ILI SENIOR HOUSING - CHAPEL VALLEY ROAD, INC.

Federal Agency: U.S. Department of Housing and Urban Development Federal Program Name: Supportive Housing for Elderly Section 202 Capital Advance Assistance Listing Number: 14.157 Federal Award Identification Number and Year: 075-EE017-WAH – 2025 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Period: 2025 Type of Finding: Significant Deficiency in Internal Control over Compliance and immaterial noncompliance. Criteria or specific requirement: Monthly deposits are required to be made to the replacement reserve account. Condition: Monthly deposits are required to be made to the replacement reserve account. Questioned costs: N/A Context: Required deposits were made but they were not made monthly due to cash flow restraint. Cause: Required deposits were made but they were not made monthly due to cash flow restraint. Effect: Not in compliance with monthly requirement Recommendation: The Organization should make the required deposits monthly. Views of responsible officials: There is no disagreement with the audit finding.

Federal Agency: U.S. Department of Housing and Urban Development Federal Program Name: CFDA 14.157 Supportive Housing for the Elderly Assistance Listing Number: 14.157 Federal Award Identification Number and Year: 075-EE017-WAH - 2023 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Period: 2023 Type of Finding: Significant Deficiency in Internal Control over Compliance Criteria or specific requirement: Title 24 U.S. Code of Federal Regulations, Section 891.400 and the Corporation's Regulatory Agreement require the Corporation to request and obtain approval from HUD for all withdrawals from the residual receipts fund. Condition: The Corporation withdrew funds from the residual receipts account in order to remit back HUD, however the management company paid HUD on behalf of the Corporation. Proper approval was not obtained to withdraw the funds used to pay back the management company. Questioned costs: $91,063 Context: Noncompliance was identified as a result of sampling withdrawals from the residual receipts account. Cause: The Corporation withdrew funds from the residual receipts account to repay the management company, however existing controls and processes did not request approval from HUD prior to withdrawing the funds. Effect: The Corporation is not in compliance with program requirements. Recommendation: We recommend that management obtain approval from HUD prior to making a withdraw from the residual receipts account. Views of responsible officials: Management agrees with the finding.

Federal Agency: U.S. Department of Housing and Urban Development Federal Program Name: CFDA 14.157 Supportive Housing for the Elderly Assistance Listing Number: 14.157 Federal Award Identification Number and Year: 075-EE017-WAH - 2023 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Period: 2023 Type of Finding: Significant Deficiency in Internal Control over Compliance Criteria or specific requirement: 2 CFR Part 200 Uniform Administrative Requirements, Cost principles, and Audit Requirements for Federal Awards requires compliance with the provisions of the regulatory agreement. The Corporation should have internal controls designed to ensure compliance with those provisions. Condition: During our testing, we noted that the Corporation did not have adequate internal controls designed to ensure that required monthly deposits to the replacement reserve fund were made in a timely manner. Questioned costs: None noted. Context: Noncompliance was identified as a result of testing the required deposits to the replacement reserve fund. Cause: The Corporation did not deposit the November and December deposits until January 2024 Effect: The Corporation is not in compliance with program requirements. Recommendation: We recommend that management develop procedures to ensure replacement reserve deposits are made in a timely manner in accordance with the regulatory agreement. Views of responsible officials: Management agrees with the finding.

Federal Agency: U.S. Department of Housing and Urban Development Federal Program Name: CFDA 14.157 Supportive Housing for the Elderly Assistance Listing Number: 14.157 Federal Award Identification Number and Year: 075-EE017-WAH - 2022 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Period: 2022 Type of Finding: Significant Deficiency in Internal Control over Compliance Criteria or specific requirement: Title 24 U.S. Code of Federal Regulations, Section 891.400 and the Corporation's Regulatory Agreement residual receipts to be deposited to a restricted account. The Consolidated Appropriations Act, 2016 (P.L. 114-113) provided statutory authority for HUD to continue collection of excess residual receipt account balances. To the extent that residual receipts are available to a project, owners are allowed an initial residual receipts balance in an amount equivalent to $250 per unit to use for project purposes. On May 1, 2019, HUD communicated to management that excess residual receipts must be remitted to HUD upon expiration of the Project Rental Assistance Contract (PRAC). Condition: The PRAC expired on December 6, 2019, and excess residual receipts have not been remitted to HUD. Questioned costs: None Context: Noncompliance was not identified as a result of sampling. A total of $128,613 payable to HUD was computed based on the PRAC and as noted in the prior year audit findings and questions costs. Cause: The Corporation changed its management agent during the year and the recapture requirement was not communicated to staff of the new management agent. Effect: The Corporation is not in compliance with program requirements. Recommendation: We recommend that management remit excess residual receipts to HUD. We recommend that the residual receipts account be evaluated for excess residual receipts upon expiration of each annual PRAC. Views of responsible officials: Management agrees with the finding.

