Ponderosa Apartments, Inc

U.S. DEPARTMENT OF AGRICULTURE Multi-Family Housing Revitalization Demonstration Program (MPR), CFDA #10.447 U.S. DEPARTMENT OF AGRICULTURE Rural Rental Housing Loans CFDA #10.415 Material Weakness Internal Control over Compliance and Noncompliance Drafting the Financial Statements, Notes to the Financial Statements, and the Schedule of Expenditures of Federal Awards Condition: The Organization requests its auditor to draft the year-end financial statements, accompanying notes to the financial statements, and Schedule of Expenditures of Federal Awards. Criteria: Establishing internal controls over the preparation of the financial statements and drafting the financial statements are the responsibility of management. In addition, the Uniform Guidance requires the auditee to prepare appropriate financial statements in accordance with section 200.510. Cause: The Organization does not have an internal control system in place to prepare the financial statements, which is common for an Organization of this size due to the limited number of office staff. Effect: The Organization engages its auditor to draft the financial statements, notes to the financial statements, Schedule of Expenditures of Federal Awards, and to make material adjustments. There is a risk that errors may occur and not be detected. Repeat Finding: This finding was reported in the prior year as 2020-001. Auditor?s Recommendation: It is the responsibility of management and those charged with governance to make the decision whether to accept the degree of risk associated with the Organization?s auditor drafting the financial statements, related notes, and the Schedule of Expenditure of Federal Awards because of the cost or other considerations. The Organization should continually work to expand on the information provided to the auditor in drafting the financial statements and perform a thorough review of the drafted financials statements, which includes reconciling information to the underlying documentation provided by management and other supporting schedules. If the Organization chooses not to accept this risk, a third-party accountant should be engaged to prepare a draft of the financial statements, related notes, and Schedule of Expenditures of Federal Awards. View of Management: Management agrees with the finding. A response can be found in the Corrective Action Plan."

U.S. DEPARTMENT OF AGRICULTURE Multi-Family Housing Revitalization Demonstration Program (MPR), CFDA #10.447 Material Weakness Internal Control over Compliance and Noncompliance Lack of Written Policies Required Under the Uniform Guidance Condition: The Organization is not following the requirements of 2 CFR Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which require written policies related to aspects of grant administration. Criteria: The Uniform Guidance requires written policies and procedures for various areas surrounding federal grants and loans, particularly the advance and reimbursement processes for cash management, and the process for determining whether a cost is allowable and in accordance with cost principles and terms and conditions of the federal awards. Cause: The Organization does not have a system of internal control in place to ensure compliance with all applicable federal program requirements are followed. Effect: The Organization does not have written policies as required by the Uniform Guidance. Repeat Finding: This finding was reported in the prior year as 2019-002. Auditor?s Recommendation: We recommend the Organization establish written policies and procedures required by the Uniform Guidance. View of Management: Management agrees with the finding. A response can be found in the Corrective Action Plan.

U.S. DEPARTMENT OF AGRICULTURE Multi-Family Housing Revitalization Demonstration Program (MPR), CFDA #10.447 U.S. DEPARTMENT OF AGRICULTURE Rural Rental Housing Loans CFDA #10.415 Material Weakness Internal Control over Compliance and Noncompliance Drafting the Financial Statements, Notes to the Financial Statements, and the Schedule of Expenditures of Federal Awards Condition: The Organization requests its auditor to draft the year-end financial statements, accompanying notes to the financial statements, and Schedule of Expenditures of Federal Awards. In addition, the Organization lacks an appropriate system of internal controls to ensure that year-end entries are performed as part of their year-end closing process. Criteria: Establishing internal controls over the preparation of the financial statements and drafting the financial statements are the responsibility of management. The Organization should have an internal control system in place related to ensuring all year-end entries are properly performed and proper oversight and review of the preparation of the financial statements is maintained. Performing an adequate closing process at year-end would allow for accurate financial reporting in accordance with generally accepted accounting principles. In addition, the Uniform Guidance requires the auditee to prepare appropriate financial statements in accordance with section 200.510. Cause: The Organization does not have an internal control system in place to prepare the financial statements, which is common for an Organization of this size due to the limited number of office staff. In addition, the Organization is not performing all of the necessary year-end entries to present the financial statements on the full accrual basis. Effect: The Organization engages its auditor to draft the financial statements, notes to the financial statements, Schedule of Expenditures of Federal Awards, and to make material adjustments. There is a risk that errors may occur and not be detected. Repeat Finding: This finding was reported in the prior year as 2019-001. Auditor?s Recommendation: It is the responsibility of management and those charged with governance to make the decision whether to accept the degree of risk associated with the Organization?s auditor drafting the financial statements, related notes, and the Schedule of Expenditure of Federal Awards because of the cost or other considerations. The Organization should continually work to expand on the information provided to the auditor in drafting the financial statements and perform a thorough review of the drafted financials statements, which includes reconciling information to the underlying documentation provided by management and other supporting schedules. If the Organization chooses not to accept this risk, a third-party accountant should be engaged to prepare a draft of the financial statements, related notes, and Schedule of Expenditures of Federal Awards. In addition, management should obtain all necessary support to prepare reconciliations and perform a thorough review of year-end balances. View of Management: Management agrees with the finding. A response can be found in the Corrective Action Plan.

