Corrective Action Plans

The Cooperative returned the reimbursed funds to the replacement reserve. The management agent will implement a process to ensure that future reimbursed funds are returned to the replacement reserve as required by the regulatory agreement.

Comments on the Finding and Each Recommendation: During the year ended May 31, 2026, $11,836 was withdrawn from the reserve for replacements without HUD approval. Management should transfer $11,836 from the operating account to the reserve for replacements account. Action(s) taken or planned on the finding Agree. Management concurs with the finding and recommendation. On August 11, 2026, management transferred $11,836 from the operating account to the reserve for replacements account.

Comments on the Finding and Recommendations Concur or do not concur with this finding – Concur Agree or disagree with auditor recommendation – Agree Corrective Action Taken or Planned Response to Findings Identified by Auditor Completion date or proposed completion date – September 30, 2026 Actions taken or Planned on the finding – Management will establish a separate Residual Receipts bank account and implement internal controls and procedures to ensure that future surplus cash deposits are made to the Residual Receipts account within the timeframe required by HUD.

Views of responsible o􀆯icials and planned corrective actions: There is no disagreement with the audit finding. Action taken in response to finding: PCAA will implement a formal year-end close communication process for vendors and subrecipients. Fiscal year-end reminders will be distributed by email, with a request that final invoices be submitted before the books are closed. PCAA will also maintain the books open for six weeks after fiscal year-end to help ensure expenditures are recorded in the proper fiscal year. Name(s) of the contact person(s) responsible for corrective action: Alina Birenyte, Controller Planned completion date for corrective action plan: The corrective action plan detailed above is being implemented by August 31, 2026

Views of responsible o􀆯icials and planned corrective actions: There is no disagreement with the audit finding. Action taken in response to finding: The Grant and Accounting teams hold monthly in-person meetings to review grant-related expenditures. Going forward, email approval will be requested after each meeting and before the draw request is submitted to the governmental agency. Name(s) of the contact person(s) responsible for corrective action: Alina Birenyte, Controller Planned completion date for corrective action plan: The corrective action plan detailed above is being implemented by August 31, 2026.

The CFO corrected the Federal Draw schedule to identify the payroll used each pay period for the draw request. The schedule shows the replacement of termed staff and a countdown of available grant dollars per staff. This report balances the Federal Draw schedule every pay period.

Management agrees with the finding and will put processes and controls in place to verify timely deposits in the future. The required deposit of $4,477 was made in July 2025 to the residual receipts account. The corrective response has already been put into place for this fiscal year.

Corrective Action Plan for Current Year Findings 2026-001 Deposit of Surplus Cash into a Residual Receipts Account Corrective Action Plan No later than 90 days past the end of the fiscal year, we will identify surplus cash in the project funds account and deposit into the residual receipts account. Person(s) Responsible: Aaron Franklin Timing for Implementation: Immediate

Remaining balance was deposited on April 16, 2026. In the future management will ensure deposits are made timely or obtain HUD appproval permitting delay if there were cash flows issues.

Inadequate Cash Management Controls - Various - DPHHS - The Montana Department of Public Health and Human Services implemented initial changes to its cash draw processes in state fiscal year 2025 and was in the process of implementing additional controls during a period of concurrent change in federal award administration (DOGE) and in state accounting policy. Gaps and inconsistencies in internal controls occurred during that transition. The department fully implemented revised cash draw processes and enhanced internal controls in August 2026 and will monitor the interval between drawdown and disbursement as part of its ongoing internal control monitoring. Responsible Party - Brenda Crawford, Internal Control and Compliance Officer, Montana Department of Public Health and Human Services Target Implementation Date - 8/21/2026

Noncompliant Rebate Calculation Review Controls - WIC - DPHHS - The Montana Department of Public Health and Human Services implemented a documentation tracking system and updated its procedures to require a documented review before invoicing. The department also retroactively reviewed and documented all rebate calculations for fiscal year 2026. The department completed this corrective action in May 2026. Responsible Party - Brenda Crawford, Internal Control and Compliance Officer, Montana Department of Public Health and Human Services Target Implementation Date - 5/15/2026