Finding 2021-001 Type of Finding: Significant Deficiency in Internal Control over Compliance Information on the Federal Program: Department of Housing and Urban Development, CFDA 14.157, Supportive Housing for the Elderly Criteria: Title 24 U.S. Code of Federal Regulations, Section 891.400 and the Corporation's Regulatory Agreement residual receipts to be deposited to a restricted account. The Consolidated Appropriations Act, 2016 (P.L. 114-113) provided statutory authority for HUD to continue collection of excess residual receipt account balances. To the extent that residual receipts are available to a project, owners are allowed an initial residual receipts balance in an amount equivalent to $250 per unit to use for project purposes. On May 1, 2019, HUD communicated to management that excess residual receipts must be remitted to HUD upon expiration of the Project Rental Assistance Contract (PRAC). Condition: The PRAC expired on December 6, 2019, and excess residual receipts have not been remitted to HUD. Cause: The Corporation changed its management agent during the year and the recapture requirement was not communicated to staff of the new management agent. Effect: The Corporation is not in compliance with program requirements. Context: Noncompliance was not identified as a result of sampling. A total of $128,613 payable to HUD was computed based on the PRAC and as noted in the prior year audit findings and questions costs. Recommendation: We recommend that management remit excess residual receipts to HUD. We recommend that the residual receipts account be evaluated for excess residual receipts upon expiration of each annual PRAC. Views of Responsible Officials: Management agrees with the finding.

Finding 2020-002 Type of Finding: Significant Deficiency in Internal Control over Compliance Information on the Federal Program: Department of Housing and Urban Development, CFDA 14.157, Supportive Housing for the Elderly Criteria: Title 24 U.S. Code of Federal Regulations, Section 891.400 and the Corporation's Regulatory Agreement residual receipts to be deposited to a restricted account. The Consolidated Appropriations Act, 2016 (P.L. 114-113) provided statutory authority for HUD to continue collection of excess residual receipt account balances. To the extent that residual receipts are available to a project, owners are allowed an initial residual receipts balance in an amount equivalent to $250 per unit to use for project purposes. On May 1, 2019, HUD communicated to management that excess residual receipts must be remitted to HUD upon expiration of the Project Rental Assistance Contract (PRAC).Condition: The PRAC expired on December 6, 2019 and excess residual receipts have not been remitted to HUD. Cause: The Corporation changed its management agent during the year and the recapture requirement was not communicated to staff of the new management agent. Effect: The Corporation is not in compliance with program requirements. Context: Noncompliance was not identified as a result of sampling. A total of $128,613 payable to HUD was computed based on the PRAC and as noted in the prior year audit findings and questions costs. Recommendation: We recommend that management remit excess residual receipts to HUD. We recommend that the residual receipts account be evaluated for excess residual receipts upon expiration of each annual PRAC. Views of Responsible Officials: Management agrees with the finding.

Finding 2020-003 Type of Finding: Significant Deficiency in Internal Control over Compliance Information on the Federal Program: Department of Housing and Urban Development, CFDA 14.157, Supportive Housing for the Elderly Criteria: The Corporation's Regulatory Agreement with HUD requires that project funds are expended only for purposes allowed by HUD. Condition: Management fees initially expensed and paid by the Corporation were in excess of the amount approved by HUD. Cause: The Corporation is not incompliance with program requirements. Effect: The Corporation is not in compliance with program requirements. Questioned Costs: Questioned costs total $5,094 and are computed based on excess of management fees charged over the amount approved by HUD. Context: Noncompliance was not identified as a result of sampling. Management has recalculated the management fee based on the amount approved by HUD and charged allocable costs back to the Project. Recommendation: We recommend that management fees be charged based upon the rates annually reviewed and approved by HUD. Views of Responsible Officials: Management agrees with the finding.

Finding 2020-004 Type of Finding: Significant Deficiency in Internal Control over Compliance Information on the Federal Program: Department of Housing and Urban Development, CFDA 14.157, Supportive Housing for the Elderly Criteria: The Corporation's Regulatory Agreement with HUD requires that project funds are expended only for purposes allowed by HUD. Condition: Proper documentation for expenses paid by the Corporation were missing. Cause: The Corporation is not incompliance with program requirements. Effect: The Corporation is not in compliance with program requirements. Questioned Costs: Questioned costs total $150. Context: Noncompliance was identified as a result of sampling. Recommendation: We recommend the organization design controls to ensure an adequate review process is in place to review supporting documentation when expense are paid by the Corporation. Views of Responsible Officials: Management agrees with the finding.

