Audit 406160

FINDINGS - MAJOR FEDERAL AWARD PROGRAM AUDIT Department of Housing and Urban Development Finding, 2025-002: Major Programs: Capital Advance Program, Federal Assistance Listing Number 14.U01 and Section 8 New Construction and Substantial Rehabilitation, Federal Assistance Listing Number 14.182 STATEMENT OF CONDITION The Project’s bank account balances exceeds the Federal Deposit Insurance Corporation (FDIC) limit of $250,000. CRITERIA HUD requires the Project’s bank balances not to exceed the FDIC limit due to the risk of loss in the event the bank were to fail. EFFECT OF CONDITION The Project’s accounts with Westfield Bank totaled over the FDIC limit at September 30, 2025. CONTEXT Bank balances were reviewed to ensure the Project is properly managing bank accounts’ limit and exposure. Balances at one bank were over the $250,000 FDIC limit. CAUSE OF CONDITION The Project’s bank accounts exceeded the FDIC limit at September 30, 2025. RECOMMENDATION The auditor recommends moving some of the Project’s funds to other banks to ensure all bank account balances at each bank remain below the FDIC limit. VIEWS OF RESPONSIBLE OFFICIALS AND PLANNED CORRECTIVE ACTIONS Carrasquillo Management LLC acknowledges the finding regarding the Project’s bank balances exceeding the Federal Deposit Insurance Corporation (FDIC) insured limit of $250,000. Corrective Actions: 1. Risk Mitigation Plan Carrasquillo Management LLC is in the process of restructuring the Project’s banking arrangements to ensure that no single institution holds more than the FDIC-insured limit of $250,000 per ownership category. This will be completed shortly after the refinance of the mortgage takes place in the next few months. Westfield Bank also uses Positive Pay systems to avoid any fraud to occur on the accounts. Any transactions coming out of the units have to be entered prior to being made and have to be approved. 2. Diversification of Funds The Project will open additional accounts with other FDIC-insured financial institutions and transfer excess funds accordingly. This will help safeguard assets and reduce exposure in the unlikely event of bank failure. 3. Ongoing Monitoring Management has implemented a monthly monitoring protocol to review account balances and ensure ongoing compliance with FDIC limits. This process includes scheduled reviews by the finance team to confirm that no account exceeds the insured threshold. 4. Policy Update Internal financial policies are being updated to include FDIC compliance requirements, ensuring that any future account openings or large fund deposits are properly reviewed and managed. Carrasquillo Management LLC is committed to protecting the financial assets of the Project and ensuring full compliance with HUD requirements and FDIC insurance guidelines.

FINDINGS - MAJOR FEDERAL AWARD PROGRAM AUDIT (CONTINUED) Department of Housing and Urban Development Finding, 2025-003: Major Programs: Capital Advance Program, Federal Assistance Listing Number 14.U01 and Section 8 New Construction and Substantial Rehabilitation, Federal Assistance Listing Number 14.182 STATEMENT OF CONDITION All required deposits were not made to the replacement reserve account for the year ended September 30, 2025. The replacement reserve account was also under funded by $49,769 for the year ended September 30, 2025. CRITERIA HUD Handbook 4350.1 Revision 1 for HUD Subsidized Multifamily Housing Programs requires owners to make monthly deposits to the replacement reserve account based on the Project’s monthly deposit authorized by HUD. Under the Use Agreement, the replacement reserve should be maintained at a minimum balance of two years of annual deposits. EFFECT OF CONDITION Management did not make all required deposits to the replacement reserve account in 2025 and ensure the replacement reserve was fully funded at September 30, 2025. CONTEXT During audit fieldwork, the replacement reserve accounts were tested for compliance with required monthly deposits and minimum balance per the Use Agreement was maintained. Insufficient monthly deposits were noted on the bank statements, and the balance was determined to be under funded. CAUSE OF CONDITION Management mistakenly did not make all monthly deposits to the replacement reserve account and depleted the balance below the requirement. RECOMMENDATION The auditor recommends the replacement reserve be properly funded and the minimum balance be assessed on a monthly basis. VIEWS OF RESPONSIBLE OFFICIALS AND PLANNED CORRECTIVE ACTIONS Carrasquillo Management LLC acknowledges the finding regarding the required deposits to the replacement reserve account and ensuring the replacement reserve is fully funded. Corrective Actions: 1. Make the necessary deposits to comply. 2. Internal Compliance Controls. 3. Staff Training. 4. Monthly Monitoring and Reporting - Staff will confirm at the end of the month that the monthly deposit to the replacement reserve has been made with each closing to ensure no deposit has been missed. We will increase the monthly deposits to make sure we maintain the accurate balance in the replacement reserve account. Carrasquillo Management LLC is committed to full regulatory compliance and to restoring the integrity of all Project accounts in collaboration with HUD.