U.S. DEPARTMENT OF AGRICULTURE Rural Rental Housing Loans CFDA #10.415 Material Weakness Internal Control over Compliance and Noncompliance Lack of Documentation Proving Bids Were Obtained Condition: The Organization does not have documentation proving bids were obtained for a tenant relocation expense. Criteria: 7 CFR Part 3019 states that all procurement transactions shall be conducted in a manner to provide open and free competition. Awards shall be made to the bidder whose bid or offer is responsive to the solicitation and is most advantageous to the recipient, price, quality, and other factors considered. Further, procurement records and files for purchases shall include, at a minimum, a basis for contractor selection, justification for lack of competitive bids or offers not obtained, and basis for the award cost or price. Cause: The Organization continues to work with the same vendor for the duration of the construction project. Effect: There is no supporting documentation on file proving that bids were requested, the basis for vendor selection, or the basis for the award cost or price for tenant relocation expenses. Repeat Finding: This finding was not reported in the prior year, but was reported in 2018 as finding 2018-006. Auditor?s Recommendation: Management should establish formal policies and procedures surrounding procurement guidelines to ensure requirements are followed on any future expenditures. View of Management: Management agrees with the finding. A response can be found in the Corrective Action Plan.

Condition: The Organization is not following the requirements of 2 CFR Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which require written policies related to aspects of grant administration. Criteria: The Uniform Guidance requires written policies and procedures for various areas surrounding federal grants and loans, particularly the advance and reimbursement processes for cash management, and the process for determining whether a cost is allowable and in accordance with cost principles and terms and conditions of the federal awards. Cause: The Organization does not have a system of internal control in place to ensure compliance with all applicable federal program requirements are followed. Effect: The Organization does not have written policies as required by the Uniform Guidance. Auditor?s Recommendation: We recommend the Organization establish written policies and procedures required by the Uniform Guidance. View of Management: Management agrees with the finding. A response can be found in the Corrective Action Plan.

Condition: The Organization did not obtain approval for withdrawals from reserves as required by Rural Development. We noted withdrawals were for eligible purchases and the Organization had requested the release of reserve funds from Rural Development. Rural Development had not responded to the Organization?s request or follow-up. Criteria: All disbursements from the reserve accounts are required to be approved by Rural Development. Cause: The Organization withdrew cash from their reserves without affirmative approval from Rural Development. Effect: The Organization is not in compliance with this requirement. Auditor?s Recommendation: We recommend the Organization establish a verification process and maintain documentation of all verified parties. Withdrawals should not be made until approval is granted. View of Management: Management agrees with the finding. A response can be found in the Corrective Action Plan.

Condition: The Organization requests its auditors to draft the year-end financial statements, accompanying notes to the financial statements, schedule of expenditures of federal awards, and to make material adjustments for proper presentation of the financial statements. Criteria: Establishing internal controls over the preparation of the financial statements and drafting the financial statements are the responsibility of management. The Organization should have an internal control system in place related to oversight and review of preparation of the financial statements. In addition, the Uniform Guidance requires the auditee to prepare appropriate financial statements in accordance with section 200.510. Cause: The Organization does not have an internal control system in place to prepare the financial statements or identify material misstatements. Effect: The Organization engages its auditor to draft the financial statements, notes to the financial statements, schedule of expenditures of federal awards, and to make material adjustments. There is a risk that errors may occur and not be detected. Auditor?s Recommendation: It is the responsibility of management and those charged with governance to make the decision whether to accept the degree of risk associated with the Organization?s auditor drafting the financial statements, related notes, and the Schedule of Expenditure of Federal Awards because of the cost or other considerations. If the Organization chooses not to accept this risk, a third-party accountant should be engaged to prepare a draft of the financial statements, related notes, and Schedule of Expenditures of Federal Awards. View of Management: Management agrees with the finding. A response can be found in the Corrective Action Plan.

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