SNHS ELDERLY HOUSING, INC.

FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL AWARD PROGRAMS AUDIT DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Finding No. 2021-001: Mortgage Insurance Rental Housing, Assistance Listing #14.134 Significant Deficiency Condition: A deficiency in internal control over compliance existed because the prior year surplus cash was not deposited into the residual receipts account within 90 days after the close of the fiscal year. Criteria: Internal controls over compliance should be in place to ensure the deposit of surplus cash into the residual receipts account occurs within 90 days after year end. Effect: This deficiency resulted in the Corporation?s noncompliance with the required deposit of surplus cash to the residual receipts account. Cause: The Corporation?s process is to make the required deposit upon confirmation from HUD?s Real Estate Assessment Center (REAC) that the audited financial statements have been received. This correspondence also identifies the deposit required to be made to the residual receipts account. Being that 2020 was the first year the Corporation produced surplus cash, a residual receipts account had not been established prior to HUD?s correspondence. There were difficulties with the bank in opening the account, which prevented the surplus cash deposit from being made until the 122nd day after year end, 32 days late. Recommendation: The Corporation should establish procedures to ensure that surplus cash is deposited annually within 90 days after the close of the fiscal year. Views of Responsible Officials and Planned Corrective Actions: Management of SNHS Elderly Housing, Inc. agrees with the finding and the auditor?s recommendation has been adhered to.

FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL AWARD PROGRAMS AUDIT DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT No. 2019-001 ? Mortgage Insurance Rental Housing, CFDA 14.134 ? Section 8 Housing Assistance Payments, CFDA 14.195 Significant Deficiency Condition: A deficiency in internal control over compliance existed because the required monthly deposits to the reserve for replacement were deficient.Criteria: Internal controls over compliance should be in place to ensure that required funding of the reserve for replacement is adequate each month. Cause: The mortgage servicer and management agent were notified of reserve for replacement (RFR) increase effective July 1, 2019. The mortgage servicer did not withdraw/deposit the new amount on July 1. Rather the servicer reduced the RFR to zero. Management did not identify the deficiency until after year end resulting in a one month deficiency in RFR funding. Effect: This deficiency resulted in the Corporation?s noncompliance with the required funding of the reserve for replacement account. Recommendation: The Corporation should establish procedures to ensure that required funding of the reserve for replacement is adequate each month. Views of Responsible Officials and Planned Corrective Actions: The mortgagor Walker Dunlop withdraws the mortgage payment from our rental account automatically on the first of the month. This withdrawal includes the interest and principle due along with escrows for insurance and tax, and the monthly deposit for the Reserve for Replacement amounts. The missing deposit was discovered by management during the monthly reconciliation of the bank accounts on August 30, 2019 and the mortgagor was notify. After communication with the mortgagor for instruction to remit the missing deposit, the check was issued and mailed on 9/05/2019. The monthly reconciliation process discovered the error but because it occur in the final month of the fiscal year the management was unable to remit the missing deposit within the fiscal year time frame (11 payment to the fiscal year vs 12). Management will review the bank activity after a change in the deposit amounts more timely to insure the deposit change was updated correctly.