Crystal Lake Preservation Corporation

Finding Type: Immaterial noncompliance with major program requirements Significant deficiency in internal control over compliance Title and Assistance Listing Number of Federal Program 14.155 U.S. Department of Housing and Urban Development Mortgage Insurance for the Purchase or Refinancing of Existing Multifamily Housing Projects; 14.195 U.S. Department of Housing and Urban Development Section 8 Housing Assistance Payments Program Finding Resolution Status Resolved Information on Universe and Population Size Security deposit cash balance and related tenant security deposit liability balance during the year ended December 31, 2023. Sample Size Information N/A Identification of Repeat Finding and Finding Reference Number N/A Criteria The amount of the security deposit cash balance shall at all times equal or exceed the aggregate of all outstanding obligations under that account. All disbursements from the security deposit account must be only for refunds to tenants and payments for expenses incurred by or on behalf of the tenant, not to exceed the amount to which the tenant is entitled. Statement of Condition The Corporation withdrew cash from the tenant security account during May and June 2023 in the amounts of $7,000 and $7,500, respectively, causing the balance of the security deposit liability to exceed the asset balance at month end. These funds were used to fund operating costs on behalf of the Corporation. Cause The Corporation and management did not comply with the regulatory agreement requirement to have a security deposit cash account that meets or exceeds the security deposit liability account and improperly disbursed tenant security deposit for operating expenses. The Corporation did not have controls in place to monitor the withdrawals and use of the funds for an allowable purpose. Effect or Potential Effect The security deposit cash account was underfunded during May and June 2023 and amounts were improperly used for payments of expenses not incurred by or on behalf of the tenant. Auditor Noncompliance Code Z Other Reporting Views of Responsible Officials Management acknowledges noncompliance in the current fiscal year and has taken measures to improve internal controls over compliance. Management deposited funds to the security deposit cash account in order to meet the regulatory agreement requirement before year end. Context The Corporation temporarily transferred tenant security deposit funds to the operating account in order to fund a temporary operating cash deficit. Amounts withdrawn were replenished to the security deposit account in July 2023. Recommendation Management should deposit funds in the security deposit cash account in order to meet its security deposit liability. Amounts should not be used to provide additional liquidity for operating expenses during the year. Auditor's Summary of the Auditee's Comments on the Findings and Recommendations Management should maintain the security deposit cash account to meet or exceed the security deposit liability account at all times. Management should not allow tenant security deposit cash to be used for any unallowable purpose. Response Indicator Agree Completion Date March 25, 2024 Response Management acknowledges noncompliance in the current fiscal year and has taken measures to improve internal controls over compliance. Management deposited funds to the security deposit cash account in order to meet the regulatory agreement requirement before year end.

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