Finding 2025-002: U.S. Department of Housing and Urban Development - Program: Mortgage Insurance for the Purchase or Refinancing of Existing Multifamily Housing Projects, Federal Assistance Listing Number 14.155 Criteria: Non Federal entities must establish and maintain effective internal control over Federal programs to provide reasonable assurance of compliance with statutes, regulations, and the terms and conditions of Federal awards. This includes: • Eligibility and recertification requirements: Owners/agents must perform initial, interim, and annual recertifications of tenant income and family composition and execute Form HUD 50059 timely and completely as a condition of subsidy eligibility. • Vouchering and reporting: Vouchered assistance under TRACS must be accurate, supported, and for eligible tenants and periods only; adjustments should not be used to systematically correct preventable control lapses. • Inspections: HUD assisted units must undergo regular annual inspections to ensure decent, safe, and sanitary conditions in accordance with HUD requirements and the program contract. • Documentation: Tenant files must contain executed (signed and dated) HUD 50059s and supporting documentation to substantiate eligibility and the amounts vouchered. Finding 2025-002: U.S. Department of Housing and Urban Development - Program: Mortgage Insurance for the Purchase or Refinancing of Existing Multifamily Housing Projects, Federal Assistance Listing Number 14.155 (Continued) Condition: During our testing of 12 tenant files for eligibility, recertifications, vouchering, and compliance with HUD requirements, we noted the following exceptions: • Untimely income recertifications (Form HUD 50059): Tenant annual recertifications were not completed timely for 3 of the 12 selections. Form HUD 50059 was prepared after the required anniversary date. • Missed annual unit inspections: Required annual unit inspections were not performed for any units during the audit period. • Vouchering after move out: HUD subsidy was vouchered for two months or more after tenant move out; subsequent TRACS adjustments were submitted to correct prior vouchers. This occurred for one selection in our sample. We then reviewed all move-outs during the year noting three out of the 20 were vouchered two months or more after move-out. • Missing tenant file: For one selection, the tenant file could not be located. • Unsigned HUD 50059: Three tenant’s HUD 50059 in our sample were not signed by the tenant. Cause: These conditions occurred because sufficient oversight of the apartment manager responsible for tenant certifications, inspections, and voucher processing was not provided. The apartment manager lacked adequate knowledge of HUD program requirements and internal review procedures were not in place to ensure that files were completed accurately and timely. As a result, key compliance activities were not monitored, reviewed, or corrected as needed. Effect: These conditions resulted in noncompliance with HUD program requirements, increasing the risk that tenants were not properly certified, that assistance payments were inaccurate or unsupported, and that HUD funds were not administered in accordance with applicable regulations and program guidance. The lack of complete, timely, and accurate compliance activities also elevates the risk of repayment obligations, enforcement actions, and reduced assurance over the integrity of program operations. Questioned costs: We had the following questioned costs: • Untimely income recertifications (Form HUD 50059): None. In each case, the HUD subsidy would have been more. • Missed annual unit inspections: None. Relates to inspections that does not impact amounts vouchered. • Vouchering after move out: $2,100 (known). In each case, the amount was repaid to HUD on a future voucher. • Missing tenant file: $4,332 (estimated). No file could be found to support vouchering for the year. • Unsigned HUD-50059: $14,411 (known). Form was calculated properly and supporting documentation was present. Context: We reviewed 12 tenant files during our audit. Unit inspections were not performed for any units during the fiscal year. Six of the 12 files had at least one of the findings noted above. Finding 2025-002: U.S. Department of Housing and Urban Development - Program: Mortgage Insurance for the Purchase or Refinancing of Existing Multifamily Housing Projects, Federal Assistance Listing Number 14.155 (Continued) Recommendation: We recommend that Villa Scalabrini strengthen its overall internal controls surrounding HUD program compliance, including improvements to supervisory oversight, tenant file documentation practices, and monitoring procedures to ensure that required certifications, inspections, and voucher submissions are completed accurately, timely, and in accordance with HUD regulations. Views of management and planned corrective action: Management agrees with the finding. Villa Scalabrini has taken corrective action by replacing the apartment manager and hiring a new regional property manager with significant HUD program experience. The new regional property manager is now providing enhanced oversight, including regular review of tenant files, recertification documentation, and HUD voucher submissions to ensure that all required activities are completed timely, accurately, and in accordance with HUD regulations. Management will continue to monitor compliance and strengthen internal processes to prevent recurrence of these issues.