1260 Housing Development Corporation

Condition: The Corporation has two properties secured by CDBG loans. The properties are known as AppleTree Housing, Inc. (“ATH”) and Center West. The Corporation was unable to support that at least fifty-one percent (51%) of the tenants at the ATH property were leased to and occupied by low or very low-income persons as determined by the Federal “Section 8” Income Standards with completed tenant certifications and recertifications. At ATH, 2 of 3 occupied unit’s certifications were not completed during the year ended June 30, 2025. Criteria: All CDBG loans included in the consolidated financial statements are subject to restrictive covenants listed in a declaration of restrictive covenants, conditions, and restrictions agreement with the Redevelopment Authority of the City of Philadelphia that requires that at least fifty-one percent (51%) of the dwelling units of the project to be leased to and occupied by low or very low-income persons as determined by the Federal “Section 8” Income Standards. The owner is required to certify tenant income annually to determine compliance with this restrictive covenant. Cause: Management was unable to complete the required tenant certifications and recertifications timely. Effect: Lack of oversight of regulatory requirements could increase the risk of loss of funding and default of loans. Recommendation: Management should ensure all tenant certifications are completed timely to ensure adherence to the requirement that at least fifty-one percent (51%) of the tenants of the dwelling units of the project to be leased to and occupied by low or very low-income persons as determined by the Federal “Section 8” Income Standards. View of Responsible Officials and Planned Corrective Action: It is the goal of the Corporation to maintain compliance with regulatory requirements. Where hardships are encountered, the Corporation remains in ongoing communication with respective regulatory agencies to promote transparency and mitigate risk of loss in funding or default.

Condition: The Corporation has three properties secured by CDBG loans. The properties are known as Mid-City, AppleTree Housing, Inc. (“ATH”), and Center West. The Corporation was unable to support that at least fifty-one percent (51%) of the tenants at the ATH property were leased to and occupied by low or very low-income persons as determined by the Federal “Section 8” Income Standards with completed tenant certifications and recertifications. At ATH, 6 of 6 occupied unit’s certifications were not completed during the year ended June 30, 2023. This was an initial finding during the year ended June 30, 2020. Criteria: All CDBG loans included in the consolidated financial statements are subject to restrictive covenants listed in a declaration of restrictive covenants, conditions, and restrictions agreement with the Redevelopment Authority of the City of Philadelphia that requires that at least fifty-one percent (51%) of the dwelling units of the project to be leased to and occupied by low or very low-income persons as determined by the Federal “Section 8” Income Standards. The owner is required to certify tenant income annually to determine compliance with this restrictive covenant. Cause: Management was unable to complete the required tenant certifications and recertifications timely. Effect: Lack of oversight of regulatory requirements could increase the risk of loss of funding and default of loans. Recommendation: Management should ensure all tenant certifications are completed timely to ensure adherence to the requirement that at least fifty-one percent (51%) of the tenants of the dwelling units of the project to be leased to and occupied by low or very low-income persons as determined by the Federal “Section 8” Income Standards. Questioned costs: None identified. View of Responsible Officials and Planned Corrective Action: It is the goal of the Corporation to maintain compliance with regulatory requirements. Where hardships are encountered, the Organization remains in ongoing communication with respective regulatory agencies to promote transparency and mitigate risk of loss in fundings or default.

Condition: The Corporation has three properties secured by CDBG loans. The properties are known as Mid-City, AppleTree Housing, Inc. (“ATH”), and Center West. The Corporation was unable to support that at least fifty-one percent (51%) of the tenants at the ATH property were leased to and occupied by low or very low-income persons as determined by the Federal “Section 8” Income Standards with completed tenant certifications and recertifications. At ATH, 6 of 6 occupied unit’s certifications were not completed during the year ended June 30, 2023. This was an initial finding during the year ended June 30, 2020. Criteria: All CDBG loans included in the consolidated financial statements are subject to restrictive covenants listed in a declaration of restrictive covenants, conditions, and restrictions agreement with the Redevelopment Authority of the City of Philadelphia that requires that at least fifty-one percent (51%) of the dwelling units of the project to be leased to and occupied by low or very low-income persons as determined by the Federal “Section 8” Income Standards. The owner is required to certify tenant income annually to determine compliance with this restrictive covenant. Cause: Management was unable to complete the required tenant certifications and recertifications timely. Effect: Lack of oversight of regulatory requirements could increase the risk of loss of funding and default of loans. Recommendation: Management should ensure all tenant certifications are completed timely to ensure adherence to the requirement that at least fifty-one percent (51%) of the tenants of the dwelling units of the project to be leased to and occupied by low or very low-income persons as determined by the Federal “Section 8” Income Standards. Questioned costs: None identified. View of Responsible Officials and Planned Corrective Action: It is the goal of the Corporation to maintain compliance with regulatory requirements. Where hardships are encountered, the Organization remains in ongoing communication with respective regulatory agencies to promote transparency and mitigate risk of loss in fundings or default.