FINDINGS - MAJOR FEDERAL AWARD PROGRAM AUDIT (CONTINUED) Department of Housing and Urban Development Finding, 2025-004: Major Programs: Capital Advance Program, Federal Assistance Listing Number 14.U01 and Section 8 New Construction and Substantial Rehabilitation, Federal Assistance Listing Number 14.182 STATEMENT OF CONDITION 16 tenant files, out of 19 files reviewed, had the following items noted: • 3 files were new move-ins and did not properly generate the Enterprise Income Verification (EIV) report timely; • 5 files had late tenant signatures on the recertifications; • 1file had late tenant signature on the move-in; • 3 files charged the tenant the wrong security deposit in total of $342 owed from the tenants; • 2 files did not contain the date and time-stamp on the tenant applications; • 3 files did not contain a signature on the original lease in the file; • 2 files did not include move-in inspection reports; • 5 files did not include a completed annual inspection report; • 1 file did not include the EIV Existing Tenant Search report; • 5 files included late 30 day rent increase notices; • 8 files calculated tenant rent incorrectly for a total of $6,123 owed from the tenants; • 1 file included an unresolved EIV income discrepancy. CRITERIA HUD Handbook 4350.3 Revision 1 for HUD Subsidized Multifamily Housing Programs requires owners to have appropriate documents on file for tenants, including the original 90-day EIV, a date and time-stamped application, original lease, inspections and security deposits. Owners are required to obtain timely signatures for all recertifications and provide 30 day notice of a rent increase. Owners are also required to properly calculate tenants rent derived from the appropriate documents on file for the tenants. EFFECT OF CONDITION 16 tenant files, out of 19 files reviewed, had the above items noted. CONTEXT During audit fieldwork, 19 tenant files from a statistically valid sample were examined for compliance with tenant eligibility criteria. Of the 19 tenant files examined, 16 tenant files contained one or more of the items noted above. CAUSE OF CONDITION Management mistakenly excluded the required documentation noted above. In addition, timely signatures were not obtained on 5 recertifications, 1 move-in certification and 8 files incorrectly calculated tenant rent. RECOMMENDATION The auditor recommends the Project and management review and attend training on the HUD Handbook 4350.3 Revision 1 requirements for tenant files including eligibility and income calculations. In addition, the auditor recommends the Project obtain necessary recertification signatures timely. VIEWS OF RESPONSIBLE OFFICIALS AND PLANNED CORRECTIVE ACTIONS Carrasquillo Management LLC acknowledges the findings and is taking the following corrective actions to ensure compliance with HUD Handbook 4350.3 requirements: 1. Enterprise Income Verification (EIV) Reports Management has implemented an internal checklist to ensure that the initial EIV reports are generated within the required 90 days for all move-ins. Staff has been retrained on EIV protocols and timelines to ensure timely compliance going forward. 2. Timely Tenant Signatures on Recertifications and Move-in Certification A new recertification specialist has been hired, who is fully trained and qualified in HUD income certifications. Carrasquillo Management LLC has implemented a new tracking system and notification schedule to ensure that all recertification and move-in certification documents are signed by tenants on or before the effective date. Management is also increasing tenant engagement through reminder letters and calls. 3. Bank Account Balance Calculations Staff has received additional training on income and asset calculations per HUD guidance. A verification template has been implemented to ensure all checking account balances are calculated using the six-month average, as required. 4. Security Deposit Charges The error identified regarding the incorrect security deposit has been corrected. Going forward, all move-ins will include a verification step to ensure that the correct deposit is charged in accordance with lease and program guidelines. 