Inadequate Treasury State Agreement Preparation and Controls - O&M - Innovation - DOA - The Montana Department of Administration will each fiscal year identify major Cash Management Improvement Act programs, prepare and distribute interest-calculation spreadsheets to agencies, submit the annual report, and prepare and submit the Treasury State Agreement. Responsible Party - Jennifer Thompson, State Accountant, Montana Department of Administration Target Implementation Date - 6/30/2026

Noncompliant Closeout Reporting - O&M - DMA - The Montana Department of Military Affairs concurs with the finding. In August 2024, the department and the United States Property and Fiscal Office (USPFO) identified older awards that remained open and should have been closed by prior staff. From August through December 2024, the department worked with the USPFO to identify, reconcile, and close the outstanding awards. The department has since implemented a master award tracker to identify each award’s period-of-performance end date, applicable closeout deadline, and report status. The department reviews the tracker regularly and notifies staff of approaching closeouts to ensure final reports are accurate and submitted within required timeframes. Responsible Party - Janae Brower, Chief Financial Officer, Montana Department of Military Affairs Target Implementation Date - 11/30/2026

Noncompliant Timely Reimbursement Controls - O&M - DMA - The Montana Department of Military Affairs partially concurs with the finding. The department recognizes the need to submit reimbursement requests timely and has implemented improved tracking procedures and a regular reimbursement‑request process, generally on a bi‑weekly or monthly basis, to support timely submission of SF‑270s. However, the department cannot submit reimbursement requests until the applicable federal funding modification has been approved and funding has been allocated by the National Guard; therefore, delays attributable to pending federal funding availability are outside the department’s control. The department will continue to track expenditures and reimbursement due dates by award, monitor the status of funding modifications, submit reimbursement requests promptly when funding becomes available, and document the reason for any reimbursement request submitted outside the required timeframe. The department will also consult with the United States Property and Fiscal Office to identify whether alternative processes are available to allow reimbursement requests to be submitted without waiting for completion of a funding modification. Management will review outstanding reimbursement requests and documented exceptions regularly to ensure timely follow‑up. Responsible Party - Janae Brower, Chief Financial Officer, Montana Department of Military Affairs Target Implementation Date - 11/30/2026

Noncompliant Excess Cash Management Controls - SFA - MSU - The Montana State University - Bozeman concurs. Because this issue was identified in the previous audit, the University implemented corrective action at the conclusion of that audit to prevent excess cash. The University does not expect this to be an issue in future audits. The Montana State University - Northern concurs. The University added a new internal control process in fiscal year 2025. Staff now receive a daily cash balance report for federal student financial aid funds that is automatically emailed to Business Services personnel. This process allows staff to monitor the balance and issue refunds as needed. The University believes this process will be effective in detecting and preventing noncompliance going forward. The Great Falls College concurs. The College will continue the controls established in July 2024, which have resulted in zero instances of excess cash since implementation. Responsible Party - James Broscheit, Director of Financial Aid, Montana State University - Bozeman Chris Wendland, Controller, Montana State University - Northern Carmen Roberts, Executive Director of Finance and Administration, Great Falls College – Montana State University Target Implementation Date - 1/31/2025

Noncompliant Direct Loan Reconciliation Controls - SFA - UM - The University of Montana - Missoula will strengthen reconciliation procedures by assigning responsibility to designated staff, requiring documented supervisory review, retaining supporting reconciliation documentation, and monitoring timely and consistent completion of reconciliations. Management will conduct periodic oversight to ensure reconciliation requirements are completed in accordance with federal regulations and institutional procedures. Responsible Party - Morgan Hahn, Interim Financial Aid Director, University of Montana - Missoula Target Implementation Date - 12/31/2026

