Pinewood Manor, Inc

Finding 2020 - 001 Program Affected: Mortgage Insurance - Rental Housing - CFDA No. 14.134. Criteria: Management is responsible for the design, implementation, and monitoring of internal control to reduce to a relatively low level the risk that material misstatements, caused by fraud or error, may occur and not be detected in a timely manner by employees in the normal course of performing their assigned functions. Management is also responsible for compliance with Notice H-2012-14, "Use of 'New Regulation' Section 8 HAP Contracts Residual Receipts to Offset Project-Based Section 8 Housing Assistance Payments". Condition and Context: The regulatory agreement for the HUD program requires excess amounts in the residual receipts account be remitted to the residual receipts accounts within 90 days of year end. The Organization transferred the surplus cash from the year ending December 31, 2019 to the residual receipts account on September 23, 2020, approximately six months after the due date. Additionally, while the Organization requested and received approval to utilize a portion of the excess residual receipts to fund HAP payments, the Organization did not accrue for the recapture owed back to HUD, or recognized the miscellaneous revenue following the approval from HUD to use the residual receipts. Accordingly, material journal entries were necessary, resulting in the restatement of the 2019 financial statements and the adjustment of 2020 amounts for residual receipts recapture liability, expense, and miscellaneous revenue, for the financial statements to be in accordance with U.S. generally accepted accounting principles (U.S. GAAP). Effect or Potential Effect: This resulted in a material misstatement of the financial statements, as well as noncompliance with Notice H-2012-14, as excess residual receipts were not remitted timely to HUD. Cause: Applicable personnel have not been educated on Notice H-2012-14. Further, internal controls have not been established to monitor and ensure compliance with this provision of the HUD regulatory agreement. Recommendations: We recommend management attend regular trainings on HUD rules and regulations and implement a process to ensure compliance. In addition, the internal financial statements should be regularly reviewed to help ensure transactions with HUD are properly recorded and in accordance with U.S. GAAP. We further recommend management work with HUD representatives to determine the appropriate disposition of accumulated funds. Questioned Costs: None Reporting Views of Responsible Officials: Management concurs with the finding. See management's Corrective Action Plan attached. Responsible party: Elisabeth Herold, Executive Director, (207) 934-2157.