Audit 405026

Federal agency: U.S. Department of Housing and Urban Development Federal program title: Section 232 HUD-Insured Mortgage Listing Number: 14.129 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Period: N/A Type of Finding: Material Weakness in Internal Control over Compliance Criteria or specific requirement: Management is required to retain the HUD approved management agreement to ensure payments made are in accordance with HUD requirements. Condition: The Project does not have a HUD approved management agreement. Questioned costs: None Context: Management and HUD were unable to find the HUD approved agreement. Cause: Management did not retain the HUD approved management agreement. Effect: Due to the project not having a HUD approved management agreement, there is a possibility that management fees paid by the project are inaccurate. Repeat Finding: 2024-001 Recommendation: Recommend that management work with HUD to have the current management agreement approved. Views of responsible officials: There is no disagreement with the audit finding. Management will contact HUD to obtain an approved management agreement.

Federal agency: U.S. Department of Housing and Urban Development Federal program title: Section 232 HUD-Insured Mortgage Listing Number: 14.129 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Period: N/A Type of Finding: Material Weakness in Internal Control over Compliance Criteria or specific requirement: Distributions and payments on surplus cash notes must be within amounts permitted based upon semi-annual surplus cash calculations. Condition: Distributions and surplus cash note payments made during the year were in excess of amounts permitted based upon semi-annual surplus cash calculations. Questioned costs: $230,976 Context: Amounts distributed and paid prior to the mid-year surplus cash calculation were in excess of surplus cash as calculated at December 31, 2024 by $89,910. Amounts distributed and paid subsequent to the mid-year surplus cash calculation were in excess of surplus cash as calculated at June 30, 2025 by $141,066. Cause: Management did not account for the surplus cash note payments toward the distribution amount allowed and also incorrectly calculated surplus cash as of June 30, 2025 which collectively resulted in the excess distributions. Effect: Cash in excess of amounts permitted were distributed, however the Project has surplus cash at December 31, 2025 therefore the distributions were a matter of timing and have since been corrected. Repeat Finding: No Recommendation: Recommend that management account for surplus cash note payments when determining how much cash is available for distribution in accordance with the semi-annual surplus cash calculations and review those calculations for accuracy prior to distributions being made. Views of responsible officials: There is no disagreement with the audit finding.