GRUNDY COUNTY SUPPORTIVE HOUSING CORP, FRIENDSHIP PLACE APARTMENTSNon-Profit

S3800-010: Finding Reference Number 2022-001 (Significant Deficiency) S3800-011: Program Information Federal Program: Supportive Housing for Persons with Disabilities ? Section 811 Federal Agency: Department of Housing and Urban Development Assistance Listing #: 14.181 Pass-through Entity: None Federal Award Identification Number and Year: N/A Type of Compliance Finding: N ? Special Tests and Provisions S3800-015: Type of Finding Federal Awards Finding S3800-016: Finding Resolution Status In-progress S3800-017: Information on Universe Population Size N/A S3800-018: Sample Size Information N/A S3800-019: Repeat Finding Number 2021-002 S3800-020: Criteria Owners of insured and assisted multifamily housing projects are required by HUD administrative guidelines to have a HUD approved Project Owner's Certification for Owner-Managed Multifamily Housing Projects for very low-income persons with disabilities (Form 9839-A). S3800-030: Statement of Condition During our audit of the Organization?s fiscal year ended September 30, 2022 federal award program, we noted that the Organization did not have a HUD approved Form 9839-A. S3800-032: Cause The Owner submitted Form 9839-C in January 2022. Owner followed up with HUD in December 2022 mentioning they had not received approval of HUD Form 9839-C. HUD informed Owner that they had submitted the incorrect form and to submit HUD Form 9839-A on January 11, 2023. Owner submitted HUD Form 9839-A on January 17, 2023 and HUD is currently processing. S3800-033: Effect or Potential Effect The Owner has not been approved to manage the Project. S3800-035: Auditor Non-Compliance Code: Z - Other S3800-040: Questioned Costs None S3800-045: Reporting Views of Responsible Officials The Organization agreed with this finding. S3800-050: Context The Organization is required to have all of its necessary forms and licenses current and up to date. S3800-080: Recommendation The Auditor does not have a recommendation as HUD Form 9839-A is being processed. Additionally, the Organization should ask HUD to retrospectively approve Form 9839-A effective September 1, 2007. S2700-090: Auditor?s Summary of the Auditee?s Comments on the Findings and Recommendations Auditee agreed with our recommendation. S3800-130: Response Indicator Agree S3800-140: Completion Date or Proposed Completion Date March 2023 Corrective Action Plan on Organization?s letterhead.

S3800-010: Finding Reference Number 2021-001 (Significant Deficiency) S3800-011: Program Information Federal Program: Supportive Housing for Persons with Disabilities ? Section 811 Federal Agency: Department of Housing and Urban Development Assistance Listing #: 14.181 Pass-through Entity: None Federal Award Identification Number and Year: N/A COVID-19 Identification: N/A Type of Compliance Finding: N ? Special Tests and Provisions S3800-015: Type of Finding Federal Awards Finding S3800-016: Finding Resolution Status In-progress S3800-017: Information on Universe Population Size N/A S3800-018: Sample Size Information N/A S3800-019: Repeat Finding Number 2020-003 S3800-020: Criteria The regulatory agreement requires that the Organization deposit any surplus cash into the residual receipts account within sixty days after the fiscal year end. S3800-030: Statement of Condition During our audit of the Organization?s fiscal year ended September 30, 2021 federal award program, we noted that the Organization failed to deposit the fiscal year 2020 surplus cash into the residual receipts account. S3800-032: Cause Management indicated that the Organization?s operating cash is not sufficient to pay its surplus cash obligations without impacting its ability to pay critical operating expenses. S3800-033: Effect or Potential Effect The Organization was not in compliance with the regulatory agreement requirement related to deposit of surplus cash into the residual receipts account. S3800-035: Auditor Non-Compliance Code: B ? Failure to Make Required Residual Receipts Deposits S3800-040: Questioned Costs $606 S3800-045: Reporting Views of Responsible Officials The Organization agreed with this finding. S3800-050: Context The Organization was required to deposit surplus cash into the residual receipts account within sixty days after the fiscal year end, but the deposit was not made as of the audit report date. S3800-080: Recommendation The Organization should deposit its surplus cash obligations into the residual receipts accounts as soon as possible and establish a process to ensure timely deposit of surplus cash. S3800-090: Auditor?s Summary of the Auditee?s Comments on the Findings and Recommendations Auditee agreed with our recommendation S3800-130: Response Indicator Agree S3800-140: Completion Date or Proposed Completion Date April 30, 2022 S3800-150: Response See Corrective Action Plan on Organization?s letterhead.

