400 408 HOUSING DEVELOPMENT ETCNon-Profit

Condition: The Project failed to deposit the current year’s required surplus cash into its residual receipts account within 90 days of year-end. Additionally, the Project underfunded its residual receipts account by failing to deposit the total current year’s surplus cash amount. Criteria: The Company is required to follow HUD’s guidelines and procedures for depositing the total current year surplus cash into a residual receipts account within 90 days after the end of the fiscal period. Cause: Internal controls at the Company are not properly designed to ensure timely deposit of surplus cash amounts. Effect: The Company was not in compliance with their Regulatory Agreement. Context: During our recalculation of management’s computation of surplus cash, we noted the residual receipts deposit was based on a preliminary calculation which resulted in the residual receipts account being underfunded by $587,045. Recommendation: The Company should design their internal controls to ensure the calculation of surplus cash is performed timely, to ensure that they will comply with HUD guidelines, as stated above. Reporting Views of Responsible Officials: Management has acknowledged a breach in protocol and deposited the current year’s surplus cash on August 9, 2022 and July 22, 2024. Prior Year Finding: Yes

Finding No. 2021-002 (Significant Deficiency) Condition The Project failed to deposit current year’s surplus cash into its residual receipts account within 90 days of year-end. Criteria The Company is required to follow HUD’s guidelines and procedures for depositing surplus cash into a residual receipts account within 90 days after the end of the fiscal period. Cause Management of the Company did not complete the calculation within the 90-day period as required. Effect The Company was not in compliance with their Regulatory Agreement. Context During our audit procedure for the computation of surplus cash, we recalculated the amounts in the schedule and noted the schedule to be accurate. However, while completing our audit procedure to review the transfer into the surplus cash account prior to the 90-day deadline, we noted the transfer was not made. Recommendation The Company should ensure their procedures require the calculation of residual receipts and the transfer occur within 90 days of year-end. Reporting Views of Responsible Officials Management has acknowledged a breach in protocol and deposited the current year’s surplus cash on December 2, 2021.

Finding No. 2021-003 (Significant Deficiency) Condition Project failed to maintain security deposits for each occupied unit as required by the Regulatory Agreement. Criteria The Regulatory Agreement stipulates that each unit shall have at least one month of security, and any funds collected as a security deposit shall be kept separate and apart from all other funds of the Project in a trust account. Cause Management did not have proper control to ensure each unit’s tenant security deposit was maintain in a segregated bank account. Effect The Company was not in compliance with its Regulatory Agreement. Context During our audit procedures for compliance testing of security deposits, the auditor noted that the Company was not in custody of 16 of the 93 occupied units’ security deposit in the Development. Recommendation The Company should implement monitoring controls to ensure compliance with tenants’ security deposits and Management should transfer all security deposit amounts currently being held in the Company's operating project account to a separate security deposit bank account as soon as possible. Reporting Views of Responsible Officials Management has acknowledged a breach in protocol and is in the process of transferring the tenants’ security deposits collected and held in the operating bank account to a segregated bank account. Prior Year Finding Yes.

Finding No. 2020-001 Condition Although the Company received a satisfactory score on its latest Management and Occupancy Review ("MOR") report conducted by HUD Third Party Contractor, CGI Federal, Inc. ("CGI"), it failed to respond to the cited deficiencies on a timely basis and in accordance with the deadline prescribed by CGI. Criteria Upon receipt of the MOR test results, the Company is required to respond to all cited deficiencies within the time frame prescribed by CGI. Cause Due to delays caused by COVID-19 and other conditions, Management was unable to respond to CGI in a timely fashion. Effect Due to the lack of a timely response, the Company was not in compliance with the terms of its Regulatory Agreement. Context During our audit, we obtained the MOR report completed by CGI and noted certain items require corrective action and a submission of responses to CGI to address these items. Upon obtaining further correspondence between the Company and CGI, we noted that although responses were submitted to CGI, there were open items which have yet to be responded to in an appropriate fashion within the due date. Recommendation The Company should implement monitoring controls to ensure future compliance with submission to CGI and Management should also submit a complete response to CGI to close out the MOR as soon as possible. Reporting Views of Responsible Officials Management has acknowledged a breach in protocol and completed additional responses to address the remaining open items to CGI. All outstanding findings have been satisfactory addressed and the MOR was closed as of September 1, 2020. Prior Year Finding No.

Finding No. 2020-002 Condition Project failed to maintain security deposits for each occupied unit as required by the Regulatory Agreement. Criteria The Regulatory Agreement stipulates that each unit shall have at least one month of security, and any funds collected as a security deposit shall be kept separate and apart from all other funds of the Project in a trust account. Cause Management did not have proper control to ensure each unit?s tenant security deposit was maintain in a segregated bank account. Effect The Company was not in compliance with its Regulatory Agreement. Context During our audit procedures for compliance testing of security deposits, the auditor noted that the Company was not in custody of 8 of the 93 occupied units? security deposit in the Development. Recommendation The Company should implement monitoring controls to ensure compliance with tenants? security deposits and Management should transfer all security deposit amounts currently being held in the Company's operating project account to a separate security deposit bank account as soon as possible. Reporting Views of Responsible Officials Management has acknowledged a breach in protocol and is in the process of transferring the tenants? security deposits collected and held in the operating bank account to a segregated bank account. Prior Year Finding No.

Section III ? Federal Award Findings and Questioned Costs U.S Department of Housing and Urban Development CFDA No. 14.155, Section 223(f) Mortgage Insurance Finding No. 2019-1 Condition The Project failed to deposit current year?s surplus cash into its residual receipts account within 90 days of year-end. Criteria The Company is required to follow HUD?s guidelines and procedures for depositing surplus cash into a residual receipts account within 90 days after the end of the fiscal period. Cause Management of the Company did not complete the calculation within 90 day period as required. Effect The Company was not in compliance with their Regulatory Agreement. Context During our audit procedure for the computation of surplus cash, we recalculated the amounts in the schedule and noted the schedule to be accurate. However, while completing our audit procedure to review the transfer into the surplus cash account prior to the 90 day deadline, we noted the transfer was not made. Recommendation The Company should ensure their procedures require the calculation of residual receipts and the transfer occur within 90 days of year-end. Reporting Views of Responsible Officials Management has acknowledged a breach in protocol and deposited the current year?s surplus cash on July 15, 2019.

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