Noncompliant Direct Loan Reconciliation Controls - SFA - MSUB - The Montana State University - Billings concurs with the finding and has taken corrective action to strengthen segregation of duties within the cash management reconciliation process. While the reconciliation process has historically involved both Financial Aid and Financial Services personnel, the reconciliation and review were performed inconsistently within the Financial Aid office. Effective immediately, Financial Aid and Financial Services have implemented a monthly reconciliation meeting to jointly review and validate the cash management reconciliation. During this meeting, Financial Services provides reconciliation information from the University’s financial records, and Financial Aid independently extracts and reviews corresponding information from the Banner system and the Common Origination and Disbursement system. Any discrepancies identified are discussed and resolved collaboratively. The monthly meeting and review process will be documented and retained as evidence of review and approval. This enhanced process establishes a formal review control involving personnel from separate offices and strengthens segregation of duties over the cash management reconciliation process. Responsible Party - Justin Beach, Director of Financial Aid & Scholarships, Montana State University - Billings Rebecca Bunn, Controller, Montana State University - Billings Target Implementation Date - 8/31/2026

Noncompliant Section 8 Cash Management - HVC - Commerce - The Montana Department of Commerce took steps in September 2023 to update the Treasury State Agreement to clarify that settlement dates occur within five business days after receiving funds from the United States Department of Housing and Urban Development. In September 2024, the department again coordinated a revision to the agreement language to reflect mid-month payment practices. These updates are included in the 2026 Treasury State Agreement, signed July 1, 2025. Responsible Party - Ingrid Mallo, Chief Financial Officer, Montana Department of Commerce Target Implementation Date - 7/1/2025