S3800-010: Finding Reference Number 2021-002 (Significant Deficiency) S3800-011: Program Information Federal Program: Supportive Housing for Persons with Disabilities ? Section 811 Federal Agency: Department of Housing and Urban Development Assistance Listing #: 14.181 Pass-through Entity: None Federal Award Identification Number and Year: N/A COVID-19 Identification: N/A Type of Compliance Finding: N ? Special Tests and Provisions S3800-015: Type of Finding Federal Awards Finding S3800-016: Finding Resolution Status In-progress S3800-017: Information on Universe Population Size N/A S3800-018: Sample Size Information N/A S3800-019: Repeat Finding Number N/A S3800-020: Criteria Owners of insured and assisted multifamily housing projects are required by HUD administrative guidelines to have a HUD approved Project Owner?s/Borrowers Certification for elderly housing projects managed by Administrators for very low-income persons with disabilities (Form 9839-C). S3800-030: Statement of Condition During our audit of the Organization?s fiscal year ended September 30, 2021 federal award program, we noted that the Organization did not have a HUD approved Form 9839-C. S3800-032: Cause The Organization was not aware that they needed to submit HUD Form 9839-C. S3800-033: Effect or Potential Effect The Administrator has not been approved to manage the Project. S3800-035: Auditor Non-Compliance Code: Z - Other S3800-040: Questioned Costs None S3800-045: Reporting Views of Responsible Officials The Organization agreed with this finding. S3800-050: Context The Organization is required to have all of its necessary forms and licenses current and up to date. S3800-080: Recommendation The Organization should file HUD Form 9839-C immediately. Additionally, the Organization will ask HUD to retrospectively approve Form 9839-C effective September 1, 2007. S2700-090: Auditor?s Summary of the Auditee?s Comments on the Findings and Recommendations Auditee agreed with our recommendation S3800-130: Response Indicator Agree S3800-140: Completion Date or Proposed Completion Date April 30, 2022 S3800-150: Response See Corrective Action Plan on Organization?s letterhead. None

S3800-010: Finding Reference Number 2021-003 (Significant Deficiency) S3800-011: Program Information Federal Program: Supportive Housing for Persons with Disabilities ? Section 811 Federal Agency: Department of Housing and Urban Development Assistance Listing #: 14.181 Pass-through Entity: None Federal Award Identification Number and Year: N/A COVID-19 Identification: N/A Type of Compliance Finding: N ? Special Tests and Provisions S3800-015: Type of Finding Federal Awards Finding S3800-016: Finding Resolution Status In-progress S3800-017: Information on Universe Population Size N/A S3800-018: Sample Size Information N/A S3800-019: Repeat Finding Number N/A S3800-020: Criteria The Regulatory Agreement ?dated September 7, 2007? requires that the Organization deposit $301.17 into the replacement reserve account on a monthly basis. S3800-030: Statement of Condition During our audit of the Organization?s fiscal year ended September 30, 2021 federal award program, we noted that the Organization failed to make required monthly deposits into the reserve for replacement account for three months. The deposits made for the other nine months were $312.50. S3800-032: Cause The Organization overlooked depositing the required monthly amounts into the reserve for replacement account for October 2020, July 2021, and August 2021. S3800-033: Effect or Potential Effect The Organization was not in compliance with the regulatory agreement requirement to make monthly deposits into the reserve for replacement account. S3800-035: Auditor Non-Compliance Code N ? Reserve for Replacement Deposits S3800-040: Questioned Costs $937.50 S3800-045: Reporting Views of Responsible Officials The Organization agreed with this finding. S3800-050: Context The Organization did not make monthly deposits into the reserve for replacement account during the year ended September 30, 2021 for the three months mentioned above. S3800-080: Recommendation The Organization should deposit the delinquent amount as soon as possible and establish a process to deposit and reconcile the reserve for replacement account on a monthly basis. Additionally, the Organization should file Form HUD-9250 to support the amount of the required monthly deposit. S3800-090: Auditor?s Summary of the Auditee?s Comments on the Findings and Recommendations Auditee agreed with our recommendation S3800-130: Response Indicator Agree S3800-140: Completion Date or Proposed Completion Date April 30, 2022 S3800-150: Response See Corrective Action Plan on Organization?s letterhead.