CONDITION: THE ORGANIZATION WAS UNABLE TO SUPPORT THAT AT LEAST FIFTY-ONE PERCENT (51%) OF THE TENANTS AT EACH PROPERTY SECURED BY CDBG LOANS WERE LEASED TO AND OCCUPIED BY LOW OR VERY LOW-INCOME PERSONS AS DETERMINED BY THE FEDERAL "SECTION 8" INCOME STANDARDS WITH COMPLETED TENANT CERTIFICATIONS AND RECERTIFICATIONS. AT MID-CITY APARTMENTS, 49 OF 52 OCCUPIED UNITS CERTIFICATIONS AND AT APPLE TREE HOUSING, INC. 10 OF 10 OCCUPIED UNITS CERTIFICATIONS WERE NOT COMPLETED DURING THE YEAR ENDED JUNE 30, 2022. CRITERIA: ALL CDBG LOANS INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS ARE SUBJECT TO RESTRICTIVE COVENANTS LISTED IN A DECLARATION OF RESTRICTIVE COVENANTS, CONDITIONS, AND RESTRICTIONS AGREEMENT WITH THE REDEVELOPMENT AUTHORITY OF THE CITY OF PHILADELPHIA THAT REQUIRES THAT AT LEAST FIFTY-ONE PERCENT (51%) OF THE DWELLING UNITS OF THE PROJECT TO BE LEASED TO AND OCCUPIED BY LOW OR VERY LOW-INCOME PERSONS AS DETERMINED BY THE FEDERAL "SECTION 8" INCOME STANDARDS. THE OWNER IS REQUIRED TO CERTIFY TENANT INCOME ANNUALLY TO DETERMINE COMPLIANCE WITH THIS RESTRICTIVE COVENANT. CAUSE: MANAGEMENT WAS UNABLE TO COMPLETE THE REQUIRED TENANT CERTIFICATIONS AND RECERTIFICATIONS TIMELY. EFFECT: LACK OF OVERSIGHT OF REGULATORY REQUIREMENTS COULD INCREASE THE RISK OF LOSS OF FUNDING AND DEFAULT OF LOANS. RECOMMENDATION: MANAGEMENT SHOULD ENSURE ALL TENANT CERTIFICATIONS ARE COMPLETED TIMELY TO ENSURE ADHERENCE TO THE REQUIREMENT THAT AT LEAST FIFTY-ONE PERCENT (51%) OF THE TENANTS OF THE DWELLING UNITS OF THE PROJECT TO BE LEASED TO AND OCCUPIED BY LOW OR VERY LOW-INCOME PERSONS AS DETERMINED BY THE FEDERAL "SECTION 8" INCOME STANDARDS.

CONDITION: AS PART OF OUR COMPLIANCE TESTING PROCEDURES, WE ATTEMPTED TO TEST THE ANNUAL REPORTING FILING REQUIRED BY THE REDEVELOPMENT AUTHORITY OF THE CITY OF PHILADELPHIA FOR THREE LOANS DISBURSED UNDER THE CDBG - ENTITLEMENT GRANT CLUSTER. WE NOTED NO REPORTS WERE FILED FOR THE FISCAL YEAR ENDED JUNE 30, 2021. CRITERIA: ALL CDBG LOANS INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS ARE SUBJECT TO RESTRICTIVE COVENANTS LISTED IN A DECLARATION OF RESTRICTIVE COVENANTS, CONDITIONS, AND RESTRICTIONS AGREEMENT THAT REQUIRES THAT AT LEAST FIFTY-ONE PERCENT (51%) OF THE DWELLING UNITS OF THE PROJECT TO BE LEASED TO AND OCCUPIED BY LOW OR VERY LOW INCOME PERSONS AS DETERMINED BY THE FEDERAL "SECTION 8" INCOME STANDARDS. THE PROJECT IS REQUIRED TO CERTIFY TO THE REDEVELOPMENT AUTHORITY OF THE CITY OF PHILADELPHIA ANNUALLY COMPLIANCE WITH THIS RESTRICTIVE COVENANT. CAUSE: MANAGEMENT DID NOT FILE THE REPORTS TIMELY DUE TO OUTSTANDING TENANT CERTIFICATIONS. EFFECT: LACK OF OVERSIGHT OF REGULATORY REQUIREMENTS COULD INCREASE THE RISK OF LOSS OF FUNDING AND DEFAULT OF LOANS. RECOMMENDATION: MANAGEMENT SHOULD REVIEW ALL REGULATORY AGREEMENTS TO ENSURE ALL REPORTING REQUIREMENTS ARE BEING TRACKED AND OCCURRING.