CORRECTIVE ACTION PLAN2025-001 [2023-001]—TRACKING AND VALUATION OF MORTGAGE RECEIVABLES AND AMOUNTS DUE TO GRANTORType of Finding: (A) Material Weakness in Internal Control Over Financial ReportingStatement of ConditionWhile the Housing Trust has begun a complete review of its loan portfolio, the project has not yet been completed. Therefore, we were unable to obtain sufficient audit evidence to support the Housing Trust’s tracking and valuation of its mortgage receivables and amounts that are due to grantor.Per our audit procedures, we noted that management was unable to provide the following:A reasonable methodology for estimating its allowance for loan losses.Funding provided by grantors for the loan programs that should also be classified as amounts that are due to grantor.Not all current year loans were recorded in the general ledger (approximative $512,066) and approx. $481,201 were recorded twice.A net prior year adjustment of $36,460 for mortgages receivable and $35,000 for land leases held was necessary.Reclassification between loans accounts and grant revenue were necessaryContextThe Housing Trust has a portfolio of over six-hundred individual mortgage receivables that include both non-amortizing and amortizing loans, which management has valued at approximately $25,291,075. These loans have been funded by several sources, including federal, state, and local funding. Some of the grantors have established in their agreements that these funds do not belong to the Housing Trust, but actually belong to the grantor. CriteriaThe Housing Trust should ensure it has a board-approved policy for its loan portfolio to ensure that these assets are properly tracked, classified, and maintained with specialized loan management software that can perform the following:Loan Classification and TrackingEach loan is properly identified with its funding source (federal, state, local, etc.) and type of restriction Each loan agreement has the funding source specifiedThe current status of each loan is tracked (current, delinquent, defaulted)Loan funding that has been established as due to the grantor is properly tracked.Compliance and ReportingEnsure the loans comply with the specific guidelines of their respective funding source. Audit trails are available for all transactions and valuations.The receivables and related interest accruals supported by the loan management software should be reconciled to the Housing Trust’s accounting software.Financial TrackingThe valuation of the portfolio should be updated periodically (at least quarterly) for any changes in loan status or market conditions.All new loans should be recorded in the general ledger A loan loss policy was established that includes a loan loss methodology incorporating risk classes based on the borrower’s ability to repay. However, the calculations seem to follow a different methodology established afterwards. The policy should be updated with calculation methodology and with the backup research of historical data. A loan review committee should be responsible for reviewing and approving the classifications of loans and the associated allowance for loan losses which should be supported by high-quality data collection on each borrower’s payment history and any relevant economic indicators. The calculations and methodology should follow the approved policy, or the policy should be improved to include all factors mentioned above.EffectThe auditors were not able to verify the accuracy of the loan records and financial statements related to mortgage loans, the related accrued loan interest, the allowance for loan losses and loan funding that should also be recorded as due to grantor. CauseWhile the Housing Trust has begun a complete review of its loan portfolio, the project has not yet been completed. Therefore, the loan portfolio tracking and valuation have not yet been designed or implemented to support its policies and procedures or provide the loan review committee with a workable system for reviewing, approving and monitoring the organization’s mortgage receivable portfolio. The methodology seems to be changing, and the calculations do not seem to be accurate,RecommendationWe recommend the Housing Trust update policies and procedures for its loan portfolio as identified in the “Context” section of this finding to include methodology, risk assessment, historical loan data research, calculations method with reasoning.View of Responsible OfficialThe Housing Trust acknowledges the finding. Due to turnover in prior years, historical loan records and tracking systems were incomplete or inaccurate. Since then, SFCHT has taken the following steps:A second title company has been contracted to obtain final loan data for the 2026 loan portfolio. A title company will also be engaged annually at year-end to identify and resolve any differences arising during the year.Establish one master loan inventory using Portfol data. This inventory will serve as the master loan control schedule for monthly financial reconciliations. All differences will have a documented resolution, including reconciliation of receivables and related interest between the two systems. Reconciliations will be completed by the 15th business day of the following month.Create a new loan-recording process for every loan closing.Create a Due to Grantor Matrix based on findings from the annual loan review performed by the title company. Supporting documentation, such as grant agreements, correspondence, or other applicable documentation, will be maintained.Review the ASC 326 loan loss methodology to ensure it reflects the actual calculation methodology and is supported by appropriate research. This review will be performed quarterly.Establish a formal loan review committee and process to review loan calculations and the allowance for loan losses. The committee will meet quarterly and review reports from Portfol. Meeting minutes will document updates, decisions, and changes.Corrective Action Plan TimelineFinalize and implement the loan loss methodology: by December 2026Begin monthly Portfol-to-QBO reconciliations: by September 2026Fully hand over all loans to Amerinat by end of 2026; Land Leases will remain “in-house”Continue staff training and Executive-level reviewDesignated Employee Responsible for Corrective Action-Director of Operations-Accounting Specialist2025-002 [2023-002]—FINANCIAL CLOSE AND RESTATEMENTS TO BEGINNING NET