VESTA FOREST, INC.

Condition: The Organization has not deposited residual receipts reserve account funds into an account insured by the Federal Deposit Insurance Corporation (FDIC). Rather, such funds are deposited in a cash account of a large brokerage firm and are insured by the Securities Investor Protection Corporation (SIPC), which is not a government agency. Criteria: As required by the regulatory agreement, the Organization is required to establish this account at a financial institution covered under the FDIC program. Cause: During the year ended June 30, 2025, the residual receipts reserve account funds invested in an FDIC Insured certificate of deposit matured and were not re invested (either in an FDIC Insured certificate of deposit or other FDIC Insured investments). Effect: FDIC coverage is meant to act as protection to both the Organization and HUD for the account balances, and the Organization may be susceptible to risk if the account is not properly insured. Questioned Costs: $19,657 Auditor's Recommendation: The Organization should transfer this balance to a participating financial institution. Views of Responsible Officials and Planned Corrective Actions: During the year ended June 30, 2026, the Organization plans to transfer the residual receipts reserve account funds to an FDIC Insured certificate of deposit.

Condition: Management utilizes a centralized operating account to process transactions. During our audit, we identified multiple instances in which expenses were not allocated to the appropriate project. Certain costs were charged to the wrong entity and, in some cases, were recorded to projects that did not benefit from the expenditure. The misallocations occurred across multiple fiscal years. Criteria: HUD Handbook 4370.2, Financial Operations and Accounting Procedures for Insured Multifamily Projects, requires that each project maintain accounting records that accurately reflect its own financial activity. Costs must be charged to the specific project that receives the direct benefit, and shared expenses must be allocated using a reasonable, supportable, and consistently applied methodology. HUD also requires that project funds be used solely for the operation of the project to which they relate. Cause: The centralized operating account structure, combined with insufficient controls over transaction coding and allocation, resulted in errors in assigning expenses to the correct project. Management did not consistently review or reconcile postings to ensure that costs were properly allocated. Effect: Misallocation of expenses can distort the financial position and operating results of individual projects. This may result in inaccurate reporting to HUD, potential improper use of project funds, difficulty assessing each project's true financial performance, and an increased risk of noncompliance with HUD program requirements. Questioned Costs: $156 Auditor's Recommendation: We recommend that management strengthen internal controls over the allocation and recording of expenses, including a) Requiring supervisory review of all centralized account postings, b) Performing periodic reconciliations to ensure expenses are charged to the correct project, and c) Correcting prior year misallocations where appropriate. Views of Responsible Officials and Planned Corrective Actions: Management acknowledges the finding related to the misallocation of some expenses among projects. The issue resulted from errors in address based allocation, which have since been corrected. Although the impact of these misallocations was not material to the overall financial statements, we recognize the importance of accurate project level reporting in accordance with HUD requirements. Corrective actions have been implemented, including correcting address assignments, enhancing supervisory review of transactions, and performing periodic reconciliations. Management will continue to monitor expenses to ensure they are consistently allocated to the appropriate project. Adjustments to correct prior misallocations will be made during fiscal year 2026. Management remains committed to maintaining compliance with HUD requirements and ensuring the accuracy of each project’s financial records.

Finding 2019-001: Condition: The Organization has not deposited replacement reserve account funds into an account insured by the Federal Deposit Insurance Corporation (FDIC). Rather, such funds are deposited in a cash account of a large brokerage firm and are insured by the Securities Investor Protection Corporation (SIPC), which is not a government agency. Criteria: As required by the Regulatory Agreement, the Organization is required to establish this account at a financial institution covered under the FDIC program. Cause: During the year ended June 30, 2019, the replacement reserve account funds invested in an FDIC-Insured certificate of deposit matured and were not re-invested (either in an FDIC Insured certificate of deposit or other FDIC-Insured investments). Effect: FDIC coverage is meant to act as protection to both the Organization and HUD for the account balances, and the Organization may be susceptible to risk if the account is not properly insured. Auditor's Recommendation: The Organization should transfer this balance to a participating financial institution.

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