Title and Assistance Listing Number of Federal Program: 14.131 – Mortgage Insurance-Rental Housing [Section 207(a)/223(f)] and 14.856 Lower Income Housing Assistance Program (Section 8 Moderate Rehabilitation)
Type of Finding: Federal Award Finding
Finding Resolution Status: In Process
Information on Universe Population Size - N/A
Sample Size Information - N/A
Identification of Repeat Finding and Finding Reference Number - Not Applicable
Criteria: HUD Handbook 4381.5, Paragraph 2.14 - Bonding Requirements for Agents, requires that management agents maintain at least two months’ gross potential rents computed using the project with the highest gross potential income.
Statement of Condition: Management changed insurance coverage and as part of the transition, only $25,000 of fidelity coverage was included in the policy, which was less than two months’ gross income for Argus Manor Association.
Cause: Due to management oversight, the coverage was reduced below the required level.
Effect or Potential Effect: Management was not in compliance with the requirements of HUD Handbook 4381.5, Paragraph 2.14 - Bonding Requirements for Agents.
Auditor Noncompliance Code: Z – Other
Questioned Costs: $0
FHA Contract Number: 127-11114
Reporting Views of Responsible Officials: The Corporation took corrective action and has increased fidelity coverage that exceeds the HUD required amount. The coverage limit was increased to $1,000,000.
Context: Monthly rent potential is currently $67,200, so the required level of insurance is $134,400 to equal two months’ potential rent. Actual coverage was only $25,000.
Auditor Recommendation: We recommend that management increase the insurance coverage to at least $134,400, and monitor insurance limits for increases in rents and income to stay in compliance with the minimum requirement of two months’ gross potential income.
Auditor’s Summary of the Auditee’s Comments on the Findings and Recommendations:
After we were made aware of the conditions noted by the auditor, we increased our coverage limit to $1,000,000 which exceeds the HUD required insurance limit.
Response Indicator: Agree
Completion Date: December 7, 2023
Title and Assistance Listing Number of Federal Program: 14.131 – Mortgage Insurance-Rental Housing [Section 207(a)/223(f)] and 14.856 Lower Income Housing Assistance Program (Section 8 Moderate Rehabilitation)
Type of Finding: Financial Statement Finding and Federal Award Finding
Finding Resolution Status: In Process
Information on Universe Population Size - N/A
Sample Size Information - N/A
Identification of Repeat Finding and Finding Reference Number - 2022-001
Criteria: The Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework is a widely recognized framework for designing, implementing, and evaluating internal control systems.
The Information and Communication component is one of the five components of the COSO framework. It has three principles:
1. The organization obtains or generates and uses relevant, quality information to support the functioning of internal control.
2. The organization internally communicates information, including objectives and responsibilities for internal control, necessary to support the functioning of internal control.
3. The organization communicates with external parties regarding matters affecting the functioning of internal control.
The Information and Communication component is essential for ensuring that information flows effectively throughout an organization. It involves obtaining and using relevant information from both internal and external sources to support the functioning of internal control.
The monitoring component of the COSO framework includes management oversight and recognition of when modification to the control structure is necessary to adapt to changes in the accounting environment. Such modification can include addition or revision to activity level controls such as reconciliation processes to prevent or detect and correct misstatements. Ongoing evaluations, separate evaluations or some combination of the two are used to ascertain whether each of the five components of internal control are functioning as intended.
Statement of Condition: A rent increase was approved by HUD, but not timely implemented, which led to a delay in collection of subsidy income. This delay resulted in roughly $44,800 of rental assistance to be collected in the subsequent period that should have been billed, collected, and recognized in the current period. In addition, surplus cash was not computed correctly and was understated by the amount of the rental assistance due.
Cause: Management has policies and procedures to ensure rent increases are implemented, but those policies and procedures were not functioning as intended and the rent increase was not timely implemented. In addition, there are no controls to ensure that rent increases are communicated to the accounting department on a timely basis, which could have potentially corrected the error.