CONDITION: AS PART OF OUR COMPLIANCE TESTING PROCEDURES, WE ATTEMPTED TO TEST THAT AT LEAST FIFTY-ONE PERCENT (51%) OF THE TENANTS AT EACH PROPERTY SECURED BY A CDBG LOAN. WE WERE NOT ABLE TO CONFIRM THAT AT LEAST 51% OF THE UNITS WERE LEASED TO AND OCCUPIED BY LOW OR VERY LOW INCOME PERSONS AS DETERMINED BY THE FEDERAL "SECTION 8" INCOME STANDARDS AT TWO OF THE PROPERTIES SECURED BY CDBG LOANS. CRITERIA: ALL CDBG LOANS INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS ARE SUBJECT TO RESTRICTIVE COVENANTS LISTED IN A DECLARATION OF RESTRICTIVE COVENANTS, CONDITIONS, AND RESTRICTIONS AGREEMENT THAT REQUIRES THAT AT LEAST FIFTY-ONE PERCENT (51%) OF THE DWELLING UNITS OF THE PROJECT TO BE LEASED TO AND OCCUPIED BY LOW OR VERY LOW INCOME PERSONS AS DETERMINED BY THE FEDERAL "SECTION 8" INCOME STANDARDS. THE PROJECT IS REQUIRED TO CERTIFY TO THE REDEVELOPMENT AUTHORITY OF THE CITY OF PHILADELPHIA ANNUALLY COMPLIANCE WITH THIS RESTRICTIVE COVENANT. CAUSE: MANAGEMENT WAS UNABLE TO COMPLETE THE REQUIRED TENANT CERTIFICATIONS TIMELY. EFFECT: LACK OF OVERSIGHT OF REGULATORY REQUIREMENTS COULD INCREASE THE RISK OF LOSS OF FUNDING AND DEFAULT OF LOANS. RECOMMENDATION: MANAGEMENT SHOULD ENSURE ALL TENANT CERTIFICATIONS ARE COMPLETED TIMELY TO ALLOW FOR TIMELY REPORTING TO REGULATORY AGENCIES.

CONDITION: AS PART OF OUR COMPLIANCE TESTING PROCEDURES, WE TESTED THE ANNUAL REPORTING FILING REQUIRED BY THE CITY OF PHILADELPHIA FOR THREE LOANS DISBURSED UNDER THE COMMUNITY DEVELOPMENT BLOCK GRANTS - ENTITLEMENT GRANT CLUSTER. OF THE REPORTS, TESTED, ONE (33%) WAS FOUND TO HAVE NOT BEEN FILED. CRITERIA: ALL CDBG LOANS INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS ARE SUBJECT TO RESTRICTIVE COVENANTS LISTED IN A DECLARATION OF RESTRICTIVE COVENANTS, CONDITIONS, AND RESTRICTIONS AGREEMENT THAT REQUIRES THAT AT LEAST FIFTY-ONE PERCENT (51%) OF THE DWELLING UNITS OF THE PROJECT TO BE LEASED TO AND OCCUPIED BY LOW OR VERY LOW INCOME PERSONS AS DETERMINED BY THE FEDERAL "SECTION 8" INCOME STANDARDS. THE PROJECT IS REQUIRED TO CERTIFY TO THE REDEVELOPMENT AUTHORITY OF THE CITY OF PHILADELPHIA ANNUALLY COMPLIANCE WITH THIS RESTRICTIVE COVENANT. CAUSE: MANAGEMENT DID NOT CONSIDER THAT THIS CERTIFICATION WAS REQUIRED FOR THE CDBG LOAN DISBURSED TO APPLETREE HOUSING, INC. EFFECT: LACK OF OVERSIGHT OF REGULATORY REQUIREMENTS COULD INCREASE THE RISK OF LOSS OF FUNDING. RECOMMENDATION: MANAGEMENT SHOULD REVIEW ALL REGULATORY AGREEMENTS TO ENSURE ALL REPORTING REQUIREMENTS ARE BEING TRACKED AND OCCURRING.

Condition: As part of our compliance testing procedures, we tested the annual reporting filing required by the City of Philadelphia for three loans disbursed by the CDBG Entitlement Grants Cluster. Of the reports tested, one (33%) was found to have not been filed. Criteria: All CDBG loans included in the consolidated financial statements are subject to restrictive covenants listed in a declaration of restrictive covenants, conditions, and restrictions agreement that requires that at least fifty-one percent (51%) of the dwelling units of the project to be leased to and occupied by low or very low income persons as determined by the Federal "Section 8" Income Standards. The project is required to certify to the Redevelopment Authority of the City of Philadelphia annually compliance with this restrictive covenant. Cause: Management did not consider that this certification was required for the CDBG loan disbursed to AppleTree Housing, Inc. Effect: Lack of oversight of regulatory requirements could increase the risk of loss of funding. Recommendation: Management should review all regulatory agreements to ensure all reporting requirements are being tracked and occurring.