Statement of Condition: The Project recorded a security deposit of $50 that was collected during August 2025 as tenant rental revenue rather than as a security deposit liability and did not transfer the $50 to the security deposit account, resulting in the account being underfunded at year end. Criteria: The Regulatory Agreement requires that funds collected from tenants as security deposits be kept separate from all other funds of the Project in a segregated account, and that the balance of that account at all times should equal or exceed the aggregate of all outstanding obligations to tenants. Cause of Condition: The deposit was misclassified as rental revenue and was not caught during the monthly management level review. Effect of Condition: The Project is not in compliance with the HUD approved Regulatory Agreement. Questioned Costs: None Identification of Repeat Finding: Not Applicable Recommendation: We recommend that the Project's sponsor review the design and implementation of internal control procedures and identify areas to strengthen management oversight over restricted cash on a monthly basis. Management’s Response: The Project’s sponsor agrees with the recommendations. See Corrective Action Plan.