Judson Terrace, Inc.

S3800-010 Finding Reference Number 2024-1 S3800-015 Type of Finding Federal Award Finding S3800-020 Criteria Compliance with the Regulatory Agreement stipulates that distributions and advances are to be made only to the extent of surplus cash. S3800-030 Statement of Condition The Corporation paid payroll expenses belonging to other projects. S3800-035 Auditor Non-Compliance Code H - Unauthorized distribution of project assets S3800-037 FHA/Contract Number 046-11155 S3800-038 Questioned Costs $40,399 S3800-050 Context Through an error in management's payroll allocation, the Project was billed and paid payroll expenses belonging to other projects. S3800-060 Effect Less funds are available to meet project needs. S3800-070 Cause Management oversight. S3800-080 Recommendation Funds should be returned to the Project.

Condition: The Organization did not identify the recording of duplicate invoices prior to vendor payments and did not identify the duplicate expenses paid during financial statement reviews. Criteria: The Organization has a responsibility to properly approve all invoices before vendor payments and to review the financial statements on a regular basis to ensure accuracy of the financial data. Cause: The duplicate payments were a result of several failures in the control process including (1) accounts payable personnel entering the same invoice under two similar but different vendors (2) entering incorrect invoice numbers and (3) insufficient review of invoices and financial results at the end of each fiscal period. Effect: $13,259 of duplicate payments were made to vendors. Recommendation: Management continues to redesign the control around this process to identify and correct such items on a timely basis and has hired new personnel to administer the control. We recommend the management company communicate written policies with clearly defined roles to its employees regarding approval of vendor payments and financial statement reviews. Views of Responsible Officials and Planned Corrective Actions: The management company agrees with the auditors' findings. The management company had significant employee turnover in both the accounts payable department and regional manager positions during several fiscal years. Additional training and review procedures will be discussed and communicated to the responsible parties. The management company will contact vendors to obtain refunds for duplicate invoice payments. It will also review its current procedures and clearly define rules with its employees to prevent errors from detection in the future.

Condition: Three of the eight tenants tested had noncompliant income and age verification during tenant certifications. This included missing EIV (Enterprise Income Verification system) verifications, improper supporting documents for income, and a tenant who was admitted below the age requirement for elderly housing programs. One of the eight tenants tested had a rent increase during the year that was not documented in the file and there was no proof the tenant was notified of the rent increase. Criteria: Organizations receiving HUD-assisted rents must calculate the subsidy and tenant portions of rents using accurate and complete information provided by the tenant and by following the HUD rent calculation procedures and documentation requirements. Tenants are required be notified of any rent increases in a timely manner and proof of notification retained in the file. The tenant must sign an updated 50059-HUD document only if the rent increase affects the tenant portion of rent. In this case the increase in rent was a rent adjustment approved by HUD and did not affect the tenant portion of the rent. Tenants can only move in to a unit only after they reach the required minimum age of 62. Cause: The manager who completed the tenant files failed to run and retain required EIV documents, did not include proper income verification documentations in the tenant files and did not appropriately follow HUD?s guidelines for age restrictions for elderly housing programs. No internal second party review of the tenant files was performed in total or on a sample basis. Some files were reviewed on a test basis by an agent of HUD and the Organization was in the process of incorporating comments from the HUD agent. Effect: Tenants were affected as follows: 1. One of the tenants did not require a rent adjustment once additional documentation was provided from the EIV system. 2. One tenant?s rent calculation could have been incorrect or the tenant may not have been eligible to move into the property without appropriate asset verification of the tenant?s savings. No subsequent recertification was performed as of the time of the audit to verify the appropriateness of the tenant?s eligibility or the tenant?s rent portion during the audit period. However, based on prior certifications, the tenant appears eligible, based on income and asset qualifications, to occupy the property and the tenant?s rent is consistent with the rent calculation on the previous certification. 3. There was no effect to the tenant who was not notified of the rent increase as it did not affect the tenant?s portion of the rent. However, the rent increase was improperly documented in the tenant?s file and there was no evidence the tenant was notified of the rent increase. 4. The tenant who was admitted, moved in, at the age of 61 prevented or delayed other eligible applicants from moving into an available unit. From the time the tenant moved in on May 4, 2021 until she turned 62 on September 8, 2021 the Organization received $2,095 in HUD rents which it will be required to pay back to HUD unless another agreement can be reached with the HUD Account Executive. The tenant will not be required to reimburse the Organization for these lost rents. Recommendation: The Organization should require more qualified personnel perform tenant file compliance. A second person should be reviewing files for compliance either on a test basis or for all files. Views of Responsible Officials and Planned Corrective Actions: Management acknowledges the issues and lack of control environment. Management has since put in place a more qualified individual to be responsible for the compliance of tenant files. Management plans to review all files and correct all errors. Management will not ask the underage tenant to move out as she became eligible when she turned 62 on September 8, 2021 and will not ask her to reimburse the Organization for the lost rents.