ASSETSType of Finding: (A) Material Weakness in Internal Control Over Financial ReportingStatement of ConditionDuring the audit of the financial statements, we noted that material adjustments and restatements were necessary to correct errors in the current and previously reported financial statements. A summary of the areas and the net effect of the changes are as follows: Type Amount, net Accounts Receivable $ (13,490) Grants and Contracts Receivable 830,747 Accrued Interest 5,798 Amortizing Loan Receivable 419,551 Non-Amortizing Loans Receivable (433,722) Land Held in Trust (61,323) Other Assets (145,000) Prepaid Expenses (61,940) Notes Receivable (195,000) Developments Projects (184,559) Real Estate Inventory to Sell (333,079) Fixed Assets (785,081) ROU Accumulated Amortization (7,511) Accounts Payable (807) Due to Grantor 10,000 Grant Advances (97,963) Accrued Expenses (6,249) Other Current Liabilities 52,841 Lease Liabilities 7,845 Notes Payable (9,710) Net Assets 1,154,733 Total $ 146,081 CriteriaAccounting Standards Codification (ASC) 265 “Presentation of Financial Statements—Communicating Internal Control Related Matters Identified in an Audit” requires that deficiencies in internal control over financial reporting be communicated to those charged with governance when the design or operation of a control does not allow management or employees to prevent or detect misstatements on a timely basis.The correction of material misstatements indicates the existence of a material weakness in internal control over the maintenance of the organization’s financial statements.EffectThe material adjustments and restatements resulted in significant changes to the current year balances and beginning balances of the organization’s unrestricted and restricted net assets. These adjustments could potentially undermine the stakeholders' confidence in the financial information presented by the organization and may lead to difficulties in securing future funding or maintaining current donor relationships.CauseThe material misstatements were caused by a weakness in the development and implementation of internal controls and financial reporting processes, as well as significant turnover in the organization’s management.RecommendationWe recommend the Housing Trust strengthens its internal controls and financial reporting processes to prevent future occurrences of such errors. This could involve adding additional staff, training current accounting staff and implementing more robust review procedures to ensure that all financial reporting is in strict accordance with GAAP. View of Responsible OfficialThe Housing Trust acknowledges the finding. In prior years, however, internal controls were insufficient. There was no formal month-end close or review process, and prior audits relied on outdated balances without verification. Under new leadershipA formal monthly close calendar has been established, with the monthly close to be completed within 10-15 business days.Create a supporting schedule for every balance sheet account. These schedules will be used as part of the monthly reconciliation process and will be certified.A grant receivable roll-forward will be prepared for each grant, compared to QuickBooks, and reconciled monthly.Each development project will have its own subledger, which will be reconciled monthly.A detailed fixed asset register will be maintained and reconciled quarterly.6. To help prevent future restatements, establish a formal journal-entry control process that requires appropriate supporting documentation and approvals.7. Establish a policy requiring documentation and approval for any changes made to beginning balances.8. The CEO and Finance Committee will perform monthly analytical reviews using the balance sheet, profit and loss statement, and actual-to-budget comparisons.9. Establish a reconciliation exception and audit adjustment log to track outstanding issues requiring resolution, including a timeline for resolving each item.Corrective Action Plan Timeline The timeline to complete this is prior to December 31, 2026.Designated Employee Responsible for Corrective Action-Director of Operations-Accounting Specialist2025-003 [2024-003] - GRANT TRACKING AND SEFA RECONCILIATIONFederal Agency: U.S. Department of Housing and Urban Development (HUD)Federal Program: Housing Opportunities for Persons With AIDS (HOPWA)Assistance Listing Number: 14.241Award Number and Period: [NMH240051], [November 1, 2024 – October 31, 2027]Type of Compliance Requirements: Internal Controls Type of Finding: (B) Significant Deficiency in Internal Control Over Financial ReportingKnown Questions Cost: NoneStatement of ConditionDuring our audit, we identified initial differences between expenditures reported on the Schedule of Expenditures of Federal Awards (SEFA) and the general ledger. Management subsequently provided additional supporting schedules and completed a reconciliation of the SEFA to the general ledger. However, the reconciliation required manual effort because one federal award included program income amounts that had not been properly reconciled or corrected, another federal award had expenses that did not belong to the award, and recycled funds were tracked separately partially only from new grant funds in the accounting records. Some of expenses did not have appropriate backup documentation, however, the billing to the grant was correct. Expenses from program income for salaries did not match the timesheets. CriteriaPer 2 CFR 200.302 and 200.510(b), recipients of federal awards must maintain accurate, current, and complete records that adequately identify the source and application of funds. Grant expenditures must be traceable to the financial records and properly classified. Program income, including recycled funds, must be used and tracked in accordance with federal requirements and grantee policies. Specifically, all grants should be tracked separately in the general ledger, and the revenue and expenses should match the reimbursement grants. The SEFA reconciliation should be done thoroughly and discrepancies reconciled or resolved, if that is the case. The policies for recycling the funds should be updated with the financial tracking in the general ledger and update with all grantor recommendations. The HOPWA program policy was updated in July 2025.The recycled funds received/spent should be separately tracked and used per policies and grantor