QUAKER HEIGHTS, LLCNon-Profit

Finding Type : - Noncompliance that could have a direct and material effect on the major program - Significant deficiency in internal control over compliance Title and Assistance Listing Number of Federal Program - 14.129 Section 232 Mortgage Insurance for Nursing Homes, Intermediate Care Facilities, Board and Care Homes and Assisted Living Facilities Finding Resolution Status - In progress Information on Universe and Population Size - N/A Sample Size Information - N/A Identification of Repeat Finding and Finding Reference Number - N/A Criteria - HUD and Quaker Heights, LLC (the "Company's") Regulatory Agreement require the Company to maintain a federally insured operating cash account. In addition, HUD requires that the Company (the "Borrower") deposit all receipts of the Borrower relating to the project, including all rents, advances, and equity or capital contributions required under the firm commitment or otherwise advanced for the purpose and as part of the mortgaged property, in the name of the Borrower, for the benefit of the project, in a federally insured depository account. Statement of Condition - The Company failed to abide by the Regulatory Agreement criteria by not maintaining a project operating account and depositing receipts for rents within the account. Cause - The Company's operating account was closed and, thus, failed to to hold deposits in an account under the name of the Borrower and deposit cash receipts into such account. Effect or Potential Effect - The Company was not in compliance with the regulatory agreement. Auditor Noncompliance Code - S - Internal control deficiency Reporting Views of Responsible Officials - Since Ohio Living Communities became the sole member of the Ohio Living Quaker Heights entity, which is the sole member of Quaker Heights, LLC, on October 1, 2018, the legacy operating bank account of the Company has not been utilized. Ohio Living Quaker Heights was required to establish a government and a nongovernment bank account, respectively, for the purpose of receiving funds earned through its operations. Funds are received into those accounts and then transferred to an Ohio Living Communities centralized concentration bank account. All operational disbursements are made from a disbursement bank account that is a component of the concentration bank account. This disbursement process occurs for all Ohio Living related entities, for which there are numerous. All activity is specifically identifiable. Management viewed the extra activity of generating a rent payment transaction from the concentration disbursement bank account to the operating account of the Company, only to return the funding to the disbursement account to enable payment of debt service, insurance, and replacement reserves, as inefficient. In addition, administrative bank fee expenses were being incurred by the operating account held in the name of the Company. Management ensured that all required debt service payments were made in full and on time since inception of its operational responsibilities. While perhaps obligated to be referred to as a significant deficiency, management views as a minor technical regulatory finding of no significance. Context - During testing over the cash cycle, it was noted he Company's main operating account was closed during the year and, therefore, would be unable to receive deposits for rent. Recommendation - The Corporation should implement internal controls to ensure compliance with HUD guidelines to ensure the Regulatory Agreement is being followed and to establish the operating cash account. Auditor's Summary of the Auditee's Comments on the Findings and Recommendations - The Company was technically not in compliance with the regulatory agreement guidelines as of June 30, 2023, though all required debt service, insurance, and replacement payments were made completely and timely. Management will submit a formal request of HUD to waive the requirement on the basis of efficiency and avoidance of bank fees. If denied, management will reopen the Company's operating bank account and execute monthly rent transfers to the account. Response Indicator - Agree Completion Date - June 30, 2023 Response - The Company was not in compliance with regulatory agreement guidelines as of June 30, 2023, and management will follow HUD's guidelines in the future.