Section II - Financial Statement Findings No matters were reported. Section III - Federal Award Findings and Questioned Costs 2022-001 ? Activities Allowed or Unallowed and Allowable Costs / Cost Principles Information on Federal Program(s) - CDBG ? Entitlement Grants Cluster, Community Development Block Grant ? Entitlement Grants, 14.218, Philadelphia Department of Commerce, contract number 23-0489 (the ?Contract?) Criteria or Specific Requirement ? The Contract requires the Corporation to obtain approval to disburse funds from City of Philadelphia Department of Commerce prior to making the disbursement. Condition ? During our testing of activities allowed or unallowed costs, we noted the following exception: ? For one of the eight sample selections tested, the amount disbursed exceeded the amount approved by the City of Philadelphia Department of Commerce (approval for the excess disbursement was subsequently approved at a later date); Cause ? The Corporation did not follow its policy to ensure the disbursement was approved and was allowable at the time of disbursement. Effect or Potential Effect ? Funds were disbursed prior to obtaining approval by the City of Philadelphia Department of Commerce. Context ? We tested a sample of eight items totaling disbursements of $5,230,989 and identified one exception in the amount of $179,739. Disbursed funds in the amount of $3,079,739 exceeded the amount approved by the City of Philadelphia Department of Commerce in the amount of $2,900,000 by $179,739. The excess disbursement was approved subsequent to December 31, 2022. Repeat Finding - This is a new finding during the year. Recommendation - We recommend that management ensure its policies and procedures are followed on a consistent basis and that prior approval is obtained prior to disbursement of loan funds. Views of Responsible Officials ? The Mosaic/Sharswood loan was originally structured to be financed as a Line of Credit (LOC) grant-bridge financing product; however, after further consideration and through discussions between the Corporation?s lending team and the City of Philadelphia (the City), the decision was made to fund the loan with CDBG funding, in 2021. The approved CDBG loan amount, in 2021, was for $2,400,000. Subsequently, it was determined, as the project progressed, that additional funding was needed and requested, from the borrower, of the Corporation. Through discussions with the Corporation?s lending team and the City, the loan amount was increased and amended for an additional $500,000, taking the total loan amount funding to $2,900,000. As loan repayments came in on the loan during 2022, loan disbursements were being made, as well. As the project was continuing progress, again, the Corporation?s lending team met with the City in early 2023, to discuss the then current and future project funding needs requiring additional funding. Through these discussions, the City approved an additional amendment for a loan increase for an additional $2,550,625, taking the total loan amount to $4,950,625. The additional increase of $2,550,625 was to cover the funding of $179,739 disbursed in 2022, as well as any future project-related disbursements. Philadelphia Industrial Development Corporation and Affiliated Entities Summary Schedule of Prior Audit Findings Year Ended December 31, 2022 166 Corrective Action Plan and Status of Prior Year Findings Management?s Corrective Action Plan: Individual(s) Responsible for Corrective Action Plan Tysha Dixon Director, Financial Reporting (215) 496-8168 Completed March 2023 Management?s Corrective Action Plan Management will continue to rely on its existing controls that are in place, including the ongoing communication with the City for any changes in transactions that require their approval. In the circumstances where management is pending a contract amendment from the City for loans requiring additional funding, management will determine if there are unrestricted funding sources to support the change in the approved amount of the loan until the amended contract is finalized. Questioned Program: ALN #14.218 Community Development Block Grants (CDBG) Finding #2002-02 ? Program Income Information on Federal Program ? ALN #14.218 Community Development Block Grants (CDBG) Interest Earned on Revolving Fund Prior Year Finding: In the 2002 audit, the auditors noted that the Corporation did not have internal controls in place to identify the applicable compliance requirements, and it was estimated that cumulatively $1,250,000 of interest had not been remitted to the Department of Treasury as of December 31, 2002. However, the liability had been accrued in the financial statement amounts. The HUD Monitoring Unit also reported this finding in their report dated December of 2002. During 2003, the Corporation established internal controls over cash management and has remitted interest for the current year, as well as the amount related to earning in the prior years. However, certain amounts related to interest earned on the proceeds of a loan fund securitization have been remitted. The assessment of the remaining cumulative questioned costs at both December 31, 2022, and 2021 is approximately $1,096,011. Philadelphia Industrial Development Corporation and Affiliated Entities Summary Schedule of Prior Audit Findings Year Ended December 31, 2022. Current Year Status The Corporation administers the revolving loan funds under contract with the City of Philadelphia. The interest not yet remitted was earned on the proceeds of a loan fund securitization, which was done with HUD approval. The City is disputing the applicability of this Federal regulation to these funds. The Corporation is awaiting further instructions from the City regarding the remittance of this balance to HUD. All interest currently being earned on the investment of the unused portion of the CDBG revolving loan funds is being remitted annually to HUD.