Finding 2019-004 Information on the Federal Program: Department of Housing and Urban Development, CFDA 14.157, Supportive Housing for the Elderly Criteria: The Project?s Regulatory Agreement with HUD requires that Project funds are expended only for purposes allowed under the agreement. Condition: Management fees initially expensed and paid by the Project were in excess of the amount approved by HUD. Additionally, the project paid costs of a related entity. Cause: The management agent experienced significant staff turnover during the year. In an effort to simplify the financial reporting process, the management agent ceased charging certain costs back to the Project and increased the management fee to compensate. The fee structure was not approved by HUD. The management agent manages multiple housing entities and newer staff had not yet become familiar with the different entities. Invoices for other properties were incorrectly charged to the Project. Misstatements were not detected through monitoring procedures. Effect: The project is not in compliance with program requirements. The financial statements were materially misstated prior to adjustment. Questioned Costs: Questioned costs total $63,848 and are computed based on excess of management fees charged over the amount approved by HUD ($49,840) plus total costs paid that were not costs of the project ($14,008). Context: Noncompliance was not identified as a result of sampling. Management has recalculated the management fee based on the amount approved by HUD and charged allocable costs back to the Project. The combined adjustments resulted in an additional amount owed to the management agent. Recommendation: We recommend that costs paid on behalf of other properties be reimbursed to the Project. We recommend that management fees be charged based upon the rates annual reviewed and approved by HUD. We recommend that management review budget versus actual reports and investigate any significant variances on a monthly basis. We recommend that management document the monthly review of financial reports and variances investigated.Material weakness: The cause of noncompliance is considered a material weakness in internal control. Views of Responsible Officials: Management agrees with the finding.

Finding 2019-005 Information on the Federal Program: Department of Housing and Urban Development, CFDA 14.157, Supportive Housing for the Elderly Criteria: Title 24 U.S. Code of Federal Regulations, Section 891.400 and the Project?s Regulatory Agreement residual receipts to be deposited to a restricted account. The Consolidated Appropriations Act, 2016 (P.L. 114-113) provided statutory authority for HUD to continue collection of excess residual receipt account balances. To the extent that residual receipts are available to a project, owners are allowed an initial residual receipts balance in an amount equivalent to $250 per unit to use for project purposes. On May 1, 2019, HUD communicated to management that excess residual receipts must be remitted to HUD upon expiration of the Project Rental Assistance Contract (PRAC). Condition: The PRAC expired on December 6, 2019 and excess residual receipts have not been remitted to HUD. The auditor proposed an adjusting entry to recognize a liability for the amount owed to HUD. Cause: The management agent experienced significant staff turnover during the year. The recapture requirement was not communicated to staff currently responsible for management of the residual receipts account. Effect: The Project is not in compliance with program requirements. Prior to the adjustment proposed by the auditor, the financial statements were materially misstated. Context: Noncompliance was not identified as a result of sampling. A total of $128,613 payable to HUD was computed based upon the required balance of the residual receipts account at December 6, 2019 less the allowable residual receipts balance of $10,500 ($250 multiplied by 42 total units). Recommendation: We recommend that management remit excess residual receipts to HUD. We recommend that the residual receipts account be evaluated for excess residual receipts upon expiration of each annual PRAC. Material weakness: The cause of noncompliance is considered a material weakness in internal control. Views of Responsible Officials: Management agrees with the finding.

Finding 2019-006 Information on the Federal Program: Department of Housing and Urban Development, CFDA 14.157, Supportive Housing for the ElderlyCriteria: Title 24 U.S. Code of Federal Regulations, Section 5.233 requires use of HUD?s Enterprise Income Verification (EIV) system as a third party source to verify tenant employment and income information during mandatory reexaminations or recertifications of family composition and income. HUD handbook 4350.3 Occupancy Requirements of Subsidized Multifamily Housing Programs provides administrative guidance on required use of the EIV system. Condition: The EIV system was not used during the year under audit. Cause: The management agent experienced significant staff turnover during the year. Staff currently responsible for the tenant certification process were not trained to use the EIV system. Effect: The project is not in compliance with program requirements. Ineligible tenants may be granted occupancy and rental assistance may be calculated incorrectly. HUD may impose sanctions or the assessment of disallowed costs. Context: There were a total of 41 tenants that occupied the project during the year under audit. Of the 8 tenant files selected for testing, none included documentation to support use of the EIV system as part of the most recent recertification. The sample was not a statistically valid sample. Recommendation: We recommend that management incorporate use of the EIV system in the tenant certification process. We recommend that staff responsible for the recertification process receive training on the tenant certification process at least annually. Material weakness: The cause of noncompliance is considered a material weakness in internal control. Views of Responsible Officials: Management agrees with the finding.