FINDING 2020-001 ? Material Adjustments Condition Found: During the course of the audit for the Project, we proposed journal entries to adjust the current year prepaid expenses, accounts payable, accrued expenses, gross rent potential, vacancies, and various expense accounts. Criteria: Based on professional standards, identification by an auditor of a material misstatement in the financial statements under audit that was not initially identified by the entity's internal control is a strong indicator of a material weakness. Cause: The Project relies on the auditor to identify and make the necessary accounting adjustments. The Project accountant was unaware of the journal entries needed. Possible Asserted Effect: Because the aforementioned adjustments would have materially misstated the statement of financial position and statement of activities, we believe that this matter is a material weakness in the controls and practices of the Project. Repeat Finding: See Finding 2019-001 for a similar finding in the prior year. Recommendation: We recommend that the Project develop and implement procedures to properly record transactions before its records are submitted for audit. Management Response: Project Management will continue to increase review of the general ledger and record all necessary adjustments prior to the audit.

FINDING 2020-002 ? Tenant and HUD Rent Calculation Federal Agency: U.S. Department of Housing and Urban Development Pass through Entity: Not applicable Program Name: Section 811 Project Rental Assistance Contract CFDA# and Program Expenditures: 14.181 ($32,194) Award Number: N/A Federal Award Year: October 1, 2019 to September 30, 2020 Questioned Costs: $247 Condition Found: The amount of rent paid by the tenant and by HUD was calculated incorrectly for one of the three tenants in our sample. Criteria: HUD Occupancy Handbook 4350.3, Rev-1, Chapter 5, Section 1, Paragraph 6I states, ?Count the gross amount, before deductions for Medicare, etc., of periodic Social Security payments.? Cause: The net amount of social security was used to calculate the rent subsidy instead of the gross amount. Possible Asserted Effect: The portion of rent paid by the tenant and HUD was incorrect. For this tenant, the incorrect amount of social security income was used in the tenant rent calculation. When the correct amount of income is used, the portion of rent paid by the tenant should be increased by $42 a month. Therefore, the HUD portion should be decreased by $42 a month. The error occurred for 8 months of the fiscal year. $247 should be returned to HUD. Repeat Finding: There was not a similar finding reported in the prior year. Recommendation: The changed should be made as detailed in the Possible Effect section of this finding. $247 should be returned to HUD. Procedures should be improved to ensure the portion of rent owed by the tenant and HUD are correct. Management Response: Project management recalculated the tenant?s rent using the gross social security income. $247 will be returned to HUD in February 2021. Procedures will be improved to ensure the amount of rent paid by the tenant and HUD is correct.

FINDING 2020-003 ? Residual Receipts Deposit Federal Agency: U.S. Department of Housing and Urban Development Pass through Entity: Not applicable Program Name: Section 811 Project Rental Assistance Contract Section 811 Capital Advance CFDA# and Program Expenditures: 14.181 ($32,194) 14.181 ($1,079,300) Award Number: N/A Federal Award Year: October 1, 2019 to September 30, 2020 Questioned Costs: None Condition Found: The $6,384 of surplus cash at September 30, 2019 was not deposited into the residual receipts account within ninety days. In addition, the $8,157 of surplus cash was not deposited into the residual receipts account. Criteria: According to HUD?s guidelines, a Project must deposit surplus cash due to residual receipts within ninety days after the fiscal period ends (REAC submission due date). Cause: Project management did not transfer the surplus cash of $6,384 from the operating account to the residual receipts account. Possible Asserted Effect: The Project held excess cash and did not make the required residual receipts deposit. $6,384 and $8,157 was due for the years ended September 30, 2019 and 2018, respectively. Repeat Finding: See Finding 2019-005 for a similar finding in the prior year. Recommendation: Surplus cash was recalculated at September 30, 2020. The Project should make a $606 deposit to residual receipts for the year ended September 30, 2020. The Project should wait for further instructions from HUD for the residual deposits that were due for September 30, 2019 and 2018. In addition, procedures should be improved to ensure that surplus cash is calculated and transferred to residual receipts timely. Management Response: Management will transfer $606 from operating to residual receipts based on the September 30, 2020 surplus cash calculation when funds are available. The Project received permission from HUD to transfer the $6,384 to the residual receipts accounts in monthly payments as funds are available. In addition, procedures will be improved to ensure that surplus cash is calculated and transferred to residual receipts timely.

