TRUE LOVE MANOR

2022?1 Reserve for Replacement Monthly Deposits Not Made Condition: Management failed to make the required monthly deposit into the reserve for replacement bank account from January 2020 through December 2022. Criteria: According to the Regulatory Agreement, ?mortgagor will establish and maintain a reserve fund for replacements in a separate account in a bank?Concurrently with the effective commencement of rental assistance payments under the Housing Assistance Payment Contract, the Mortgagor will deposit an amount?per month unless a different date or amount is approved in writing by HUD?. Cause: Per management, the Property does not have enough operating funds to make the required deposit and requested a suspension from HUD but was denied. Effect: The reserve for replacement account is underfunded by $41,472, related to deposits that were never made to this account. A memo entry reflecting the outstanding payments due to the account was made during the audit. Recommendation: I recommend management adhere to the Regulatory Agreement as it relates to required monthly deposits into the reserve for replacement account.

2022-1 ? Reserve for Replacement Deposit Monthly Deposit Not Made Condition: Management fail to make the required monthly deposit into the reserve for replacement bank account from January 2020 through December 2022. Response: Management has reported to HUD repeatedly that the property is not generating enough cash flow to meet the financial demands for the property. Management is not failing to make the required deposits as we definitely desire to meet this requirement, but there is not enough operating funds. We do not even have operating funds to purchase the necessary supplies and materials needed to get vacant units reconditioned to move-in prospective applicants to generate more revenue. We have asked HUD several times to suspend the reserve for replacement monthly deposits due to lack of revenue. This is not something that this management company created. This is something that we inherited, being that when the change in management took place, True Love Manor had payables in excess of over $100,000 which has caused an enormous, continued hardship on the property. Once again, we are requesting the monthly reserve for replacement deposits to be suspended and approval to use approximately $25,000 in the reserve for replacement account to rehab vacant units. We renew our plea for HUD?s assistance.

2021-003

2021?1 Improperly Reconciled Cash Account Condition: Management failed to properly reconcile the reserve for replacement cash account. Criteria: Reconciling cash is a fundamental accounting process that ensures that the recorded balance of the business operations reconciles to the ending bank balance. Cause: The cause is undeterminable. Effect: There were deposits in transit recorded in the general ledger that were not actually made; therefore, overstating the cash balance on the books. Recommendation: I recommend management properly reconcile cash accounts on a monthly basis

We disagree with this finding as all accounts are reconciled monthly. We recognize that the required monthly reserve for replacement liability was reflecting as in transit on the account. Removal of this automatic reoccurring entry will resolve this condition.

2021-2 Prepaid Insurance Not Properly Recorded Condition: Management failed to properly reconcile prepaid insurance expenses to the general ledger. Criteria: Management is required to prepare financial statements in accordance with generally accepted accounting principles. Cause: The cause is undeterminable. Effect: Misrepresentation of prepaid expenses could have an impact on both the balance sheet and the income statements. Recommendation: I recommend management properly record prepaid insurance expenses.

In 2021 we were recording prepaid expenses monthly as required and reconciling based on the policy renewal date of 3/15/2021. Going forward, we will adjust the general ledger to match that of the prepaid expense schedule at fiscal year-end in reconciliation of the same.

2020-002

2021?3 Reserve for Replacement Monthly Deposits Not Made Condition: Management failed to make the required monthly deposit into the reserve for replacement bank account from January 2020 through December 2021. Criteria: According to the Regulatory Agreement, ?mortgagor will establish and maintain a reserve fund for replacements in a separate account in a bank?Concurrently with the effective commencement of rental assistance payments under the Housing Assistance Payment Contract, the Mortgagor will deposit an amount?per month unless a different date or amount is approved in writing by HUD?. Cause: Per management, the Property does not have enough operating funds to make the required deposit and requested a suspension from HUD but was denied. Effect: The cash balance was overstated by $32,196 related to deposits that were never made to this account. The balance was corrected during the audit. Recommendation: I recommend management adhere to the Regulatory Agreement as it relates to required monthly deposits into the reserve for replacement account.

A request was made in early 2021 to suspend the Replacement Reserve deposits for this property. That request was denied by HUD. We have met with HUD to discuss this issue further because the property routinely does not have enough operating funds after the HUD mortgage payment is taken out of the monthly subsidy and after tenant rent payments are received to meet its financial obligations, including paying the monthly reserve for replacement deposits. In summary: o Monthly Tenant Collections $ 6,600 avg/mo in 2021 o Subsidy before HUD Mortgage $12,746 o Interest and Other Income $ 201 o Total Avg. Monthly Cash Income $19,547Less: HUD Mortgage withheld/mo. $ 7,747 o Total Cash Available after Mortgage $11,800 o Less: Insurance (avg. per mo.) $ 490 o Less: Utilities (avg. per mo.) $ 4,024 o Less: Payroll (avg. per mo.) $ 3,964 o Less: Maint & Supplies (avg. per mo.) $ 870 o Less: Non-payroll office admin. $ 1,923 o Total Avg. Monthly Cash Outlays $11,271 o Avg. Amt. Available for R4R and Mgmt. Fees $ 529 ? ARMS has not taken a Management Fee since November 2020 and has funded necessary repairs to maintain the property in decent, safe, and sanitary conditions. ? Current Reserve for Replacement (R4R) requirement is $1,201 per mo

2021-4 Accruals Not Properly Posted Condition: Management did not record utility accruals in the accounting records. Criteria: The accrual accounting method ensures transactions are recognized in the accounting period incurred, rather than paid; which follows the matching principle. Cause: The cause is undeterminable. Effect: Not recording accruals could have a material impact on both the balance sheet and the income statements. Recommendation: I recommend management post all accruals to properly reflect the financial position of the Project.

