II. Financial Statement Findings A. Internal Control over Financial Reporting 2022-001: Reporting of Revenue and Expenditures of Federal Awards ? Material Weakness Criteria: Internal control policies and procedures should be established that enable the proper recognition of grant transactions under the accrual basis of accounting to provide reasonable assurance regarding the reliability of the financial reporting data. Condition: Cash received from a federal grant funded the Homeowner Assistance Fund (HAF) program, expenditures were recorded on the Statement of Net position as a reduction in cash and a corresponding entry to unearned revenue for the year ended June 30, 2022. Management took the position that MHP was acting as a contractor/agent and therefore the program should not be presented on the Statement of Revenues, Expenses and Changes in Net Position, but rather disclosed in summary form in the footnotes to the financial statements and Management?s Discussion and Analysis. As a result of MHP?s subrecipient relationship with the Commonwealth of Massachusetts?s HAF program, an adjustment was posted subsequent to year end to reflect the gross revenue and expense from the program transactions on an accrual basis in the Statement of Revenues, Expenses and Changes in Net Position as required by generally accepted accounting principles (GAAP). Cause: Federal HAF funds were made available to the Commonwealth of Massachusetts and, during fiscal year 2022, the Commonwealth entered into a contract with MHP to administer the HAF program. When funds were received by MHP, a corresponding cash and unearned revenue entry was recorded in the general ledger during fiscal year 2022. As funds were released to assist eligible applicants, the cash and unearned revenue were offset on the balance sheet. Because MHP concluded that the program should be reported on the Statement of Net Position, no further entries were posted. Effect: The grants and other private support revenue balance and the mortgage subsidies, reserves, and grants expense balance was understated in the preliminary trial balance by $24.7 million. The change in financial reporting of the program resulted in a net zero impact on the net results of operations, net position, and cash flows. Furthermore, there is no impact on debt covenants. The change has the following net effect on the Statement of Revenues, Expenses and Changes in Net Position: Unadjusted Adjusted Change Revenues 26,126,719 50,836,156 24,706,437 Expenses 18,683,964 43,390,401 24,706,437 Change in Net position 7,445,755 7,445,755 0 Recommendation: We recommend MHP establish internal control procedures to ensure grant transactions are reflected in the general ledger and Statement of Revenues, Expenses and Changes in Net Position under the accrual basis of accounting as required by GAAP. Views of Responsible Officials and Planned Corrective Actions: Management will report the HAF funds on a gross basis consistent with the recommendation of RSM to follow GAAP guidance. Management disagrees that this adjustment constitutes either a material weakness or significant weakness in internal controls over financial reporting, for the following reasons: ? The proposed adjustments were not material to the users of the financial statements. Management believes that the adjustment is not material, despite the size of the program, since the adjustment merely changes the presentation of the program on the Statement of Revenues, Expenses and Changes in Net Position. Because the net impact of the adjustment is zero and the activity was disclosed in both the footnotes to the financial statements and Management?s Discussion and Analysis, the change is one of presentation. On a quantitative and qualitative basis, the adjustment does not affect any conclusions for the users of the financial statements. ? There were no deficiencies in financial operations associated with the underlying activity of the HAF program. There were no deficiencies in the underlying financial controls associated with the transactions, nor any adjustments to the amounts of underlying activity posted in the general ledger. The related transactions were recorded in an accurate and timely manner and reflected in the general ledger balance sheet accounts. ? Management?s controls over financial reporting included internal consultation over the appropriate basis of presentation at the time the program was implemented. Controls also included management review of the related decision. While management accepts the adjustment, the underlying process for considering and concluding the appropriate basis of presentation was appropriate in the circumstances. Notwithstanding its disagreement with RSM?s conclusion that this matter constitutes a material weakness, MHP will strengthen its financial reporting controls to address this condition, as follows: 1. Additional resources in financial reporting and operations, including the new position of Director of Finance (as of 7/1/22), a new general ledger and financial reporting system currently being implemented, and a review of staffing needs on the finance team which is under discussion and will be completed by 12/31/22. 2. When approved by senior management, the new staffing plan will be implemented in calendar year 2023 based on the needs of the team, hiring and budget priorities. 3. Finance team CPA?s will focus their CPE credits on financial reporting in the upcoming year. 4. MHP will document its accounting and financial presentation for new programs and request audit consideration of the financial presentation conclusions at the time interim audit procedures are completed. Response to Views of Responsible Officials and Planned Corrective Actions: A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of an entity?s financial statements will not be prevented, or detected and corrected, on a timely basis. As a result of Management taking the position that MHP was acting as a contractor/agent and not as a subrecipient to the Commonwealth of Massachusetts?s HAF program, grant revenue and expenditures were materially understated. We agree that the error in the financial reporting of the program resulted in a net zero impact on the net results of operations and net position, however, our evaluation of deficiencies and whether it is reasonably possible a material misstatement could occur is not limited to net results of operations and net position. The error noted during our audit resulted in a material understatement of revenue and expenditures. B. Compliance Findings No matters to report. III. Findings and Questioned Costs for Federal Awards A. Internal Control over Financial Reporting No matters to report. B. Compliance Findings No matters to report. IV. Status of Prior Year Findings No matters to report.