SUNRISE HOUSE, INC

The security deposit account does not have enough funds to cover the security deposit liability account.

FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL AWARD PROGRAMS AUDIT Finding 2022-001- Residual Receipt Deposits Condition Found The $4,866 of surplus cash at June 30, 2022 was not deposited into the residual receipts account within ninety days. Criteria: According to HUD?s guidelines, a Project must deposit surplus cash due to residual receipts within ninety days after the fiscal period ends (REAC submission due date) Cause Project management did not transfer the surplus cash of $5,366 from the operating account to the residual receipts Effect: The Project held excess cash and did not make the required residual receipts deposits. Recommendation: Management?s response

FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL AWARD PROGRAMS AUDIT Finding 2021-001- Residual Receipt Deposits Condition Found The $13,572 of surplus cash at June 30, 2021 was not deposited into the residual receipts account within ninety days. Criteria: According to HUD?s guidelines, a Project must deposit surplus cash due to residual receipts within ninety days after the fiscal period ends (REAC submission due date) Cause Project management did not transfer the surplus cash of $8,652 from the operating account to the residual receipts Effect: The Project held excess cash and did not make the required residual receipts deposits. Recommendation: The Project should make a deposit of $13,572 for the year ended June 30, 2021. Procedures should be improved to ensure that surplus cash is calculated and transferred to the residual receipt account timely. Management?s response

FINDING 2020-001 ? Material Adjustments Due to Gross Rent Change Federal Agency: U.S. Department of Housing and Urban Development Pass through Entity: Not applicable Program Name: Section 811 Project Rental Assistance Payments CFDA# and Program Expenditures: 14.181 ($53,365) Award Number: N/A Federal Award Year: July 1, 2019 to June 30, 2020 Questioned Costs: None Condition Found: During the course of the audit for the Project, we proposed a prior period adjustment to correct the beginning balances of accounts receivable ? HUD and net assets without donor restrictions due to a gross rent change not being updated through the Project?s software to the Contract Administrator or TRACS. Criteria: Based on professional standards, identification by an auditor of a material misstatement in the financial statements under audit that was not initially identified by the entity's internal control is a strong indicator of a material weakness. In addition according to HUD Handbook 4350, Chapter 7, Section 4, 7-17C, ?Owners must submit approved gross rent changes through their software package to the contract administrator or to TRACS. Cause: A gross rent change at December 1, 2018 was not updated through the Project?s software to the contract administrator or TRACS until September 2019. The December 1, 2019 gross rent change was not updated until after the year ended June 30, 2020. Possible Asserted Effect: Because the aforementioned adjustments would have materially misstated the statement of financial position and statement of activities, we believe that this matter is a material weakness in the controls and practices of the Project. The incorrect gross and contract rents were used to determine the amount of rent paid by the tenant and HUD. A $10,332 prior period adjustment was made to record the December 1, 2018 gross rent change. In addition, $3,150 is due from HUD at June 30, 2020 for the December 1, 2019 gross rent change that was not updated in the software system. Repeat Finding: A material audit adjustment finding was included in the prior audit as Finding 2019-001. However, the material adjustments made in the prior year did not relate to gross rent changes. Recommendation: We recommend that the management company develop and implement procedures to properly record transactions before its records are submitted for audit. The management company should review each PRAC agreement and promptly enter gross rent changes into their software system and update TRACS. The Project has received the amount due from HUD for the December 1, 2018 gross rent change. The management company should update their software for the December 1, 2019 gross rent change, recalculate rents, and request the additional amount due from HUD. Management Response: The management company will continue to increase review of the general ledger and record all necessary adjustments prior to the audit. The gross rent change for December 1, 2019 has been entered into computer software, rent was recalculated, and additional funds have been requested from HUD. Procedures will be improved to ensure that gross rent changes are promptly entered into the software system.

