Finding 394323 (2023-002)

Federal Agency: U.S. Department of Housing and Urban Development Federal Program Name: Section 241(a) Supplemental Loan Insurance Multifamily Rental Housing – Loan and Section 223 (f) Mortgage Insurance for the Purchase or Refinancing of Existing Multifamily Housing Projects - Loan Account Assistance Listing Number: 14.155 and 14.151 Pass-through Agency: N/A Pass-through Number: N/A Award Period: January 1, 2023 – December 31, 2023 Type of Finding:  Significant Deficiency in Internal Control over Compliance  Other Matters Criteria: The U.S. Department of Housing and Urban Development regulatory agreement requires compliance with the provisions of residual receipts. The organization should have procedures and controls in place to ensure surplus cash is deposited within 90 days of the annual fiscal period within such receipts are realized. Condition: During the testing of reserve balances, it was identified the required deposit of surplus was not deposited within the required 90 days period. In addition, the balance was not tracked separately within the general ledger. Questioned Costs: None. Context: Per review of the prior year financial statements, the surplus cash calculation indicated a total deposit of $18,643 was required within 90 days after year-end. Per our review of the Berkadia account activity, the full deposit was not made within the required timeframe, therefore was not properly recorded and in accordance with the compliance requirements of HUD. The Deposit was not made until August 7, 2023. The funds were not recorded in a separate general ledger account and were recorded with replacement reserve funds when the deposit was occurred. Cause: The management company noted the communications with Berkadia regarding the residual receipt deposits began in March 2023, however, there were delays in Berkadia establishing the account given this was the first time the organization had surplus cash to be deposited. In addition, the management company did not separate the balance within the general ledger because Berkadia includes both replacement reserves and residual receipts funds into a reserve balance on their statements provided to the management company. There are subaccounts for this reserve balance that the management company was not provided by Berkadia until it was requested as part of audit procedures. Effect: The organization was not incompliance with HUD requirements per the regulatory agreement. Repeat Finding: This is not a repeat finding. Recommendation: The organization should review its internal controls and procedures to ensure any surplus cash identified at year-end is timely deposited into residual receipt account. In addition, we recommend Berkadia be instructed to separate the funds from the other reserve funds. View of Responsible Officials and Planned Corrective Action: Please refer to Casa Farnese, Inc.’s Corrective Action Plan.