Audit 413425

Finding 2025-001 Federal Agency: U.S. Department of Housing and Urban Development Program Name: Section 811 Supportive Housing for Persons with Disabilities Assistance Listing Number: 14.181 Federal Award Year: Funding periods between January 1, 2025 and December 31, 2025 Compliance Requirement: Special Tests and Provisions Finding Type: Significant Deficiency - Compliance Criteria Per U.S. Housing and Urban Development Memo dated June 19, 2015 related to residual receipts authority – Section 202/811 Project Rental Assistance Contacts (PRACs): “The purpose of this memorandum is to implement statutory language in the Consolidated and Further Continuing Appropriations Act, 2015 addressing the remission of residual receipts for projects subject to a Section 202 or 811 Project Rental Assistance Contract (PRAC). The language directs the Department to utilize residual receipts account balances to support current program purposes. Any excess balance greater than $250 per unit in a Residual Receipts account must be remitted to HUD’s Accounting Center upon “termination” of the PRAC.” Title 2 U.S. Code of Federal Regulations Part 200 (2 CFR 200), Uniform Administrative Requirements, Cost Principles, and Audit Requirements, Section 200.303(a) states that non-federal entities must establish and maintain effective internal control over the federal award that provides reasonable assurance that the non-federal entity is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition During Special Tests and Provision – Residual receipts balances for five of the nine residual receipts accounts subject to testing exceeded the $250 per unit threshold, and remittance was not made upon termination of the PRAC agreement. As noted above, the Arc is required to establish controls to ensure timely remittance of excess funds back to HUD. Effect The Arc was not in compliance with Special Tests and Provisions – Residual Receipts. Cause Due to lack of internal controls surrounding review of changes to the residual receipts requirements, the required remittance amount was not made to HUD timely resulting in excess residual receipt balances over HUD maximum amounts. Questioned Costs There are no questioned costs related to the finding. Repeat Finding This is not a repeat finding. Recommendation We recommend that the Arc enhance its policies and procedures to ensure responsible program personnel timely review HUD communications and then ensure residual receipts account amounts are remitted timely to HUD when necessary. View of Responsible Official Management agrees with the finding. Management will institute a process and control to ensure that when PRACs expire, the balance of residual receipt accounts are reviewed in order to ensure that funds are timely remitted to HUD when they exceed allowed limits.

Federal Agency: U.S. Department of Housing and Urban Development Program Name: Section 811 Supportive Housing for Persons with Disabilities Assistance Listing Number: 14.181 Federal Award Year: Funding periods between January 1, 2025 and December 31, 2025 Compliance Requirement: Special Tests and Provisions Finding Type: Significant Deficiency - Compliance Criteria The compliance supplement states the following: “Any Surplus Funds in the project funds account (including earned interest) at the end of the fiscal year shall be deposited in a federally insured account within 60 days following the end of the fiscal year". Surplus funds are required to be calculated and returned to HUD within 60 days of the end of the period. Condition During Special Tests and Provision – Residual Receipts, the auditor identified that the Arc did not complete the preliminary audited financial statements that require a calculation of surplus funds as of December 31, 2025 unaudited information. This was the key control identified to ensure that excess funds were remitted, and as it was not completed until after 60 days past year end, the Arc was not able to remit the funds timely if a return existed. Additionally, the Arc calculated that a return was required for one of their projects, however, this was related to issues related to the allocation of intercompany payables and receivables, and the Arc did have sufficient current obligations that they were not required to remit funds despite the calculation. Effect The Arc was not in compliance with Special Tests and Provisions – Residual Receipts. Cause Due to lack of internal controls surrounding timely review of project level accounting and reporting, specifically with respect to surplus fund calculations. In addition, no reconciliations of intercompany payables and receivables were completed. Questioned Costs There are no questioned costs related to the finding. Statistical Sampling The sample was not intended to be, and was not, a statistically valid sample. Repeat Finding This finding is a repeat of prior year finding 2024-002 and has not been fully corrected as of December 31, 2025. While management has taken steps to address the issue, the control deficiency related to timely calculation of surplus funds has not been fully remediated as of December 31, 2025. Recommendation We recommend that the Arc enhance its policies and procedures to ensure responsible program personnel timely complete preliminary assessment of the requirements to calculate surplus funds to ensure no funds are required to be remitted in the 60-day window of year end. View of Responsible Official Management agrees with the audit finding. There was turnover in the controller position, and there were issues with receiving communications from HUD and access to the REAC website as a result of this transition, which led to the lack of timely reporting. Management has emphasized the importance of completing this calculation prior to the 60-day window next year.