Audit 5974

2023-001 – Significant deficiency – segregation of duties Criteria - Good internal control requires a segregation of duties and responsibilities such that no one employee has access to both physical assets and the related accounting records, or to all phases of a transaction. Condition - The Cooperative has one employee that performs day to day management and accounting functions. Cause - The size of the Cooperative’s accounting and administrative staff precludes certain internal controls that would be preferred if the office staff were large enough to provide optimum segregation of duties. Effect - The lack of segregation of duties may result in undetected errors in financial statements and increases the possibility of misappropriation of Cooperative assets. Repeat Finding - This finding was reported in the prior year as finding 2022-001. Recommendation - The Board of Directors should remain involved in the financial affairs of the Cooperative on a regular ongoing basis to provide oversight and independent review functions and mitigate the weakness created by the lack of segregation. Auditee’s comment - The Board of Directors is and will remain involved in the financial affairs of the Cooperative. Status - Outstanding Auditor’s non-compliance code - S - Internal Control Deficiencies

2023-002 – Significant Deficiency and Noncompliance – Required Payments to General Operating Reserve Department of Housing and Urban Development Assistance Listing Number 14.126 – Mortgage Insurance - Cooperative Projects Significant Deficiency and Noncompliance Category of Finding – Special Tests and Provisions Criteria - The Cooperative’s regulatory agreement with HUD requires monthly payments to a General Operating Reserve. Deposits are 3% of member carrying charges until the balance of the reserve exceeds 15% of current annual member carrying charges. The required deposit is then reduced to 2% of monthly charges until the balance of the reserve exceeds 25% of annual carrying charges. Condition - Deposits to the segregated account for the General Operating Reserve during the period ended February 28, 2023 were $5,437 less than the required amount for the year. Cause - The Cooperative inadvertently omitted making $5,437 of monthly deposits to the General Operating Reserve in 2023. The control in place to assure the required monthly deposits were made failed to work; however, a monitoring control identified the error and corrected the deficiency prior to the conclusion of the audit. Effect - The Cooperative was out of compliance with their HUD regulatory agreement at February 28, 2023, because the General Operating Reserve was underfunded. Recommendation - We recommend that the Cooperative implement a control process to ensure adherence to the regulatory agreement and make the required monthly deposits to the General Operating Reserve. Auditee’s comment - On May 18, 2023, prior to the conclusion of the audit, the Cooperative made a deposit of $5,437 to the General Operating Reserve to fund the reserve to its proper balance. The CFO of the management agent will implement a process to ensure deposits are made as required by the regulatory agreement. Status - Resolved Auditor’s non-compliance code - Z - Other Responsible party for corrective action – Craig Brinkman, CFO of Real Estate Equities Development, LLC (Management Agent)

2023-001 – Significant deficiency – segregation of duties Criteria - Good internal control requires a segregation of duties and responsibilities such that no one employee has access to both physical assets and the related accounting records, or to all phases of a transaction. Condition - The Cooperative has one employee that performs day to day management and accounting functions. Cause - The size of the Cooperative’s accounting and administrative staff precludes certain internal controls that would be preferred if the office staff were large enough to provide optimum segregation of duties. Effect - The lack of segregation of duties may result in undetected errors in financial statements and increases the possibility of misappropriation of Cooperative assets. Repeat Finding - This finding was reported in the prior year as finding 2022-001. Recommendation - The Board of Directors should remain involved in the financial affairs of the Cooperative on a regular ongoing basis to provide oversight and independent review functions and mitigate the weakness created by the lack of segregation. Auditee’s comment - The Board of Directors is and will remain involved in the financial affairs of the Cooperative. Status - Outstanding Auditor’s non-compliance code - S - Internal Control Deficiencies

2023-002 – Significant Deficiency and Noncompliance – Required Payments to General Operating Reserve Department of Housing and Urban Development Assistance Listing Number 14.126 – Mortgage Insurance - Cooperative Projects Significant Deficiency and Noncompliance Category of Finding – Special Tests and Provisions Criteria - The Cooperative’s regulatory agreement with HUD requires monthly payments to a General Operating Reserve. Deposits are 3% of member carrying charges until the balance of the reserve exceeds 15% of current annual member carrying charges. The required deposit is then reduced to 2% of monthly charges until the balance of the reserve exceeds 25% of annual carrying charges. Condition - Deposits to the segregated account for the General Operating Reserve during the period ended February 28, 2023 were $5,437 less than the required amount for the year. Cause - The Cooperative inadvertently omitted making $5,437 of monthly deposits to the General Operating Reserve in 2023. The control in place to assure the required monthly deposits were made failed to work; however, a monitoring control identified the error and corrected the deficiency prior to the conclusion of the audit. Effect - The Cooperative was out of compliance with their HUD regulatory agreement at February 28, 2023, because the General Operating Reserve was underfunded. Recommendation - We recommend that the Cooperative implement a control process to ensure adherence to the regulatory agreement and make the required monthly deposits to the General Operating Reserve. Auditee’s comment - On May 18, 2023, prior to the conclusion of the audit, the Cooperative made a deposit of $5,437 to the General Operating Reserve to fund the reserve to its proper balance. The CFO of the management agent will implement a process to ensure deposits are made as required by the regulatory agreement. Status - Resolved Auditor’s non-compliance code - Z - Other Responsible party for corrective action – Craig Brinkman, CFO of Real Estate Equities Development, LLC (Management Agent)