MBCDC: VILLA MARIA, LLC

SECTION II ? CURRENT YEAR FINDINGS AND RECOMMENDATIONS 2019-001 Replacement Reserve Account Condition: During our audit, we identified that management did not make four out of the twelve monthly deposits of $850 to the reserve account thereby underfunding the reserve account by $3,400 for the year ended September 30, 2019. Criteria: In accordance with the HOME Investment Partnership agreement with Miami-Dade County, the Project shall make a monthly deposit of $850 to the replacement reserve account. Cause: The months in which the deposits were not made were the months prior to the Project fully transitioning to the new management company. During this period, there was not effective oversight over the monthly deposits required. Effect: Failure to meet the rental regulatory requirements may result in default of the Miami-Dade County rental regulatory agreement. Recommendation: The Organization has hired a new management company that employs effective oversight over the applicable compliance requirements of the property including maintenance of the replacement reserve account. View of Responsible Officials and Planned Corrective Actions: During fiscal year 2019, the Organization outsourced its property management and accounting and compliance services to a reputable third-party property management company in an overall effort to improve compliance with applicable compliance requirements and improve overall operational performance of the property. However, transitioning the property to the new management company and effectively implementing internal controls over compliance under the new management company required considerable time that affected the Organization?s ability to make the required deposits to the replacement reserve account. Upon full transition and conversion to the new management platform, this is not expected to persist. Management will take necessary measures to ensure all required deposits are made.

SECTION II ? CURRENT YEAR FINDINGS AND RECOMMENDATIONS (CONTINUED) 2019-002 Tenant Eligibility Records Condition: In testing compliance with program eligibility requirements, out of five files selected for testing, we identified three instances in which the annual re-examination of the tenant?s income was not performed on a timely basis. Criteria: Eligibility criteria is set forth in the HUD rental regulatory agreement. Cause: Due to the change in management that occurred during FY 2019, there was a backlog of many certifications not being performed by the previous management which resulted in delays in performing the certifications. Effect: Failure to perform re-examinations on a timely basis may cause errors in the determination of HUD subsidy and tenant rent amounts. This could lead to noncompliance with the HUD rental regulatory agreement. Recommendation: Management should employ sufficiently competent personnel to remediate conditions existing in the tenant files and exercise effective oversight over the tenant eligibility process for both new tenants and for re-examination of existing tenants. View of Responsible Officials and Planned Corrective Actions: During fiscal year 2019, the Organization transitioned its property management and affordable housing compliance to a reputable third-party management company with robust internal controls over compliance. However, given the timing of the transition and the volume of tenant records involved in the overall transfer of the MBCDC affordable housing projects to the new management company, there were some delays in processing the annual reexaminations of tenant eligibility. Management does not expect to encounter these delays moving forward as all tenant files have been uploaded to the management system where internal controls are in place to ensure timeliness of reexaminations, including automated system reminders at least 60 days prior to the tenant?s annual renewal date.

SECTION II ? CURRENT YEAR FINDINGS AND RECOMMENDATIONS (CONTINUED) 2019-003 Residual Receipt Account Condition: We identified a deficiency in internal control over compliance whereby there was not a review of the HUD surplus cash computation in place to ensure the accuracy and completeness of the surplus cash computation at year-end. Criteria: As required by HUD under the terms of the rental regulatory agreement, any surplus cash as calculated in the HUD Surplus Cash Computation must be deposited within 60 days after the Project?s fiscal year end. The Organization should have internal controls over compliance in place to ensure the calculation is completed accurately and timely. Cause: Due to the change in management that occurred during fiscal year 2019, internal controls over compliance were not properly implemented to address compliance requirements around the surplus cash computation. Effect: Failure to compute the surplus cash accurately at year-end may result in an incorrect computation of the amount of cash, if any, required to be deposited to a qualifying bank account after year end. Recommendation: Management should implement internal controls over compliance that specifically address adherence to the compliance requirements over the surplus cash computation. View of Responsible Officials and Planned Corrective Actions: During fiscal year 2019, the Organization transitioned its property management and affordable housing compliance to a reputable third-party management company with robust internal controls over compliance and will work with the current management to establish proper internal controls over compliance with respect to the surplus cash computation.

SECTION II ? CURRENT YEAR FINDINGS AND RECOMMENDATIONS (CONTINUED) 2019-004 Financial Reporting (previously 2018-005) Condition: The Organization has not complied with the financial reporting covenant set forth in certain of its loan agreements. Criteria: The Organization is required to submit audited financial statements within 90 days of its balance sheet date, as specified, under the terms of the Miami-Dade County HOME loan. Cause: Management has taken measures to remediate deficiencies in internal control over financial reporting that existed under the former management team, including a recent implementation of a new accounting system. However, due to the timing of the transition, and the fact that this reporting deadline does not coincide with the Organization?s other regulatory reporting requirements, the audit of the Organization was not completed within 90 days of fiscal year end. Effect: Violation of loan covenants may result in an event of default under the terms of the loans, which if not cured within a specified time period after written notice from the lender, may cause the principal and unpaid interest balance of the loan to become immediately due and payable as well as provide other remedies to the lender, including, but not limited to, taking possession of the building. Recommendation: The Organization should communicate with the loan?s counterparty to modify/waive this reporting requirement or reach an agreement that aligns with the Organization?s other regulatory reporting requirements, which requires audited financial statements within nine months of fiscal year-end. View of Responsible Officials and Planned Corrective Actions: The Organization will contact the lender and associated parties in order to try to reach an agreement to make audited financial statements available after nine months after fiscal year end instead of three months as this would coincide with the regulatory reporting requirements for all other requirements.

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