Condition: Five of the eight tenants tested did not have any unit inspections between October 1, 2020 and December 31, 2021. Property management believes that only move in and move out inspections were performed during that time period. Criteria: The Organization is required to perform regular inspections and repairs in order to ensure appropriate living conditions and safe guarding of the Organization?s assets. Cause: Neither the current or previous on-site manager performed unit inspections. HUD has not performed an onsite inspection since February 2019. Effect: There is potential for the property to go into disrepair or repairs to be more costly in the future because regular maintenance was not done on the property. The only repairs currently being completed are items reported by tenants and as identified by move in or move out inspections. Recommendation: The Organization should perform at least annual unit inspections and ensure repairs are performed in a timely fashion. Views of Responsible Officials and Planned Corrective Actions: Management acknowledges the issues and lack of control environment. The onsite manager plans performed unit inspections on all units in February 2022.

2020-001 Allowable Cost/Cost Principles Condition: The Organization did not identify the recording of duplicate invoices prior to vendor payments and did not identify the duplicate expenses during financial statement reviews. Recommendation: We recommended the management company communicate written policies with clearly defined roles to its employees regarding approval of vendor payments and financial statement reviews. Management concurred with the recommendation and concurred that the procedures would be implemented. Current Status: Of the $5,627 of duplicate payments identified in the prior audit, the Organization has received vendor refunds for $709. Additional overpayments of $1,912 were identified during the current year audit for a total of $6,830 in refunds still owed to the Organization. Management performed additional hiring and training of personnel but due to continued management company turnover and inadequately designed controls, duplicate payments to vendors continue to occur. Management plans to perform more detailed monthly financial reviews on the property in the coming fiscal year and pursue vendor refunds.

Condition: The Organization did not identify the recording of duplicate invoices prior to vendor payments and did not identify the duplicate expenses during financial statement reviews. Criteria: The Organization has a responsibility to properly approve all invoices before vendor payments and to review the financial statements on a regular basis to ensure accuracy of the financial data. Cause: The duplicate payments were a result of several failures in the control process including (1) paying vendors based on summary statements instead of detailed invoices, (2) processing and paying invoices from the Organization that were charged for a related Organization and (3) insufficient review of invoices and financial results at the end of each fiscal period. Effect: The effect was $5,627 of duplicate payments made to vendors and $134 due from a related Organization to the Organization. The total invoices that were incorrectly expense to the Organization are $5,761. Recommendation: We recommend the management company communicate written policies with clearly defined roles to its employees regarding approval of vendor payments and financial statement reviews. Views of Responsible Officials and Planned Corrective Actions: The management company agrees with the auditors' findings. The management company had significant employee turnover in both the accounts payable and regional manager positions during the fiscal year. Additional training and review procedures will be discussed and communicated to the responsible parties. The management company will contact vendors to obtain refunds for duplicate invoice payments. It will also review its current procedures and clearly define rules with its employees to prevent errors in the future.