Orchard Valley Apartments, Inc.

Agency: U.S. Department of Housing and Urban Development CFDA Number: 14.155 Program: Mortgage Insurance for the Purchase or Refinancing of Existing Multifamily Housing Projects Statement of condition: The Project did not have adequate and effective controls over compliance in place as it relates to special tests and provisions requirements. Criteria: Uniform Guidance requires that controls are implemented to ensure the Project is in compliance with special tests and provisions. For the Project this includes charging the appropriate amount of management fees, making the monthly replacement reserve deposits, withdrawing funds from the replacement reserve account only when authorized by HUD and making the annual residual receipts deposit within 90 days of fiscal year-end. Questioned Costs: No questioned costs were identified. Context: Not applicable. Effect: We identified certain areas within the control system surrounding compliance that could lead to noncompliance not being immediately identified. Cause: Management did not consistently review the nonroutine transactions at the time of the transaction or during the year-end close process. Recommendation: We recommend management review their current documented and informal controls surrounding special tests and provisions requirements and make adjustments and provide training where considered necessary. Views of Responsible Official and Planned Corrective Actions: Management agrees with the Finding. The President and Accounting Manager will review the internal controls surrounding compliance and provide company-wide training.

Agency: U.S. Department of Housing and Urban Development CFDA Number: 14.155 Program: Mortgage Insurance for the Purchase or Refinancing of Existing Multifamily Housing Projects Statement of condition: The Project did not make deposits into the replacement reserve account on a monthly basis as required by the regulatory agreement, which resulted in management underfunding the replacement reserve account. Criteria: HUD requires that the Project make monthly deposits into the replacement reserve account per the HUD regulatory agreement. Questioned Costs: The amount underfunded to the replacement reserve account was $288. Context: We tested 2 of the 12 months of the fiscal year. Effect: The replacement reserve account did not contain the required balanced at year-end and for select months throughout the year. Cause: Management has indicated that due to internal miscommunication, the replacement reserve account was not fully funded. Recommendation: We recommend management review their current processes surrounding replacement reserve deposits to ensure any changes necessary are made in order to be in compliance with the Uniform Guidance and the regulatory agreement. Views of Responsible Official and Planned Corrective Actions: Management agrees with the Finding. The Property Manager will put in place systems and control procedures to ensure that replacement reserves deposits are made in a timely basis. Management deposited the underfunded amount during September 2021.

Agency: U.S. Department of Housing and Urban Development CFDA Number: 14.155 Program: Mortgage Insurance for the Purchase or Refinancing of Existing Multifamily Housing Projects Statement of condition: The Project did not make deposits into the residual receipts reserve account on a timely basis as required by the regulatory agreement. Criteria: HUD requires that the Project make the deposit of surplus cash as of the balance sheet date into the residual receipts reserve account within 90 days after the balance sheet date per the HUD regulatory agreement. Questioned Costs: The amount not deposited timely to the residual receipts reserve was $45,178, which was deposited on May 31, 2021 . Context: We tested all deposits to the residual receipts reserve during the fiscal year. Effect: The residual receipts reserve account was not funded timely with the surplus cash from the fiscal year ended June 30,2020. Cause: Management has indicated that due to internal miscommunication, the residual receipt reserve account was not deposited timely. Recommendation: We recommend management review their current processes surrounding residual receipt reserve deposits to ensure any changes necessary are made in order to be in compliance with the Uniform Guidance and the regulatory agreement. Views of Responsible Official and Planned Corrective Actions: Management agrees with the Finding. Timely reviews of the surplus cash calculation and deposits to the residual receipts reserve have been implemented and the surplus cash calculated as of June 30, 2021 was deposited within 90 days of the balance sheet date.