recommendations.EffectThe lack of properly tracking expenditures and recycled funds increases the risk of misstating the SEFA, billing non-allowable or duplicate costs to the grantor, and not meeting timeliness or use restrictions related to program income. This may lead to questioned costs or future audit findings.Recycled funds not properly tracked separately may result in noncompliance with the application of loan funding. CauseThe issues stemmed from frequent staff turnover and the complexity of accounting for loans and recycled funds across departments. RecommendationWe recommend the Housing Trust:Revise and implement grant management policy and procedures that ensure each grant has a dedicated general ledger account.Require all reimbursement requests to be supported by general ledger detail.Ensure program income and recycled funds are separately tracked in accordance with federal guidelines (separate classes).Establish regular reconciliations between Finance and Program records to maintain consistency.View of Responsible OfficialThe Housing Trust acknowledges the finding. Corrective Action Plan: 1. A master grant register has been created that includes all active grants and federal awards.2. Each grant will have a unique class/project established in QuickBooks to capture payroll and other grant-related expenses. Reports will be generated monthly.3. Each grant will be reconciled monthly.4. Grant reimbursement requests will be supported by appropriate documentation.5. Payroll review procedures have been established to confirm that payroll costs are properly allocated to grants.6. Program income will be tracked separately for all applicable income and expenditures.7. Monthly SEFA reconciliations will be completed for all grants, including grants that do not meet the definition for inclusion in the SEFA.8. A grant reconciliation exception log will be established to track outstanding issues, responsible parties, and timelines for resolution. Corrective Action Plan Timeline- Finalize and adopt new Grant Management Policies: by September 2026- Implement monthly SEFA reconciliations: by September 2026- Complete staff training on program income and federal grant tracking: by September 2026Designated Employee Responsible for Corrective Action-Director of Operations-Accounting SpecialistCurrent Year Findings 2025-004 - Program Income Federal Agency: U.S. Department of Housing and Urban Development (HUD)Federal Program: Housing Opportunities for Persons With AIDS (HOPWA)Assistance Listing Number: 14.241Federal Award: [NMH240051], [November 1, 2024 – October 31, 2027]Compliance Requirement: Program Income Known Questions Cost: None Type of Finding: (F, G) Significant Deficiency in Internal Control Over Compliance of Federal Awards and Instance of Noncompliance related to Federal Awards Statement of Condition During 2025, the Housing Trust received certain repayments of loans originally funded by HOPWA awards. Of this amount, certain amount may have remained unspent or had not been recorded/reconciled in accordance with HUD requirements as of December 31, 2025. Management did not maintain a documented control to identify HOPWA repayment receipts, determine the applicable award requirements, reconcile receipts and expenditures among IDIS, QuickBooks, and the program-income subsidiary record, and document approval of their disposition. Criteria Under 2 CFR 200.307(c), program income earned after a Federal award’s period of performance is subject to Federal requirements only when required by Federal agency regulations or the terms and conditions of the award, and the Federal agency may establish appropriate disposition requirements through closeout. HUD may require HOPWA-funded loan repayments received after the original award period to be recorded as program income.CauseThe Housing Trust had not designed and assigned ownership of a formal program-income and grant-closeout control addressing repayments generated from HOPWA-funded loans after the originating award’s period of performance. Effect Program income may have been subject to incorrect or untimely reporting/use, increasing the risk of noncompliance and misstatement of federal expenditures. Known questioned costs were unknown. RecommendationHousing Trust should implement a documented monthly program-income reconciliation and grant-closeout control that identifies the originating award, applicable HUD disposition requirement, IDIS receipt, QBO classification, eligible use, remaining balance, reviewer approval, and resolution of differences. Evidence of HUD determinations for post-period receipts should be retained with the reconciliation.Views of Responsible Officials: SFCHT acknowledges the finding and notes that the New Mexico HOPWA program is the only documented HUD grant that funds mortgages.Management has established a formal process to identify and track repayments associated with HOPWA-funded loans. Management will maintain a subsidiary program income register that identifies the originating federal award, receipts, applicable HUD disposition requirements, accounting classification, eligible expenditures, and remaining balance. Program income activity will be reconciled monthly among loan-servicing records, QBO, IDIS, and supporting program records. Written HUD determinations regarding post-period repayments will be retained when applicable.Corrective Action Plan TimelineAn onsite meeting with HUD HOPWA representatives is scheduled for September 10, 2026, at the Santa Fe offices. During this meeting, policies and procedures, including the program income policy, will be reviewed and formalized, and a HUD determination log will be established.The HOPWA Program Income Register will be implemented, and repayment schedules for HOPWA loans will be documented in the master loan inventory. Implementation date: July 2026.HOPWA program income will be expended before additional HOPWA IDIS reimbursement requests are approved.A historical review of HOPWA loans and funding sources will be completed. Target date: August 2026.QBO, Portfol, Amerinat, and IDIS will be reconciled monthly. Beginning: July 2026 and ongoing.Post-period repayments and related HUD determinations will be reviewed. Target date: September 2026.Designated Employee Responsible for Corrective Action Director of Operations, with assistance from the Accounting Specialist and HOPWA HUD program staff, as applicable.Signature Title