FINDING 2019-001 ? Material Adjustments Condition Found: During the course of the audit for the Project, we proposed journal entries to adjust the current year cash balance, prepaid expenses, accounts payable, accrued expenses, accounts receivable ? tenant, gross rent potential, and various expense accounts. Criteria: Based on professional standards, identification by an auditor of a material misstatement in the financial statements under audit that was not initially identified by the entity's internal control is a strong indicator of a material weakness. Cause: The Project relies on the auditor to identify and make the necessary accounting adjustments. The Project accountant was unaware of the journal entries needed. Possible Asserted Effect: Because the aforementioned adjustments would have materially misstated the statement of financial position and statement of activities, we believe that this matter is a material weakness in the controls and practices of the Project. Repeat Finding: See Finding 2018-001 for a similar finding in the prior year. Recommendation: We recommend that the Project develop and implement procedures to properly record transactions before its records are submitted for audit. Management Response: Project Management will continue to increase review of the general ledger and record all necessary adjustments prior to the audit.

FINDING 2019-002 ? Fraud Risk Assessments Condition Found: Based upon interviews with members of the Board and management, we understand that no ongoing, annual fraud risk assessments are being performed by the Board as part of business risk assessments nor is a policy in place to do so. Per the 2018 Association of Certified Fraud Examiners (?ACFE?) Report to the Nations on Occupational Fraud and Abuse, about 68 percent of discovered fraud in organizations was related to a combination of anonymous tip, management review, and internal audit. In non-profit organizations, the top four frauds involved corruption, billing, expense reimbursements, and check tampering. Criteria: The governing board and senior management has the primary responsibility for preventing and detecting fraud. In 2013, the Committee of Sponsoring Organizations of the Treadway Commission (?COSO?) updated its Internal Control ? Integrated Framework, which contains 17 principles necessary to achieve an effective internal control system. Principle number 8 relates to the fraud risk assessment process. In 2016, COSO published the Fraud Risk Management Guide (the ?Guide?), co-sponsored in part by the American Institute of Certified Public Accountants (?AICPA?) and the ACFE. According to the Guide, an effective fraud risk management program: ? Establishes a visible and rigorous fraud governance process ? Creates a transparent and sound anti-fraud culture ? Includes a thorough fraud risk assessment periodically ? Designs, implements, and maintains preventative and detective fraud control processes and procedures ? Takes swift action in response to allegations of fraud, including actions against those involved in wrongdoing where appropriate A fraud risk assessment involves brainstorming potential areas that the Project may be vulnerable to fraud and identifying appropriate mitigating controls that are, or will be, placed into service to prevent an unfortunate incident from occurring. Cause: The Board of Directors and management were focused on other projects and issues. Therefore, they did not have time to complete the fraud risk assessments. Possible Asserted Effect: Failure by the governing body and/or management to demonstrate the importance of fraud deterrence and detection through participation in fraud risk assessment procedures can reduce the Project?s ability to prevent fraud and set a tone for the entire Project. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that appropriate representatives of the Board and management consider reading the Executive Summary of the Guide found at the website below to assess how the Project can cost effectively implement the necessary components for a complete fraud risk assessment process. To access complete implementation guidelines, the Guide is available for purchase from the COSO website. https://www.coso.org/documents/COSO-Fraud-Risk-Management-Guide-Executive-Summary.pdf The Association of Certified Fraud Examiners (?ACFE?) website contains free tools and resources as well. http://www.acfe.com We recommend that periodic, thoughtful consideration of fraud risks ? including those that could occur at the Project-wide level, management level or with service providers ? be undertaken annually starting in the fiscal year ended September 30, 2020. The process and any steps taken to mitigate identified risks should be formally documented in the minutes of the governing board or a sub-committee, or in a separate memo. This process should involve both the Board and senior management. Management Response: The Board will review appropriate source materials and web sites provided by the auditors and put in place a system to be aware of, and monitor for, potential fraud risk. The Board will document in its minutes the fraud risk assessments and reviews taken during the upcoming year, will note any issues and concerns it has, and act on those concerns in an appropriate manner, including possible consultation with the audit firm if matters are deemed worthy of additional consultation.

