HARMONY COMMUNITY DEVELOPMENT CORPORATION, INC.

Matching and Earmarking Significant Deficiency U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT ALN #: 14.267 Federal Award Identification #: TX0724L6T002300 Condition: The Organization was not in compliance with matching and earmarking requirements. Criteria: 24 CFR 578.73, 24 CFR 578.59 Questioned Costs: $25,824 Context: The Organization could not locate support for all match costs claimed against federal funding provided. The Organization was required to have $40,726 in matching costs at a minimum, which is 25% of $372,678 total costs reported. Only $37,916 was able to be supported, which left $2,811 in unmet matching costs. $2,811 in unmet matching costs divided by the 25% match requirement results in $11,243 questioned costs reported that are unsupported by match. Additionally, the Organization exceeded the 10% threshold for costs to administer the grant. The Organization was limited to 10% of total costs of $372,678 to administer the grant out, which is $37,268. The Organization reported $51,848 in costs to administer the grant, which exceeds the threshold by $14,581, resulting in questioned costs. Total questioned costs of $11,243 for the matching requirement and $14,581 for the earmarking requirement is $25,824. Cause: Oversight by management. Effect: Questioned costs for the grant agreement. Identification as repeat finding, if applicable: Not applicable. Recommendation: We recommend that the Organization implement a documented formal review process to ensure that the Organization is in compliance with matching and earmarking requirements throughout the life of the grant. Views of Responsible Officials and Planned Corrective Action: Management agrees with the finding. See corrective action plan.

Harmony Community Development Corporation will implement a formal monthly grant compliance review process for all HUD Continuum of Care grants. The purpose of this process is to ensure the required matching funds are identified, documented, reviewed, and maintained throughout the grant period. Beginning immediately, Finance, Program, and Compliance staff will conduct monthly reviews to: • Monitor required HUD matching funds and maintaining supporting documentation. • Reconcile eligible matching support to grant activity and supporting records. • Monitor cumulative administrative costs to ensure compliance with the 10% administrative cost limitation. • Maintain a centralized electronic grant file containing match documentation, payroll support, service documentation, administrative cost calculations, and monthly review approvals. • Report compliance with exceptions to Executive Leadership for timely resolution. This monthly review process will remain in place throughout the grant period and will be incorporated into Harmony's ongoing grant compliance procedures. Person Responsible for Corrective Action Plan: Mark Porter, Executive Director Departments Responsible: Finance, Compliance, and Program Leadership Anticipated Date of Completion: Implemented immediately and monitored monthly throughout the grant period.

Lack of Documentation to Prove Eligibility DEPARMENT OF TREASURY ALN #: 21.023 Federal Award Identification #: Emergency Rental Assistance Program Condition: One individual out of 40 was awarded emergency rental assistance without proof of a COVID-19 related reduction in income. Criteria: Title III, Subtitle B, Section 3201 of the American Rescue Plan Act, 2021, Pub. L. No. 117-2 (March 11, 2021) Questioned Costs: $3,380 Context: The Organization obtained proof that a tax return was filed and made a note that the full tax return was going to be provided. There was a staffing transition after this individual had provided proof of a tax return being filed. Based on the information available in the file, it is possible that the proof of reduction in income was misplaced during transition and therefore not available during the audit process. Without the actual tax return, the records do not support a reduction in income to prove eligibility. Cause: There were a number of staffing transitions during the year. Effect: Award of emergency rental assistance to an individual that was potentially not eligible. Identification as repeat finding, if applicable: Not applicable. Recommendation: We recommend the Organization retain all required documentation in each file. Views of Responsible Officials and Planned Corrective Action: Management agrees with the finding. See corrective action plan.

Lack of Documentation to Prove Eligibility Planned Corrective Action: The steps taken were a thorough review of the current documentation process. During the process specific areas were shown where the documentation was missing. A revised (SOP) standard operating procedure was developed that ensured staff reviewed and verified all the necessary information was collected. Part of the new SOP was how to properly store them and retrieve them in a secondary place outside of the internal housing portal. Training is ongoing as the staff has changed in recent weeks. The process will be regularly reviewed to ensure that the SOP is being followed and identify any new gaps that may emerge. Regular internal audits will also be followed to ensure that documentation is being correctly collected and stored. Person Responsible for Corrective Action Plan: Ayn Llopis, Finance Director Anticipated Date of Completion: June 1, 2023 and ongoing internal audits quarterly