Finding 2025-002 Corrective Action: Management concurs with the finding. The Organization will implement a formal review and approval process over monthly CACFP requests for reimbursement. Prior to submission, the Grant Manager, who is independent of the preparation process, will review the monthly request for reimbursement and supporting documentation, including payroll and nonpayroll costs allocated to the CACFP to verify that costs are appropriately allocated to the program and are allowable under the applicable federal requirements. Evidence of the review and approval will be documented and retained with the monthly reimbursement documentation. Anticipated Completion Date: September 2026 Personnel Responsible for Corrective Action: Alison Elder, CFO

Management will enhance its review of grant reimbursement requests by comparing billed amounts to supporting expense detail before submission and resolving any differences timely. Additional billing review training has been implemented, and management will continue working with the funding agency to resolve the overpayment.

Material Weakness Finding No. 2025-006: Cash Management Views of Responsible Officials and Planned Corrective Action The Organization acknowledges the importance of compliance with 2 CFR §200.305, rules for federal payments; and understood and concurred with the prior year finding (2024-006) and current year renumbered recommendation (2025-006). A. U.S. Department of Health and Human Services (HHS) Substance Abuse and Mental Health Services Federal Assistance Listing Number 93.243. The Organization received this award from the HHS, Substance Abuse and Mental Health Services Administration (SAMHSA), via the State of Hawaii, Department of Health (DOH). In other words, SAMHSA awarded federal dollars to the DOH, who then sub-awarded federal dollars to the Organization. The Organization further sub-awarded to eligible community-based organizations (CBOs), for the purpose of SAMHSA emergency response grants (SERG), as a result of the impacts of the Lahaina wildfires in August 2023. Payments from the DOH, is based on the Organization’s meeting the billing parameters as established by the DOH at the time of contracting. Actual billing by the Organization to the DOH, includes the aggregation of eligible expenditures incurred by sub-recipient CBOs, that are subject to reimbursement from the Organization via the DOH reimbursement. Sub-recipient CBO invoices are reviewed and validated by the Organization’s program staff prior to submission for the Organization’s aggregation and invoicing to DOH. 1. The Organization notes the following process in place as of the June 30, 2025 fiscal year end: Process & Review Controls – Finance Committee & Full Board. The Organization’s monthly Board process and review controls includes the review of the Organization’s: Statement of Financial Position, Statement of Revenues and Expenditures, Statement of Revenues and Expenditures – Net Income/(Loss) by Fund, Fund Details – Additional Information and Statistics, Active Subcontract Summary, Active Subcontract Listing Related to Funds. This monthly process and review controls functioned to mitigate any internal control non-compliance. 2. The Organization also notes the following processes implemented after the June 30, 2025 fiscal year end: Internal Control Environment Policy – July 2025, Updated August 2026. Established and updated the following policies: Internal Control Environment; Implementation of Significant Accounting Policies; Revenue Recognition Policy, Including Federal Draws; and Implementation of Health Resources & Services Administration (HRSA) Related Policies, including cash management processes and procedures. Effective September 2026, the Organization will implement an internal control review of the federal funds to ensure compliance with 2 CFR §200.305 for Federal Assistance Listing Number 93.243. B. U.S. Department of Health and Human Services (HHS) Health Care for Native Hawaiians Federal Assistance Listing Number 93.932. This federal award is referred to as either Public Health Services (PHS) or the Native Hawaiian Healthcare Improvement Act (Act) federal dollars. For context, the Organization’s progressive and corrective actions as of the fiscal year ended (FYE) June 30, 2024 report included the following: 1. System, Process & Review Controls In Practice. a. System Controls. Continued to operate in an environment in which system, process & review controls of the United States Department of Health and Human Services (HHS) are practiced in processing cash (draw) transactions in both the Electronic Handbook (EHB) and Payment Management System (PMS) systems, operated by HHS. Only the director of administrative operations and the CEO have system access to the EHB and PMS systems. b. Process & Review Controls – Finance Committee & Full Board. The Organization’s monthly Board process and review controls includes the review of the Organization’s: Statement of Financial Position, Statement of Revenues and Expenditures, Statement of Revenues and Expenditures – Net Income/(Loss) by Fund, Fund Details – Additional Information and Statistics, Active Subcontract Summary, Active Subcontract Listing Related to Funds, and Native Hawaiian Health Program (Fund 007V), and Native Hawaiian Health Scholarship Program (Fund 017V). This monthly process and review controls functioned to mitigate any internal control non-compliance. c. HHS Drawdown Restriction. The Organization remained on HHS imposed drawdown restriction as of June 30, 2024 and June 30, 2025. The restriction was removed by HHS in July 2026. 2. The Organization also notes the following processes implemented after the June 30, 2025 fiscal year end: a. Internal Control Environment Policy – July 2025, Updated August 2026. Implemented and updated the following policies: Internal Control Environment; Implementation of Significant Accounting Policies; Revenue Recognition Policy, Including Federal Draws; and Implementation of Health Resources & Services Administration (HRSA) Related Policies, including cash management processes and procedures. b. Additional Process & Review Controls – EHB & PMS. Effective March 1, 2026, the Organization implemented, federal draws, process and review of internal controls implemented, via the chief of staff’s review of the director of administrative operations cash management analyses, federal grant receivable composition, reconciliation and related federal grant revenue computations, prior to any director of administrative operations and chief executive officer action in EHB and PMS, respectively. Finding No. 2025-006: Cash Management Contact Person(s) Responsible for Corrective Action: Sheri Daniels, Ed.D., Chief Executive Officer, Marisa Wilson, Director of Administrative Operations, and Sylvia Hussey, Ed.D., Chief of Staff.