We will ensure that going forward, all required utility accrual entries will be done timely.

2020?1 Prior Year Audit Entries Not Posted Condition: Management failed to post prior year audit entries. Criteria: Agreed upon audit adjustments must be posted to the financial statements each year.. Cause: The cause is undeterminable. Effect: The financial statement records did not contain all financial transactions of the property. Recommendation: I recommend management post audit entries to agree financial records to audit report.

Management agrees that our previous accountant failed to post the prior year audit entries. Management?s recently hired accountant has been made aware of this issue and has proceeded to post the prior year entries and will post audit entries timely going forward.

2020-2 Prepaid Insurance Not Properly Recorded Condition: Management failed to properly record prepaid insurance expenses. Criteria: Management is required to prepare financial statements in accordance with generally accepted accounting principles. Cause: The cause is undeterminable. Effect: Misrepresentation of prepaid expenses could have an impact on both the balance sheet and the income statements. Recommendation: I recommend management properly record prepaid insurance expenses.

Management has reviewed this matter with our accounting team and will ensure that prepaid insurance is recorded properly going forward.

2019?1 Vacancies Not Reconciled Timely Condition: Vacancies are not reconciled throughout the calendar year. Criteria: Vacancies should be reconciled at the end of each month. Cause: The cause is undeterminable. Effect: Vacancies had to be reconciled during the audit process. Recommendation: I recommend management reconcile vacancies on a monthly basis.

Response: ARMS became the managing agent for the property on August 1, 2019. All vacancies in the General Ledger of ARMS agree to the reports of the tenant ledgers in our Leasing and Rents software. This reconciliation of vacancies is performed on a regular basis.

2018-003

2019?2 Gross Potential Rent Not Reconciled Timely Condition: Gross potential rent is not reconciled throughout the calendar year. Criteria: Gross potential rent should be reconciled at the end of each month. Cause: The cause is undeterminable. Effect: Gross potential rent had to be calculated and reconciled during the audit process. Recommendation: I recommend management calculate and reconcile on gross potential rent on a monthly basis.

Response: The gross rent potential is reconciled throughout the year. However, interim and annual certifications of resident income, assets, and household composition may create adjustments to prior closed periods of rent and subsidy payments which are reflected in the current fiscal year. We will continue to ensure reconciliation of Gross Rent Potential on a monthly basis.

2019?3 Collection of Tenant Accounts Receivable Condition: Management failed to collect monthly lease payments resulting in tenants accruing large amounts of past due rent. Criteria: Monthly tenant lease payments should be collected and payable according to the terms of the HUD model lease. Cause: Site managers did not carry out the terms of the HUD-model lease and collect rent due. Effect: Tenant accounts receivables included significant amounts of unpaid rent for former residents. Recommendation: I recommend management develop and implement a collection policy.

Response: ARMS became the managing agent for the property on August 1, 2019. The migration of data from the previous agents leasing and rents platform to ARMS? was not complete until September 27, 2019. Work through of each current and prior resident ledger required time for review. Reconciliation is now complete and prior resident balances have been addressed.

2018-002

2019?4 Current Management Agent Certifications Not on File Condition: Management Agent Certifications provided during the audit and approved by the Department of Housing and Urban Development (HUD) had a term of 8/31/2019 ? 7/31/2020, but nothing was provided prior by the management company. Criteria: According to HUD Handbook 4381.5, The Management Handbook, Paragraph 2.6, the owner and agent must complete HUD Form 9839-B Management Agent Certification. Cause: Management failed to obtain a current management agent certification approved by HUD. Effect: The accuracy of the management fee expense is undeterminable. Recommendation: I recommend the management company obtain current management agent certifications approved by HUD, upon expiration.

Response: The term of ARMS Management Agent Certification is current and in effect during the period of this audit. ARMS has no knowledge of the existence, nor requirement to have in its possession, the prior agents Management Agent Certification.

2019?5 Tenant Security Deposit Incomplete Support Provided Condition: There was one tenant where supporting documentation was not provided to support the timely refund tenant security deposits. Criteria: According to the Consolidated Audit Guide for Audits of HUD Program Handbook 2000.04 REV-2 Change 1, Chapter 3, tenant security deposits must be refunded within 30 days of move-out. Cause: Unable to determine. Effect: The Project did not maintain support for the timely processing of security deposit refunds. Recommendation: I recommend management maintain sufficient supporting documentation to support the timely processing of tenant security deposit refunds.

Response: The subject tenant move-out was not under the control of ARMS. Therefore, ARMS has no knowledge as to when the refund of the security deposit was disbursed by the prior agent. ARMS will ensure the timely processing of all security deposit refunds going forward.

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2017-001

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2017-002

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2018-004

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