FINDING 2019-003 ? Internal Control Procedures Condition Found: During our audit, we noted several key internal controls were not part of the accounting policies and procedures: ? Invoices are not coded with general ledger account where the expense will be charged. ? Invoices are not supported by a reviewer?s initials or other notation indicating approval. ? Journal entries are not reviewed and approval noted by someone other than the accountant. Criteria: Journal entries should be reviewed and approved by a member of management prior to posting to the Project?s books. Invoices should be coded with the expense to be charged and approved by a board member. Cause: The Project only has one part-time employee whose time is divided between working with the residents and the accounting function. Possible Asserted Effect: Failure to perform timely reconciliations with management oversight, failure to have oversight over journal entries, and failure to approve expenditures could expose the Project to the risk of fraudulent transactions occurring and being undetected. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that the Project continue to put in place policies to ensure that journal entries and invoices are reviewed by a member of the Board of Directors. The review should be documented by having the reviewer initial and date the invoices and journal entries. Management Response: Project Management will provide a member of the Board of Directors with the journal entries and invoices. The designated Board Member will review and approve the documents by initialing the documents.

FINDING 2019-004 ? Gross Rent Change Federal Agency: U.S. Department of Housing and Urban Development Pass through Entity: Not applicable Program Name: Section 811 Project Rental Assistance Contract CFDA# and Program Expenditures: 14.181 ($33,150) Award Number: N/A Federal Award Year: October 1, 2018 to September 30, 2019 Questioned Costs: None Condition Found: Project Management did not submit the HUD approved gross rent change at both August 1, 2017 and August 1, 2018 through the Project?s software to the Contract Administrator or TRACS and has struggled with completing the monthly HAP vouchers. Criteria: According to HUD Handbook 4350, Chapter 7, Section 4, 7-17C, ?Owners must submit approved gross rent changes through their software package to the contract administrator or to TRACS.? Cause: Project Management believed HUD personnel were responsible for updating changes in the gross rent. Project Management is not receiving the assistance needed from the HUD consultant or HUD itself to timely and accurately prepare the monthly HAP vouchers. Possible Asserted Effect: The incorrect gross and contract rents were used to determine the amount of rent paid by the tenant and HUD. $2,013 was due from HUD. Since the correction was not made correctly, the funds have not been received from HUD. In addition, the current year gross rent was incorrect. Additional funds could be due from HUD or tenants. Repeat Finding: See Finding 2018-002 for a similar finding in the prior year. Recommendation: Project Management should work with their HUD consultant to update the gross rent in TRACS. Project Management should request the ?back? rent from HUD. Project management and the HUD consultant should determine how the software reports rent income to ensure that rent and accounts receivable are recorded accurately in the general ledger. Additional training should be provided to the Project Manager. Management Response: Project Management will work with a HUD consultant to make the necessary changes to the gross rent and accounts receivable. Any additional funds due will be requested from HUD or the tenant.

FINDING 2019-005 ? Residual Receipts Deposit Federal Agency: U.S. Department of Housing and Urban Development Pass through Entity: Not applicable Program Name: Section 811 Project Rental Assistance Contract Section 811 Capital Advance CFDA# and Program Expenditures: 14.181 ($33,150) 14.181 ($1,079,300) Award Number: N/A Federal Award Year: October 1, 2018 to September 30, 2019 Questioned Costs: None Condition Found: The $8,157 of surplus cash at September 30, 2018 was not deposited into the residual receipts account within ninety days. Criteria: According to HUD?s guidelines, a Project must deposit surplus cash due to residual receipts within ninety days after the fiscal period ends (REAC submission due date). Cause: Project management did not transfer the surplus cash of $8,157 from the operating account to the residual receipts account. Possible Asserted Effect: The Project held excess cash and did not make the required residual receipts deposit. $8,157 was due for the year ended September 30, 2018. Repeat Finding: There was not a similar finding in the prior year. Recommendation: Surplus cash was recalculated at September 30, 2019. The Project should make a $6,384 deposit to residual receipts for the year ended September 30, 2019. The Project should wait for further instructions from HUD for the residual deposits that were due for September 30, 2018. In addition, procedures should be improved to ensure that surplus cash is calculated and transferred to residual receipts timely. Management Response: Management will transfer $6,384 from operating to residual receipts based on the September 30, 2019 surplus cash calculation when funds are available. The Project will wait for further instructions from HUD for the residual deposits that were due September 30, 2018. In addition, procedures will be improved to ensure that surplus cash is calculated and transferred to residual receipts timely.

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