Audit 415776

Finding 2026-001: Lack of Formalized Compliance Monitoring and Documented Management Oversight Federal Program: Supportive Housing for Persons with Disabilities (Section 811), Assistance Listing 14.181, U.S. Department of Housing and Urban Development; Capital Advance No. 032-HD016 and PRAC No. DE26Q961002; year ended March 31, 2026 Compliance Requirements: Eligibility; Special Tests and Provisions Type of Finding: Material weakness in internal control over financial reporting and material weakness in internal control over compliance Repeat Finding: Yes, repeat of Finding 2025-001 Criteria: Government Auditing Standards, the Uniform Guidance, and the terms of the Project’s major federal program require the Project to maintain effective internal control over financial reporting and over compliance with its applicable program requirements. Effective internal control includes maintaining documented policies and procedures for monitoring compliance, routine supervisory review of accounting and compliance-related activities, and documentation sufficient to demonstrate that this oversight is occurring. Condition: The Project has not established a formalized compliance monitoring process. We were unable to identify documented evidence of routine supervisory review of accounting and compliance-related activities. Compliance processes and monitoring remain informal and are frequently undocumented. Material audit adjustments were required that management’s controls did not detect. In addition, compliance activities related to the PRAC renewal, tenant certifications, and replacement reserve deposits were not effectively monitored, as described in more detail in Findings 2026-002 and 2026-003. Context: The condition affects the Project’s accounting and compliance functions as a whole and was identified through our tests of controls, substantive procedures, and compliance testing. Cause: The Project’s compliance functions historically relied on the institutional knowledge and experience of long-tenured staff rather than on functioning internal controls. In recent years, the Project’s management agent has experienced significant personnel turnover, exacerbating this deficiency. Effect: Without documented compliance monitoring, errors or instances of noncompliance could occur and remain undetected. During the current year, these conditions contributed to material audit adjustments and to the noncompliance reported in Findings 2026-002 and 2026-003. These circumstances also limit the Project’s ability to demonstrate compliance to external parties. Questioned Costs: None Recommendations: Management should establish a documented compliance monitoring process, including defined roles and responsibilities, routine supervisory review with documentary evidence, periodic reconciliation of subsidiary records to the general ledger, and a periodic compliance checklist addressing the key requirements of the Project’s major program. Views of Responsible Officials: We concur with this finding. We are working to formalize our compliance procedures and to document supervisory review activities going forward. Note: Findings 2026-002 and 2026-003, which are also required to be reported as noncompliance under Government Auditing Standards, are presented in Section III.

Finding 2026-002: Tenant Certifications and PRAC Renewal Not Completed Timely Federal Program: Supportive Housing for Persons with Disabilities (Section 811), Assistance Listing 14.181, U.S. Department of Housing and Urban Development; Capital Advance No. 032-HD016 and PRAC No. DE26Q961002; year ended March 31, 2026 Compliance Requirements: Special Tests and Provisions; Eligibility Type of Finding: Noncompliance Repeat Finding: No Criteria: HUD guidance and the Project’s PRAC require the owner to maintain current certifications for each assisted household, to transmit those certifications to HUD’s Tenant Rental Assistance Certification System (TRACS) in a timely manner, and to renew the PRAC timely. HUD holds rental assistance payments when fewer than 90% of assisted units have current certifications in TRACS, or when the PRAC has expired. Condition: The Project’s compliance percentage in TRACS fell below 90% with the February 2026 voucher, and HUD held that payment. The Project’s PRAC then expired on February 28, 2026 before a renewal was executed, and HUD held rental assistance payments beginning with the March 2026 voucher. The PRAC was renewed on October 20, 2026, retroactive to March 1, 2026. The Project’s certifications have since been brought current, and HUD resumed rental assistance payments in October 2026. Unpaid rental assistance of $7,410 was recorded as subsidy receivable at March 31, 2026. The February 2026 payment of $3,765 was received in August 2026, and the March 2026 payment of $3,645 was received in October 2026. Context: We reviewed PRAC vouchers and receipts for each month of the year, the TRACS voucher list, HUD correspondence, and the PRAC renewal, and discussed the conditions with management. Cause: Management did not have an effective process to track certification due dates and PRAC renewal deadlines, or to confirm that certifications were successfully transmitted to TRACS. The lack of compliance monitoring described in Finding 2026-001 contributed to the condition. Effect: The Project did not comply with its certification and PRAC renewal requirements, and HUD withheld rental assistance. This strained the Project’s cash flow and its ability to meet operating obligations. Questioned Costs: None Recommendations: Management should track certification and PRAC renewal due dates, confirm that certifications are successfully transmitted to TRACS, reconcile TRACS submissions monthly, and require documented supervisory review of the Project’s compliance percentage before each voucher is submitted. Views of Responsible Officials: We concur with this finding. The PRAC has been renewed, we have brought tenant certifications current in TRACS, and HUD resumed rental assistance payments in October 2026. We will track future certification and PRAC renewal due dates to ensure they are completed timely.

Finding 2026-003: Noncompliance with Replacement Reserve Deposit Requirements Federal Program: Supportive Housing for Persons with Disabilities (Section 811), Assistance Listing 14.181, U.S. Department of Housing and Urban Development; Capital Advance No. 032-HD016 and PRAC No. DE26Q961002; year ended March 31, 2026 Compliance Requirement: Special Tests and Provisions Type of Finding: Noncompliance Repeat Finding: No Criteria: The Project’s regulatory and other agreements with HUD require the Project to make monthly deposits of $441 to the reserve for replacements account. Withdrawals from the reserve require prior HUD approval. Condition: During our compliance testing, we found that management did not make 9 of the 12 required monthly deposits of $441 to the replacement reserve during the year ended March 31, 2026. Required deposits for the year totaled $5,292, of which $1,323 was deposited, leaving a shortfall of $3,969 as of year-end. Context: We tested all 12 required monthly deposits for the year. Cause: The Project lacks a formal process for tracking and monitoring required monthly deposits to the replacement reserve. This condition is related to the material weakness described in Finding 2026-001. Effect: The Project is not in compliance with its regulatory and other agreements with HUD, and the replacement reserve is underfunded by $3,969. This reduces the funds available for future major repairs and replacements. Questioned Costs: None Recommendations: Management should deposit the $3,969 shortfall into the replacement reserve as soon as practicable. Management should also put in place a formal process to track required reserve deposits, such as a monthly deposit schedule reconciled to its bank statements and reviewed by someone other than the preparer. Views of Responsible Officials: We concur with this finding. Due to current cash flow constraints resulting from the suspension of rental assistance payments, we will deposit the $3,969 shortfall into the replacement reserve as cash flow allows and will implement procedures to ensure that required monthly deposits are tracked and made timely going forward. Note: Finding 2026-001 is also a material weakness in internal control over compliance required to be reported under the Uniform Guidance and is presented in Section II.