Audit 409854

Statement of Condition Sunrise Residential, Inc. was unable to provide timely year-end trial balances in accordance with U.S. GAAP and therefore did not submit its audited financial statements, SEFA, and other required information to the Federal Audit Clearinghouse by the required due dates. Criteria Sunrise Residential, Inc. is required to submit audited financial statements, a schedule of expenditures of federal awards (SEFA) and Uniform Guidance reports to the Federal Audit Clearinghouse. All items are required to be submitted to the Federal Audit Clearinghouse within nine (9) months after Sunrise Residential, Inc.’s fiscal year-end. Accounting tasks such as timely monthly analysis, reconciliations and review of accounts play a key role in providing the accuracy of accounting data and information included in the interim and year-end consolidated financial statements required for submission. Trial balances should be maintained for the Organization continuously, in accordance with U.S. GAAP. Detailed supporting schedules should be maintained for all significant asset, liability, revenue and expense accounts. Reconciling items should be investigated and resolved in a timely manner. All of the aforementioned items are essential to ensure that financial statements and data collection forms are submitted in conformance with 2 CFR Section 200.512(a)(1), certain tax returns, and certain grant agreements. Cause The Organization did not maintain an effective process to ensure timely preparation and submission of required Federal reporting. The primary cause of the delayed submission was the Organization’s inability to close its books timely at fiscal year-end. The absenceof formal month-end and year-end close procedures, including insufficient account reconciliation schedules, undefined close deadlines, and a lack of monitoring controls, prevented the accounting department from producing accurate and complete financial data within the timeframes necessary to support a timely audit. Without a reliable and repeatable close process, the audit could not commence or progress on schedule, creating delays throughout the entire financial reporting cycle. In addition to this, there were broader deficiencies in planning, coordination, and monitoring of the audit and financial reporting process, including a lack of defined timelines, insufficient tracking of deliverables, and inadequate controls to identify and address delays. Effect Noncompliance with financial reporting deadlines could cause funding sources for Sunrise Residential, Inc. to suspend funding until compliance is achieved. Questioned Costs None noted. Perspective This audit finding is systematic. Statistical Sample A statistical sample is not applicable to this finding. Repeat Finding This audit finding is a repeat finding. Recommendation Management should establish and implement formal procedures to ensure timely completion and submission of required Federal reporting. As a foundational step, management should develop and enforce a formal month-end and year-end close process that includes defined close deadlines, assigned responsibilities for each close task, a documented reconciliation checklist, and supervisory review controls to ensure the books are closed accurately and on schedule prior to the commencement of the annual audit. Without a reliable close process, downstream reporting timelines cannot be met. In addition to close procedures, management should implement a documented audit timeline aligned with Federal reporting deadlines, including defined roles and responsibilities and monitoring controls to track progress and escalate delays. Management should also enhance process documentation and cross-training to mitigate the impact of personnel changes and support continuity of the reporting process. Auditor Noncompliance Code S – Internal Control Deficiencies View of Responsible Officials Management agrees with the finding. Management will establish procedures and monitor compliance with those procedures to ensure that the audited financial statements, schedule of expenditures of federal awards, and other required information is filed with the Federal Audit Clearinghouse by required due dates.

Statement of Condition During the year ended June 30, 2025, the Project did not make all of the required monthly deposits to the replacement reserve. The Project is required to make monthly deposits of $1,915, or $22,980 annually. During the year ended June 30, 2025, the Project deposited $20,064 to the replacement reserve. Therefore, the replacement reserve was underfunded by $2,916 for the year ended June 30, 2025. Criteria The Housing Assistance Payments (HAP) contract between Sunrise Residential, Inc. and the U.S. Department of Housing and Urban Development (HUD) requires that a monthly deposit of $1,915 be made to the replacement reserve account to ensure funds are available for the replacement of capital items. In addition, 2 CFR 200.303 requires non-federal entities to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the entity is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the award. Adequate funding of the replacement reserve is necessary to comply with the terms of the HAP contract and to ensure the long-term physical and financial viability of the property. Cause The underfunding of the replacement reserve account resulted from a breakdown in the automatic monthly transfer process between the operating cash account and the replacement reserve account. When the required monthly replacement reserve deposit amount was subsequently revised per the terms of the (HAP) contract, the automatic transfer instructions were not updated to reflect the correct deposit amount. As a result, the automatic transfer continued to move funds based on an outdated deposit amount rather than the amount currently required under the HAP contract. This discrepancy went undetected because there was no compensating control in place to periodically reconcile the automatic transfer amount to the deposit requirement stipulated in the HAP contract, allowing the underfunding to continue and accumulate over multiple reporting periods before being identified. Effect As a result of the underfunded replacement reserve, the property may not have sufficient funds available to cover the cost of major capital replacements as they become necessary, which could jeopardize the physical condition of the property and its ability to continue providing safe and decent housing. Continued underfunding increases the risk of deferred maintenance, unbudgeted special assessments, or the need for additional financing, and represents noncompliance with the terms of the HAP contract, which could result in findings by HUD, required corrective action, or in severe cases, administrative sanctions. Questioned Costs None noted. Perspective This audit finding is systematic. Statistical Sample A statistical sample is not applicable to this finding. Repeat Finding This audit finding is a repeat finding. Recommendation We recommend that management immediately revise the automatic monthly transfer instructions between the operating cash account and the replacement reserve account to reflect the current monthly deposit amount required under the HAP contract. Management should also calculate the cumulative shortfall between required and actual deposits and make a catch-up deposit, or establish a repayment plan approved by HUD or the Contract Administrator, to restore the replacement reserve to the required funding level. In addition, management should implement a periodic reconciliation control, performed no less than quarterly, in which the automatic transfer amount is compared to the current deposit requirement stipulated in the HAP contract, so that any future changes to the required deposit amount are identified and reflected in the transfer instructions on a timely basis. Finally, management should designate a responsible individual to review and approve any changes to HAP contract terms, including replacement reserve deposit requirements, and to confirm that corresponding updates are made to the related banking and transfer instructions. Auditor Noncompliance Code N – Reserve for replacements deposits View of Responsible Officials Management concurs with the findings and will review internal control policies to ensure monthly replacement reserve deposits are made in accordance with the terms of the HAP contract.