SENIOR RESIDENCE AT KAPOLEI 2, INC.

Criteria: The ‘Consolidated Audit Guide for Audits of HUD Programs’ states that any surplus cash as calculated under HUD guidelines in the project funds accounts (including earned interest) at the end of the fiscal year shall be deposited in a federally insured residual receipts account within 90 days following the end of the fiscal year. Condition: The Company did not make the required deposit of $13,380 in surplus cash based on the June 30, 2022 residual receipts calculation. Cause: The Company deposited surplus cash of $1,338 in the residual receipt account which is the remaining surplus cash after deducting the amount to be paid for the Company’s second mortgage. The Company’s second mortgage requires payments from 90% of annual residual receipts of the Project. Effect: The Company did not deposit the full amount of required residual receipts for fiscal year 2022. HUD may provide written notice of a violation on the agreement. If corrective action is not taken, HUD may declare a default of the Capital Advance Program Regulatory Agreement. $ -- Recommendation The Company should ensure that it makes the full required residual receipt deposit before calculating the payments for other purposes. The company should also transfer the remaining balance of $12,042 to the residual receipts account for fiscal year 2022. Management’s Response The Company agrees with the finding and the recommendation. See Part VI Corrective Action Plan.