Finding number: 2025-001 AL number: 14.228 AL title: Community Development Block Grants / Recovery Housing Program Federal award identification number and year: 2024-02159-1415-00 (2024) and 2025-02159-0425-01 (2025) Name of federal agency: U.S. Department of Housing and Urban Development (HUD) Name of pass-through entity: New Jersey Department of Community Affairs Repeat finding: No Criteria: The Foundation is required to establish and maintain effective internal control over federal awards to provide reasonable assurance that federal awards are properly identified, recorded, reported, and administered in compliance with applicable federal statutes, regulations, and the terms and conditions of the award. The Recovery Housing Program awards are subject to applicable CDBG/RHP requirements, including requirements over allowable activities and costs, real property use restrictions, reporting, preparation of the Schedule of Expenditures of Federal Awards (SEFA), and proper accounting for grant-related expenditures, receivables, advances, and liabilities. Condition: The Foundation did not have sufficient controls and processes in place to identify the Recovery Housing Programs funding as a federal award and to understand, monitor, and apply the related compliance and accounting requirements. Specifically: Management was not aware that the Recovery Housing Program funding constituted a federal award subject to federal compliance requirements. Management did not have an adequate understanding of the compliance requirements applicable to the federal award. Management was not aware of staff preparing and submitting required progress reports, indicating a lack of oversight and review controls over compliance reporting. The Foundation was unable to prepare a complete and accurate Schedule of Expenditures of Federal Awards (SEFA) without auditor assistance. The grant agreements required the Foundation to issue a mortgage note to the New Jersey Department of Community Affairs; this was not prepared until requested by the auditor and was subsequently prepared in July 2026. No required filing deadline has been missed, as the mortgage notes are required to be filed before final payment and final payment has not yet been received on either award. Cause: The deficiencies resulted from the Foundation's lack of a formal federal award identification and compliance monitoring process, insufficient communication between program/reporting personnel and finance leadership, and limited technical knowledge of the Uniform Guidance, SEFA reporting, and the accounting treatment of the Recovery Housing Program funding. Possible effect: The Foundation's SEFA, grant revenue, grant receivable, and liability balances were at risk of being incomplete or misstated. Because responsible finance personnel were not fully aware of the applicable compliance requirements, the Foundation was at risk of not complying with federal requirements. The controls in place were not capable of preventing, or detecting and correcting, material noncompliance on a timely basis; accordingly, the deficiency represents a material weakness in internal control over compliance. Questioned cost: None. Recommendation: We recommend that management establish a formal federal award identification and compliance monitoring process. This process should include the following: 1. Review of all new funding agreements to determine whether the award is federal and subject to the Uniform Guidance; 2. Assignment of responsible personnel to monitor compliance, reporting, SEFA, and accounting requirements; 3. Finance leadership review and approval of all required grant reports before submission; 4. Periodic reconciliation of federal expenditures, receipts, advances, receivables, liabilities, and SEFA amounts; and 5. Training for finance and program staff on federal award compliance, SEFA preparation, and accounting for conditional or forgivable loan arrangements. Views of responsible officials: Management concurs with the finding, which was discussed with Michael Hansen, Chief Financial Officer. Going forward, management will work with the Director of Housing to improve upfront communication and coordination between state representatives and internal finance leadership. This will help ensure the Foundation understands its contractual obligations, requirements, and commitments and strengthens financial oversight.