Armitage Commons Preservation, NFPNon-Profit

Finding Type Material weakness in internal control over compliance Title and CFDA Number of Federal Program 14.155 U.S. Department of Housing and Urban Development Insured Loan Section 223(f) Finding Resolution Status Resolved Information on Universe and Population Size Total federal award expenditures reported on the Schedule of Expenditures of Federal Awards. Sample Size Information Total federal award expenditures reported on the Schedule of Expenditures of Federal Awards. Identification of Repeat Finding and Finding Reference Number N/A Criteria Uniform Guidance requires the Corporation to prepare the Schedule of Expenditures of Federal Awards completely and accurately. Statement of Condition The Corporation failed to include its HUD insured loan as a federal award on its Schedule of Expenditures of Federal Awards as of December 31, 2020. Cause The Corporation failed to monitor its reporting requirements of federal award expenditures when the mortgage was refinanced during 2018 to a HUD insured loan under Section 223(f). Effect or Potential Effect The Schedule of Expenditures of Federal Awards was originally understated by $7,722,570 as of December 31, 2020. Auditor Noncompliance Code Z Other Reporting Views of Responsible Officials The Corporation corrected the total federal awards expended for the loan program for the year ended December 31, 2020. Context The amount was erroneously excluded from the Schedule of Expenditures of Federal Awards as the loan has previously not been HUD insured and subject to reporting on the Schedule. The refinancing of the first mortgage triggered the initial reporting requirement for the year ended December 31, 2018. Recommendation All loan agreements should be monitored at least annually for any changes in original agreement that would impact the Corporation's reporting requirements. All grants received from federal agencies should be reviewed by management for federal reporting requirements. Auditor's Summary of the Auditee's Comments on the Findings and Recommendations The Corporation should implement a year end review process of all loan agreements, amendments, and grant agreements entered into with federal agencies in order to identify any changes in reporting requirements and determine amounts that should be included in the Schedule of Expenditures of Federal Awards. Response Indicator Agree Completion Date March 26, 2021 Response Management has implemented a year end review process of all loan agreements, amendments, and grant agreements as recommended to review for changes in reporting requirements or new federal awards to be included in the Schedule of Expenditures of Federal Awards.

Finding Type: Immaterial noncompliance with major program requirements Significant deficiency in internal control over compliance Title and CFDA Number of Federal Program 14.195 U.S. Department of Housing and Urban Development Section 8 Housing Assistance Payments; 14.155 U.S. Department of Housing and Urban Development Insured Loan Section 223(f) Finding Resolution Status Resolved Information on Universe and Population Size Calculation of surplus cash available for distribution. Sample Size Information All Identification of Repeat Finding and Finding Reference Number N/A Criteria Under the terms of the regulatory agreement with HUD executed in May 2018, the following must be included as obligations in the computation of surplus cash: mortgage principal, mortgage interest, mortgages insurance premium deposits, deposits to the reserve for replacements, and tax and insurance escrow deposits required to be paid within the calendar month following the date of which surplus cash is calculated. Statement of Condition The Corporation incorrectly calculated the 2019 surplus cash available for distribution and therefore over distributed amounts to the owner and made a non required payment of accrued interest on the subordinate mortgage during 2020. Cause The Corporation excluded amounts due for the mortgage principal, mortgage insurance premium deposits, deposits to the reserve for replacements, and the tax and insurance escrow deposits due within 30 days from the calculation of surplus cash for the year ended December 31, 2019. The Corporation's internal controls failed to identify that the new regulatory agreement included a revised surplus cash calculation. Effect or Potential Effect During 2019, the Corporation overstated the amount of surplus cash available to pay the incentive performance fee by $21,910, the accrued interest due on the subordinate mortgage by $788, and amount available for distribution to the owner by $263. The total impact was an overstatement of surplus cash available by $22,961 as of December 31, 2019. As a result, $22,961 of cash was over distributed from the project during 2020. Auditor Noncompliance Code H Unauthorized distribution of project assets Reporting Views of Responsible Officials - Management acknowledges noncompliance in the 2019 fiscal year and has corrected the surplus cash calculation. Management has also implemented a formal review of the calculation to prevent similar errors in computation. Management will collect the subsequently distributed incentive performance fee of $21,910, the subsequently distributed $263 to the owner, and the overpayment of mortgage interest of $788 during 2021. These amounts have been recorded as a receivable due from the owner as of December 31, 2020 and are included in the balance of accounts and notes receivable - operations on the statement of financial position. Context - The surplus cash calculation originally calculated for the year ended December 31, 2019 was based on the previous definition of surplus cash in the regulatory agreement with HUD in place prior to the regulatory agreement executed in 2018. The 2018 regulatory agreement modified the definition of surplus cash to include the deductions referenced above. Recommendation - The owner should reimburse the Corporation for the amount of incentive management fee, contributions, and interest payments over-distributed during fiscal year 2021. The Corporation should also implement a formal review process of compliance and reporting requirements specific to its regulatory agreement annually. Auditor's Summary of the Auditee's Comments on the Findings and Recommendations - A formal review of the computation of surplus cash should be performed by management in order to verify inputs are in accordance with the terms of the most current Regulatory Agreement. Response Indicator - Agree Completion Date - March 19, 2021 Response - Management acknowledges noncompliance in the 2019 fiscal year and has corrected the computation for the year ended December 31, 2020, as required by the Regulatory Agreement. Management has implemented a formal review of the calculation to prevent similar errors in computation.

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