Effect or Potential Effect: Because the rent increase was not properly implemented, rental assistance went uncollected for several months until discovery by the auditor during the audit. Because the rent increase was not timely communicated to the accounting department, the effect of the rent increase was not properly assessed for financial statement impact, resulting in understatement of HUD rental assistance income of roughly $44,800. The surplus cash deposit was understated by the amount of the rental assistance income that should have been accrued.
Auditor Noncompliance Code: S – Internal Control Deficiencies
Questioned Costs: $0
FHA Contract Number: 127-11114
Questioned Costs: $0
Reporting Views of Responsible Officials: The Corporation has taken corrective action and has designed policies and procedures for communicating rent changes to the compliance department for timely implementation and the accounting department for assessment of financial reporting impact. Whatever party receives the notification will be responsible for timely dissemination to the affected departments.
Context: Prior to audit adjustment for accrual of HUD rental assistance income, management understated the amount of HUD rental assistance income and related HUD rental assistance receivable of roughly $44,800.
Auditor Recommendation: We recommend that management design and implement monitoring procedures to identify when changes to activity level controls are necessary. Specifically, management should have monitoring procedures to ensure that information that has financial impact is timely communicated to the accounting department assessing financial reporting implications and is properly reflected in the accounting system. Monitoring of internal control should be properly designed and implemented to ensure that misstatements are prevented or detected and corrected on a timely basis. In addition, the additional surplus cash deposit of roughly $44,800 should be deposited into the residual receipts account as soon as possible.
Auditor’s Summary of the Auditee’s Comments on the Findings and Recommendations:
After we were made aware of the conditions noted by the auditor, we made changes to our processes to ensure that whenever there is a rent change that all departments affected are timely notified. The party that is notified of the HUD rent increase will be responsible for communicating that rent increase to the accounting and compliance departments for implementation. In addition, we plan to make the additional required residual receipts deposit as a result of the audit correction.
Response Indicator: Agree
Completion Date: December 7, 2023
Title and Assistance Listing Number of Federal Program: 14.131 – Mortgage Insurance-Rental Housing [Section 207(a)/223(f)] and 14.856 Lower Income Housing Assistance Program (Section 8 Moderate Rehabilitation)
Type of Finding: Federal Award Finding
Finding Resolution Status: In Process
Information on Universe Population Size - N/A
Sample Size Information - N/A
Identification of Repeat Finding and Finding Reference Number - Not Applicable
Criteria: HUD Handbook 4381.5, Paragraph 2.14 - Bonding Requirements for Agents, requires that management agents maintain at least two months’ gross potential rents computed using the project with the highest gross potential income.
Statement of Condition: Management changed insurance coverage and as part of the transition, only $25,000 of fidelity coverage was included in the policy, which was less than two months’ gross income for Argus Manor Association.
Cause: Due to management oversight, the coverage was reduced below the required level.
Effect or Potential Effect: Management was not in compliance with the requirements of HUD Handbook 4381.5, Paragraph 2.14 - Bonding Requirements for Agents.
Auditor Noncompliance Code: Z – Other
Questioned Costs: $0
FHA Contract Number: 127-11114
Reporting Views of Responsible Officials: The Corporation took corrective action and has increased fidelity coverage that exceeds the HUD required amount. The coverage limit was increased to $1,000,000.
Context: Monthly rent potential is currently $67,200, so the required level of insurance is $134,400 to equal two months’ potential rent. Actual coverage was only $25,000.
Auditor Recommendation: We recommend that management increase the insurance coverage to at least $134,400, and monitor insurance limits for increases in rents and income to stay in compliance with the minimum requirement of two months’ gross potential income.
Auditor’s Summary of the Auditee’s Comments on the Findings and Recommendations:
After we were made aware of the conditions noted by the auditor, we increased our coverage limit to $1,000,000 which exceeds the HUD required insurance limit.