Finding 2025 – 004 Internal Controls over Financial Reporting Name of Contact Person: David Rosado, Executive Director Corrective Action: The Council agrees with this finding. The Council has hired a new Finance Director effective January 2, 2025, with the appropriate skills, knowledge, and experience to oversee the Finance Department. The Finance Director has identified and corrected internal control issues. All coding and processing of Aging Expenditures has been updated, and documents complied with State and Federal policies are in place. Completion Date: December 8, 2025

Effect: The federal awarding agency did not receive interest that could have been earned on the advances. There was no loss from uninsured funds or from lack of segregating funds into separate accounts. Recommendation: The auditor recommends that the Organization implement policies and procedures to ensure that all advance payments are deposited into separate, insured, interest-bearing accounts as required. The grantee should also establish controls to track interest earned on these accounts and remit amounts due to the federal awarding agencies in a timely manner. Training should be provided to staff responsible for cash management to ensure ongoing compliance with federal requirements. 1. Explanation of Disagreement with Audit Findings: There is no disagreement with the audit findings. 2. Action Planned in Response to Finding: The Organization has implemented procedures to deposit the advance funds into separate, insured, interest-bearing accounts as required. The Organization has also established controls to track interest earned on the accounts and credit the interest back to the grant. 3. Official Responsible for Ensuring CAP: Kari Jo Lawrence, Chief Executive Officer and Jernon Kelly, Chief Financial Officer are responsible for ensuring corrective action of this deficiency. 4. Planned Completion Date for CAP: December 31, 2026.

2025-003 – WRITTEN POLICIES AND PROCEDURES REQUIRED BY THE UNIFORM GUIDANCE (REPEAT) Corrective Action Plan: Management developed written policies and procedures related to federal awards, which were formally adopted by the City Council at the June 18, 2025 Council meeting. Responsible Party(ies): • City Council • City Manager • Deputy City Manager / Finance Director Anticipated Completion Date: June 18, 2025.