 2025 Type of Finding: • Material Weakness in Internal Control over Compliance • Other Matters Criteria or specific requirement: The Home was required to obtain written approval for the member substitution transaction with The Carmelite System, Inc. prior to closing. Condition: Membership transfer agreements must be in place and signed by HUD during the transition of Ownership / Governance. Questioned costs: None Context: Formal HUD approval was not obtained in relation the Member Substitution in which the Carmelite System, Inc. became the sole member and sponsor of the Home. Cause: Clerical Error- failure to timely achieve an approved membership transfer. Effect: The Home remains out of compliance with HUD. Repeat finding: No Recommendation: The Home should adhere to the Regulatory Agreement and obtain HUD’s approval prior to taking any actions specifically precluded in the Regulatory Agreement. Views of responsible officials: There is no disagreement with the audit finding. Management is working to obtain the necessary HUD approvals.

Federal Agency: U.S. Department of Housing and Urban Development Federal Program Title: Supportive Housing for the Elderly Section 232 ALN Number: 14.129 Award Period: Year Ended December 31, 2025 Type of Finding: • Significant Deficiency in Internal Control over Compliance • Other Matters Criteria or specific requirement: HUD requires a signed management fee agreement when such transactions take place. Condition: Unallowed related party transactions were identified in 2025. Questioned costs: None Context: Affiliate dues were booked to the Home's cash clearing account as a credit for $400,000 with the understanding that these fees would qualify as a service contract rather than a management fee. However, due to the cash infused into the program by The Carmelite System, the $400,000 will not be noted as questioned costs needing to be repaid into the project. Cause: Unapproved payment of expenses to related party. Effect: $400,000 of cash leaving the Home in an unapproved fashion. However, the Carmelite System infused cash well in excess of the $400,000. The Home should seek to obtain an approved management agreement. Repeat finding: No Recommendation: The Home should adhere to the Regulatory Agreement and obtain HUD’s approval prior to taking any actions specifically precluded in the Regulatory Agreement. Views of responsible officials: There is no disagreement with the audit finding. Management will work to obtain proper approval going forward.