TRELLIS CO.Non-Profit

FINDING 2025-001: Unauthorized fees paid by the Corporation Criteria – The Project must obtain approval from HUD to pay fees outside of the previously approved management fee. Condition – A project wholly-owned by the Corporation (the Project) paid the management company of the Project a bookkeeping fee that was not authorized by HUD. Questioned costs and how they were computed – $2,376. The questioned costs are bookkeeping fees that were paid by the Project prior to being approved by HUD. Context – The entire unauthorized bookkeeping fee of $2,376 that was charged to the Project in 2024 should not have been paid by the Project. Cause – In 2024, the management company charged a bookkeeping fee in the amount of $2,376 to the Project prior to the fee being approved by HUD. Effect – The Project paid the management company a bookkeeping fee that may constitute an unauthorized distribution. Identification of Repeat Finding – Yes, 2024-001. The finding remains open. Recommendation 2025-001 – We recommend that management continue to work with HUD to resolve the situation. Auditee’s comments and response – The Corporation has contacted HUD and is awaiting a response. Responsible party for corrective action: Lisa Fischer – Chief Operating Officer

FINDING 2025-002: Unauthorized receipt of COVID-19 Supplemental Payments (CSP) Criteria – Section 8 owners who took distributions of surplus cash following the announcement of CSPs on July 23, 2020, are not eligible to receive a CSP for expenses incurred in the first, second, or third operating periods (March 27, 2020 to March 31, 2021). The Corporation must be able to substantiate the costs submitted for reimbursement and the costs must fall under the eligible cost category for which they were submitted. Condition – The Corporation received CSPs for all five program operating periods. The Corporation received reimbursement for expenditures in eligible expense categories different from the expense categories applied for. Questioned costs and how they were computed – $89,393. The questioned costs are the CSP funds received that the projects were either not eligible for or that were received for expenditures that were different than those used in the CSP applications. Context – The Corporation is responsible for compliance with the Section 8 program requirements, including any special provisions or programs that may be included with the Section 8 cluster. Cause – The management company applied for reimbursement of expenses on behalf of the Corporation for all five program operating periods, when the Corporation was only eligible for program periods 4 and 5. The Corporation received reimbursement for eligible expense categories different from the expense categories applied for. Effect – The Corporation received federal finds it was not eligible to receive. Identification of Repeat Finding – No. Recommendation 2025-002 – We recommend that the Corporation continue to work with HUD or the Section 8 HAP contract administrators to resolve the situation. Auditee’s comments and response – The applications for reimbursement for program periods 1 through 3 were made in error. The Corporation has contacted HUD and is awaiting a response. Responsible party for corrective action: Lisa Fischer – Chief Operating Officer

FINDING 2025-003: Untimely Return of Security Deposits Criteria – HUD requires owners of HUD assisted multifamily projects to refund security deposits no later than 30 days after the tenant vacates the unit, unless a shorter period is required by state or local law (21 days in Minnesota). Owners must also provide an itemized statement of any deductions and retain detailed records for three years. Failure to comply with these requirements constitutes a violation of the regulatory agreement and HUD regulations. Condition – During our review of tenant files of a project wholly-owned by the Corporation (the Project), we noted that the Project did not refund security deposits to one former tenant within the required time-frame after move-out. The refund was issued beyond the 21-day period specified by HUD requirements. Questioned costs and how they were computed – No questioned costs identified. Context – One of four move-outs tested did not receive their security deposit back within the timeframe required by HUD. Cause – The delay in refunding the security deposits was due to inadequate monitoring of moveout dates and insufficient internal controls over the security deposit refund process. Effect – Failure to refund security deposits in a timely manner exposes the Project to noncompliance with HUD regulations, potential client complaints, and possible enforcement action by HUD. Identification of Repeat Finding – No. Recommendation 2025-003 – We recommend that management implement and document procedures to monitor the move-out dates and ensure that security deposits are reviewed, processed, and returned within 21 days. Auditee’s comments and response – Management agrees with the finding and is in the process of implementing procedures to monitor tenant move-outs, document amounts due to former tenants, and issue refund checks in a timely manner. Responsible party for corrective action: Lisa Fischer – Chief Operating Officer

FINDING 2024-001: Unauthorized fees paid by the Corporation Condition - A project wholly-owned by the Corporation (the Project) paid the management company of the Project a bookkeeping fee that was not authorized by HUD. Criteria - The Project must obtain approval from HUD to pay fees outside of the previously approved management fee. Effect - The Project paid the management company a bookkeeping fee that may constitute an unauthorized distribution. Cause - The management company charged a bookkeeping fee in the amount of $2,376 to the Project prior to the fee being approved by HUD. Recommendation 2024-001 - We recommend that management contact HUD to inform them of the error and to verify how they would like to address the situation. Auditee's comments and response - Management has contacted HUD and is awaiting a response.