5. Date and Time-Stamped Applications Management has implemented a new policy requiring staff to date-and time-stamp all tenant applications upon receipt. Staff has been trained accordingly and periodic file reviews will be conducted to ensure compliance. 6. Missing Lease and Application Documents Management has begun a full file audit to identify and correct any remaining deficiencies. Procedures have been updated to ensure original leases and completed applications are filed immediately upon move-in and scanned into the electronic system as a backup. 7. Move-In Inspections A revised move-in protocol has been established that includes a checklist confirming inspection completion and file documentation. A copy of the move-in inspection form is now required to be signed by both tenant and management and scanned into the file on the same day of move-in. 8. Training and Oversight Carrasquillo Management LLC will continue to provide regular staff training and compliance reviews to ensure that all HUD file requirements are met. In addition, quarterly internal audits will be conducted to verify proper documentation and adherence to timelines. We are committed to maintaining full compliance with HUD regulations and ensuring tenant file accuracy moving forward.

FINDINGS - MAJOR FEDERAL AWARD PROGRAM AUDIT (CONTINUED) Department of Housing and Urban Development Finding, 2025-005: Major Programs: Capital Advance Program, Federal Assistance Listing Number 14.U01 and Section 8 New Construction and Substantial Rehabilitation, Federal Assistance Listing Number 14.182 - Material Weakness STATEMENT OF CONDITION The Project is required to be in compliance with each of its major programs. EFFECT OF CONDITION The Project was not adequately following internal controls over compliance with each of its major programs. CONTEXT During audit fieldwork, findings 2025-002 through 2025-004 were noted. CAUSE OF CONDITION The Project’s internal controls over compliance with each of its major programs were not functioning properly. RECOMMENDATION The auditor recommends the Project and management review and attend training on the HUD Handbook. In addition, the auditor recommends the Project and management review its internal control policies and procedures. VIEWS OF RESPONSIBLE OFFICIALS AND PLANNED CORRECTIVE ACTIONS Carrasquillo Management LLC acknowledges the significant deficiency noted and is committed to improving internal controls to ensure full compliance with all HUD program requirements. 1. Policy and Procedure Review Management has initiated a comprehensive review of internal control policies and procedures to identify gaps and align practices with the HUD Handbook 4350.3 and related program regulations. Updates will be made to strengthen compliance checkpoints and clearly define staff responsibilities for each stage of tenant file processing, income verification, certifications, and documentation retention. 2. Training and Capacity Building Carrasquillo Management LLC has committed to ongoing staff development by enrolling relevant personnel in HUD-compliant training programs focused on regulatory requirements, internal controls, and compliance best practices. All staff involved in leasing, recertifications, and program compliance will be required to complete refresher trainings at least annually. 3. Internal Audit and Quality Control A quarterly internal audit process has been established to monitor the effectiveness of internal controls and ensure consistent application across all major program functions. Findings from these audits will be reviewed by senior management, and corrective actions will be taken immediately when deficiencies are identified. 4. Oversight and Accountability Management will assign a dedicated compliance coordinator responsible for overseeing adherence to HUD regulations and internal policies, providing regular updates to leadership, and ensuring follow-through on all audit-related corrective actions. Carrasquillo Management LLC is committed to fostering a culture of compliance and accountability and will take all necessary steps to prevent future deficiencies and ensure the Project remains in good standing with HUD program requirements.