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-HD019 and PRAC No. DE26Q981001; 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, replacement reserve deposits, and use of Project funds were not effectively monitored, as described in more detail in Findings 2026-002, 2026-003, and 2026-004. The Project also received a failing score on its March 31, 2026 HUD physical inspection. Management subsequently certified to HUD that the identified deficiencies had been corrected, but complete documentation supporting the corrective work was not available for our review, and HUD’s inspection system continued to report certain life-threatening deficiencies as unmitigated, as described in Note 10 to the financial statements. 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, 2026-003, and 2026-004. 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, a periodic compliance checklist addressing the key requirements of the Project’s major program, and retention of evidence supporting all certifications submitted to HUD. 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, 2026-003, and 2026-004, 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-HD019 and PRAC No. DE26Q981001; 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% beginning with the March 2026 voucher, and HUD held the March and April 2026 payments. The Project’s PRAC then expired on April 30, 2026 before a renewal was executed, and HUD held rental assistance payments beginning with the May 2026 voucher. The PRAC was renewed on October 19, 2026, retroactive to May 1, 2026. The Project’s certifications have since been brought current, and HUD released the held payments for March through October 2026. Unpaid rental assistance of $9,852 was recorded as subsidy receivable at March 31, 2026, and was received in August 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 has released the held rental assistance payments. 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-HD019 and PRAC No. DE26Q981001; 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 $2,500 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 10 of the 12 required monthly deposits of $2,500 to the replacement reserve during the year ended March 31, 2026. Required deposits for the year totaled $30,000, of which $5,000 was deposited, leaving a shortfall of $25,000 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 $25,000. This reduces the funds available for future major repairs and replacements. Questioned Costs: None Recommendations: Management should deposit the $25,000 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 $25,000 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.
Finding 2026-004: Unauthorized Use of Project Funds 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-HD019 and PRAC No. DE26Q981001; year ended March 31, 2026 Compliance Requirement: Special Tests and Provisions Type of Finding: Noncompliance Repeat Finding: No Criteria: The Project’s regulatory agreement with HUD and the Section 811 program regulations require that Project funds be used only for reasonable operating expenses and necessary repairs of the Project. Project funds may not be advanced, loaned, or transferred to the owner, the management agent, or their affiliates without prior HUD approval, and payments to related parties must be for goods or services actually received by the Project. Condition: On March 6, 2026, the Project transferred $25,000 in two transfers of $15,000 and $10,000 to Synetics Corporation, a related party. The transfers coincided with Synetics paying expenses on behalf of other affiliated properties. No invoice, payable, or other documentation was provided identifying goods or services received by the Project in exchange for the transfers, and the transfers were not approved by HUD. As of March 31, 2026, the $25,000 had not been returned to the Project and is recorded as a receivable due from affiliates on the accompanying statement of financial position. Context: We reviewed all related party transactions and the Project’s bank and bill payment activity for the year. Cause: Management did not require documented HUD approval before transferring Project funds to affiliates. The lack of compliance monitoring described in Finding 2026-001 contributed to the condition. Effect: The Project did not comply with the regulatory agreement and HUD’s restrictions on the use of Project funds. The transfers reduced the funds available for the Project’s operations by $25,000 at a time when rental assistance payments were suspended and required replacement reserve deposits had not been made. Unauthorized uses of Project funds may also lead HUD to take enforcement action, including requiring the funds to be repaid to the Project. Questioned Costs: $25,000 Recommendations: We recommend that Synetics Corporation return the $25,000 to the Project’s operating account, unless management can provide documentation demonstrating that the transfers settled an obligation of the Project. Management should also establish written policies and procedures for payments to related parties that conform with HUD and Uniform Guidance requirements. Views of Responsible Officials: We do not concur with the characterization of these transactions as unauthorized transfers. NAMI Delaware is the sponsor and management agent of the Project, and Synetics Corporation, a wholly-owned subsidiary of NAMI Delaware, is the Project’s developer. Under the longstanding shared-services structure among these entities and their affiliated affordable housing projects, including DIMA VIII, Inc., Synetics Corporation routinely incurs expenses on behalf of the projects, including property-related costs, workers’ compensation, umbrella and auto insurance, vehicle maintenance, and other operational expenses. As a result, intercompany balances fluctuate throughout the year as costs are allocated and reconciled. We believe these transactions should be evaluated within the context of these ongoing due-to/due-from relationships. The payments were intended to settle accrued management fees and costs earned in the current and prior years that remained unpaid. However, the payments were remitted to Synetics Corporation rather than directly to NAMI Delaware as the management agent, and, as such, were recorded as a receivable rather than against the related original obligations. Going forward, management will establish written procedures to ensure that related party payments are supported by documentation, remitted directly to the entity to which the obligation is owed, and recorded against the obligation being paid. 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.