Response Indicator: Agree
Completion Date: December 7, 2023
Title and Assistance Listing Number of Federal Program: 14.131 – Mortgage Insurance-Rental Housing [Section 207(a)/223(f)] and 14.856 Lower Income Housing Assistance Program (Section 8 Moderate Rehabilitation)
Type of Finding: Federal Award Finding
Finding Resolution Status: In Process
Information on Universe Population Size - N/A
Sample Size Information - N/A
Identification of Repeat Finding and Finding Reference Number - Not Applicable
Criteria: HUD Handbook 4381.5, Paragraph 2.14 - Bonding Requirements for Agents, requires that management agents maintain at least two months’ gross potential rents computed using the project with the highest gross potential income.
Statement of Condition: Management changed insurance coverage and as part of the transition, only $25,000 of fidelity coverage was included in the policy, which was less than two months’ gross income for Argus Manor Association.
Cause: Due to management oversight, the coverage was reduced below the required level.
Effect or Potential Effect: Management was not in compliance with the requirements of HUD Handbook 4381.5, Paragraph 2.14 - Bonding Requirements for Agents.
Auditor Noncompliance Code: Z – Other
Questioned Costs: $0
FHA Contract Number: 127-11114
Reporting Views of Responsible Officials: The Corporation took corrective action and has increased fidelity coverage that exceeds the HUD required amount. The coverage limit was increased to $1,000,000.
Context: Monthly rent potential is currently $67,200, so the required level of insurance is $134,400 to equal two months’ potential rent. Actual coverage was only $25,000.
Auditor Recommendation: We recommend that management increase the insurance coverage to at least $134,400, and monitor insurance limits for increases in rents and income to stay in compliance with the minimum requirement of two months’ gross potential income.
Auditor’s Summary of the Auditee’s Comments on the Findings and Recommendations:
After we were made aware of the conditions noted by the auditor, we increased our coverage limit to $1,000,000 which exceeds the HUD required insurance limit.
Response Indicator: Agree
Completion Date: December 7, 2023
Title and Assistance Listing Number of Federal Program: 14.131 – Mortgage Insurance-Rental Housing [Section 207(a)/223(f)] and 14.856 Lower Income Housing Assistance Program (Section 8 Moderate Rehabilitation)
Type of Finding: Financial Statement Finding and Federal Award Finding
Finding Resolution Status: In Process
Information on Universe Population Size - N/A
Sample Size Information - N/A
Identification of Repeat Finding and Finding Reference Number - 2022-001
Criteria: The Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework is a widely recognized framework for designing, implementing, and evaluating internal control systems.
The Information and Communication component is one of the five components of the COSO framework. It has three principles:
1. The organization obtains or generates and uses relevant, quality information to support the functioning of internal control.
2. The organization internally communicates information, including objectives and responsibilities for internal control, necessary to support the functioning of internal control.
3. The organization communicates with external parties regarding matters affecting the functioning of internal control.
The Information and Communication component is essential for ensuring that information flows effectively throughout an organization. It involves obtaining and using relevant information from both internal and external sources to support the functioning of internal control.
The monitoring component of the COSO framework includes management oversight and recognition of when modification to the control structure is necessary to adapt to changes in the accounting environment. Such modification can include addition or revision to activity level controls such as reconciliation processes to prevent or detect and correct misstatements. Ongoing evaluations, separate evaluations or some combination of the two are used to ascertain whether each of the five components of internal control are functioning as intended.
Statement of Condition: A rent increase was approved by HUD, but not timely implemented, which led to a delay in collection of subsidy income. This delay resulted in roughly $44,800 of rental assistance to be collected in the subsequent period that should have been billed, collected, and recognized in the current period. In addition, surplus cash was not computed correctly and was understated by the amount of the rental assistance due.
Cause: Management has policies and procedures to ensure rent increases are implemented, but those policies and procedures were not functioning as intended and the rent increase was not timely implemented. In addition, there are no controls to ensure that rent increases are communicated to the accounting department on a timely basis, which could have potentially corrected the error.