FINDING 2023-001: Lack of Segregation of Duties – Cash Receipts Criteria - Good internal control requires a segregation of duties and responsibilities such that no one employee has access to both physical assets and the related accounting records, or to all phases of a transaction. Condition - The person performing accounting functions for the Corporation occasionally has access to physical checks. Context - Management is responsible for implementing controls to ensure adequate segregation of duties. Cause - The accountant records checks in the accounting system when they are received. Occasionally, the accountant will pick up checks from the management location and therefore, has access to both physical assets and the accounting records. Effect - The lack of segregation of duties may result in undetected errors in financial statements and increases the possibility of misappropriation of the Corporation’s assets. Recommendation - We recommend the Corporation establish procedures to adequately segregate duties so no one has access to both physical assets and the related accounting records. Auditee's comments and response - The small size of the Corporation’s staff makes it difficult to adequately segregate duties in some areas. The Corporation is acquiring a check scanning machine from their bank that will allow their administrative assistant to deposit the checks electronically as soon as they arrive in the mail. Responsible party for corrective action: Lisa Fischer – Chief Operating Officer

FINDING 2023-002: Audit Adjustments Criteria - The Corporation’s management has the responsibility to record, process, and summarize the accounting data to ensure that uses of the data have complete and accurate accounting records. Nonprofit organizations are also required to prepare financial statements in accordance with generally accepted accounting principles (GAAP). Condition - An adjustment was proposed to the financial statements to record the donation of a building and land with a total value of $2,180,000. Context - Management is responsible for the recording, processing, summarizing, and review of the accounting data (i.e. maintaining books and records) and for making the necessary adjustments to those books and records before the audit and preparation of the financial statements. Cause - The Corporation does not normally receive noncash contributions and does not have an established history of recording such transactions. The combination of the transition and the new or out of the ordinary transactions contributed to them not being recorded properly. Effect - Members of management, the Board of Directors, and any other users of the Corporation’s internal books and records did not have complete and accurate information. Recommendation - We recommend the Corporation establish procedures to regularly review out of the ordinary activities to ensure its accounting is complete and accurate. Auditee's comments and response - The Corporation has received property donations on occasion over the years. The donated property was not recorded at fair market value at the time of closing due to the timing of closing in December 2023, and the immediate transition of their financial controller early in January 2024. This omission was caught by the auditors prior to internal staff due to the key staff transition. Going forward the CEO and CFO will meet monthly to review financial statements and transactions and make sure all donations and other transactions are recorded according to accounting policies. Responsible party for corrective action: Lisa Fischer – Chief Operating Officer

FINDING 2023-003: Unauthorized receipt of COVID-19 Supplemental Payments (CSP) Criteria - Section 8 owners who took distributions of surplus cash following the announcement of CSPs on July 23, 2020, are not eligible to receive a CSP for expenses incurred in the first, second, or third operating periods (March 27, 2020 to March 31, 2021). The Corporation must be able to substantiate the costs submitted for reimbursement and the costs must fall under the eligible cost category for which they were submitted. Condition - The Corporation received CSP’s for all five program operating periods. The Corporation received reimbursement for expenditures in eligible expense categories different from the expense categories applied for. Questioned costs and how they were computed - $89,393. The questioned costs are the CSP funds received that the projects were either not eligible for or that were received for expenditures that were different than those used in the CSP applications. Context - The Corporation is responsible for compliance with Section 8 program requirements, including any special provisions or programs that me be included with the Section 8 cluster. Cause - The management company applied for reimbursement of expenses on behalf of the Corporation for all five program operating periods, when the Corporation was only eligible for program periods 4 and 5. The Corporation received reimbursement for eligible expense categories different from the expense categories applied for. Effect - The Corporation received federal funds it was not eligible to receive. Recommendation - We recommend that the Corporation contact HUD or the Section 8 HAP contract administrators to inform them of the error and to verify how they would like to address the situation. Auditee's comments and response - The applications for reimbursement for program periods 1 through 3 were made in error. The Corporation has contacted HUD and is awaiting a response. Responsible party for corrective action: Megan Netland – Vice President of Asset Management

Finding 2021-001 ? 2020 Surplus Cash Not Deposited in Residual Receipts Reserve Department of Housing and Urban Development Assistance Listing Number 14.164 ? Operating Assistance for Troubled Multifamily Housing Projects (Flexible Subsidy loans) Significant Deficiency & Noncompliance Category of Finding ? Special Test and Provisions Condition - The Company did not deposit the 2020 surplus cash in its residual receipts reserve account and no payment on the HUD Flexible Subsidy loan was made from the balance in the residual receipts reserve. Criteria - The HUD Flexible Subsidy loan requires that prior year surplus cash be deposited in the residual receipts reserve and the residual receipts reserve balance be used to pay down the HUD Flexible Subsidy loan by April 30. Cause - The property management company did not monitor the HUD Flexible Subsidy loan requirements. Effect - The property has more surplus cash in 2021 than should have been used to make a payment on the HUD Flexible Subsidy loan. Questioned Costs ? $7,148 Management?s Response and Corrective Action - The Company should reduce the 2021 surplus cash and offset the HUD Flexible Subsidy loan. Going forward, management should monitor surplus cash and follow the compliance regulations. Auditee's comments and response - Management will reduce the 2021 surplus cash and record a payable to the HUD loan. Going forward, management will monitor surplus cash and follow the compliance regulations. Responsible party for corrective action: Chris Maida, Vice President, Asset Management Repeat Finding: No

GSA_MIGRATION

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GSA_MIGRATION