FINDING 2020-002 ? Replacement Reserve Deposits Federal Agency: U.S. Department of Housing and Urban Development Pass through Entity: Not applicable Program Name: Section 811 Capital Advance Program Section 811 Project Rental Assistance Payments CFDA# and Program Expenditures: 14.181 ($1,284,600) 14.181 ($ 53,365) Award Number: N/A Federal Award Year: July 1, 2019 to June 30, 2020 Questioned Costs: None Condition Found: The reserve for replacement was not fully funded for the year ended June 30, 2020. $4,275 of the $5,700 was deposited into the replacement reserve account in June 2020. An additional $1,425 is due for the year ended June 30, 2020. Replacement reserve deposits totaling $20,900 are due for the years ended June 30, 2019, 2018, 2017, and 2016. A total of $22,325 is due to the replacement reserve account. The property management company manages multiple properties. $6,960 was deposited in the Sunrise House, Inc.?s replacement reserve account that belonged to another property. Criteria: The regulatory agreement requires that $475 be deposited in the replacement reserve account each month from July 2019 through June 2020. Cause: The required deposits were not transferred from the operating account to the replacement reserve account due to cash flow. The $6,960 was inadvertently transferred to the incorrect account. The error was not detected and corrected until July 2020. Possible Asserted Effect: The replacement reserve was underfunded by $1,425 for the year ended June 30, 2020 and $20,900 for the years ended June 30, 2019, 2018, 2017, and 2016. The cumulative total due to the replacement reserve fund is $22,325. In addition, funds from another property managed by the same management company were transferred to the Project?s replacement reserve account. Repeat Finding: This finding was reported in the immediately prior audit as Finding 2019-002. Recommendation: The overall reserve shortage of $22,325 should be funded as soon as possible. Management should consider requesting a replacement reserve deposit waiver or a rent increase from HUD. Management should work with the accounting staff and bank to improve procedures over the bank transfers to ensure that funds are not transferred to the incorrect property. Management Response: Management will transfer $22,325 from operating to reserve after evaluating available cash. In the absence of available cash, a waiver from HUD will be requested. Procedures will be improved to ensure that funds are not transferred to the incorrect property.

FINDING 2019-001 ? Material Adjustments Condition Found: During the course of the audit for the Project, we proposed journal entries to adjust the beginning accumulated depreciation amount and to correct net assets without restrictions. Criteria: Based on professional standards, identification by an auditor of a material misstatement in the financial statements under audit that was not initially identified by the entity's internal control is a strong indicator of a material weakness. Cause: The prior year audit entry was recorded twice in the Project?s general ledger. Possible Asserted Effect: Because the aforementioned adjustments would have materially misstated the statement of financial position and statement of activities, we believe that this matter is a material weakness in the controls and practices of the Project. Repeat Finding: There was not a similar finding in the prior year. Recommendation: We recommend that the Project develop and implement procedures to properly record transactions before its records are submitted for audit. Management Response: The management company will continue to increase review of the general ledger and record all necessary adjustments prior to the audit.

FINDING 2019-002 ? Replacement Reserve Deposits Federal Agency: U.S. Department of Housing and Urban Development Pass through Entity: Not applicable Program Name: Section 811 Capital Advance Program CFDA# and Program Expenditures: 14.181 ($1,284,600) Award Number: N/A Federal Award Year: July 1, 2018 to June 30, 2019 Questioned Costs: None Condition Found: The reserve for replacement was not funded for the year ended June 30, 2019. Monthly deposits totaling $5,700 for the year should have been deposited in the account. In addition, replacement reserve deposits were not made from November 2015 through June 30, 2018. A total of $20,900 is due to the replacement reserve account. Criteria: The regulatory agreement requires that $475 be deposited in the replacement reserve account each month from July 2018 through June 2019. Cause: The required deposits were not transferred from the operating account to the replacement reserve account due to a lack of available cash. Possible Asserted Effect: The replacement reserve was underfunded by $5,700 for the year ended June 30, 2019. The replacement reserve was also underfunded by $5,700, $5,700, and $3,800 for the years ended June 30, 2018, 2017, and 2016, respectively. The cumulative total due to the replacement reserve fund is $20,900. Repeat Finding: This finding was reported in the immediately prior audit as Finding 2018-002. Recommendation: The overall reserve shortage of $20,900 should be funded as soon as possible. Management should consider requesting a replacement reserve deposit waiver or a rent increase from HUD. Management Response: Management will transfer $20,900 from operating to reserve after evaluating available cash. In the absence of available cash, a waiver from HUD will be requested.

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