Effect or Potential Effect: Because the rent increase was not properly implemented, rental assistance went uncollected for several months until discovery by the auditor during the audit. Because the rent increase was not timely communicated to the accounting department, the effect of the rent increase was not properly assessed for financial statement impact, resulting in understatement of HUD rental assistance income of roughly $44,800. The surplus cash deposit was understated by the amount of the rental assistance income that should have been accrued.
Auditor Noncompliance Code: S – Internal Control Deficiencies
Questioned Costs: $0
FHA Contract Number: 127-11114
Questioned Costs: $0
Reporting Views of Responsible Officials: The Corporation has taken corrective action and has designed policies and procedures for communicating rent changes to the compliance department for timely implementation and the accounting department for assessment of financial reporting impact. Whatever party receives the notification will be responsible for timely dissemination to the affected departments.
Context: Prior to audit adjustment for accrual of HUD rental assistance income, management understated the amount of HUD rental assistance income and related HUD rental assistance receivable of roughly $44,800.
Auditor Recommendation: We recommend that management design and implement monitoring procedures to identify when changes to activity level controls are necessary. Specifically, management should have monitoring procedures to ensure that information that has financial impact is timely communicated to the accounting department assessing financial reporting implications and is properly reflected in the accounting system. Monitoring of internal control should be properly designed and implemented to ensure that misstatements are prevented or detected and corrected on a timely basis. In addition, the additional surplus cash deposit of roughly $44,800 should be deposited into the residual receipts account as soon as possible.
Auditor’s Summary of the Auditee’s Comments on the Findings and Recommendations:
After we were made aware of the conditions noted by the auditor, we made changes to our processes to ensure that whenever there is a rent change that all departments affected are timely notified. The party that is notified of the HUD rent increase will be responsible for communicating that rent increase to the accounting and compliance departments for implementation. In addition, we plan to make the additional required residual receipts deposit as a result of the audit correction.
Response Indicator: Agree
Completion Date: December 7, 2023
Title and Assistance Listing Number of Federal Program: 14.131 – Mortgage Insurance-Rental Housing [Section 207(a)/223(f)] and 14.856 Lower Income Housing Assistance Program (Section 8 Moderate Rehabilitation)
Type of Finding: Federal Award Finding
Finding Resolution Status: In Process
Information on Universe Population Size - N/A
Sample Size Information - N/A
Identification of Repeat Finding and Finding Reference Number - Not Applicable
Criteria: HUD Handbook 4381.5, Paragraph 2.14 - Bonding Requirements for Agents, requires that management agents maintain at least two months’ gross potential rents computed using the project with the highest gross potential income.
Statement of Condition: Management changed insurance coverage and as part of the transition, only $25,000 of fidelity coverage was included in the policy, which was less than two months’ gross income for Argus Manor Association.
Cause: Due to management oversight, the coverage was reduced below the required level.
Effect or Potential Effect: Management was not in compliance with the requirements of HUD Handbook 4381.5, Paragraph 2.14 - Bonding Requirements for Agents.
Auditor Noncompliance Code: Z – Other
Questioned Costs: $0
FHA Contract Number: 127-11114
Reporting Views of Responsible Officials: The Corporation took corrective action and has increased fidelity coverage that exceeds the HUD required amount. The coverage limit was increased to $1,000,000.
Context: Monthly rent potential is currently $67,200, so the required level of insurance is $134,400 to equal two months’ potential rent. Actual coverage was only $25,000.
Auditor Recommendation: We recommend that management increase the insurance coverage to at least $134,400, and monitor insurance limits for increases in rents and income to stay in compliance with the minimum requirement of two months’ gross potential income.
Auditor’s Summary of the Auditee’s Comments on the Findings and Recommendations:
After we were made aware of the conditions noted by the auditor, we increased our coverage limit to $1,000,000 which exceeds the HUD required insurance limit.
Response Indicator: Agree
Completion Date: December 7, 2023