BIRCH TREE HOUSING CORPORATION

Section III Federal Award Findings Finding 2021-002 Criteria: The size of the Organization?s staff should be sufficient to provide optimum segregation of duties for preventive and detective internal controls. Condition: There is a lack of segregation of duties for some preventative internal controls among the Organization?s staff. This is a repeat finding from the prior year. Effect: There is a risk that the Organization?s internal controls would detect; but, not prevent misstatement. Cause: There is a limited number of staff for certain accounting functions. SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2021 Section III Federal Award Findings (Continued) Finding 2021-002 (Continued) Recommendation: It is recommended that management and the board of directors continues oversight to minimize risks. Response: We acknowledge that the size of the accounting staff is not large enough to provide optimum segregation of duties in regard to some preventative controls. We also believe that it is not feasible to achieve this level of control without unreasonable costs being incurred by the project and without going against government guidance on operating this type of facility. To mitigate this risk, fidelity bond coverage is carried and detective controls are in place. In addition, management and the board of directors are actively involved in the financial affairs of the Organization and meet regularly to review financial information.

2020-002 ? Compliance Finding and Significant Deficiency ? Segregation of Duties Criteria: The size of the Organization?s staff should be sufficient to provide optimum segregation of duties for preventative and detective internal controls. Condition: There is a lack of segregation of duties for some preventative internal controls among the Organization?s staff. Context: Deficiency was discovered while analyzing internal controls. Effect: There is a risk that the Organization?s internal controls would detect; but, not prevent misstatement. Cause: There is a limited number of staff for certain accounting functions. Recommendation: It is recommended that management and the Board of Directors continues oversight to minimize risks. Amount of Questioned Costs: $0 Response: We acknowledge that the size of the accounting staff is not large enough to provide optimum segregation of duties in regard to some preventative controls. We also believe that it is not feasible to achieve this level of control without unreasonable costs being incurred by the project and without going against government guidance on operating this type of facility. To mitigate this risk, fidelity bond coverage is carried and detective controls are in place. In addition, management and the Board of Directors are actively involved in the financial affairs of the Organization and meet regularly to review financial information.

2020-003 ? Compliance Finding and Material Weakness ? Late Audit Submission to U.S. Department of Agriculture Criteria: The Organization is required to have an audit performed and submitted to the U.S. Department of Agriculture (USDA) within ninety days after the fiscal year end. Condition: The Organization did not have an audit performed for fiscal year 2020 in a timely manner. Context: Auditor was aware of the lack of timely filing at acceptance of audit. Effect: The required audit for fiscal year 2020 was not provided to USDA in a timely manner. Cause: The Organization did not have controls in place regarding reporting requirements. Recommendation: We recommend that the Organization complete and submit the required audit as soon as possible and have subsequent audits completed in a timely manner. Amount of Questioned Costs: $0 Response: We have had the 2020 audit performed and will have it submitted to USDA as soon as possible. We will have subsequent audits performed and submitted in a timely manner.

2020-004 ? Compliance Finding and Material Weakness ? Submission to Federal Audit Clearinghouse Criteria: The Organization is required to complete a data collection form and submit the form and audit to the Single Audit Clearinghouse within nine months after the end of the fiscal year. Condition: The Organization did not submit the audit reports for 2017. 2018, 2019 or 2020 to the Single Audit Clearinghouse within nine months of the fiscal year end. Context: Auditor was aware of the lack of timely filing at acceptance of audit. Effect: The Organization has not complied with requirements of the Uniform Guidance. Cause: The Organization did not have controls in place regarding reporting requirements. Recommendation: We recommend that the Organization complete the data collection forms for the 2018, 2019 and 2020 audits and submit the audits to the Single Audit Clearinghouse as soon as possible. Amount of Questioned Costs: $0 Response: The data collection form for 2017 has been submitted. The audit reports for 2018, 2019 and 2020 will be completed and submitted to the Single Audit Clearinghouse as soon as possible.

2019-003 ? Compliance Finding and Material Weakness ? Segregation of Duties Condition: Because of a limited number of available personnel and high employee turnover rate during the year, it was not always possible to adequately segregate certain incompatible duties so that no one employee had access to both physical assets and the related accounting records, or to all phases of a transaction. Criteria: Duties should be segregated so that no one employee has access to both physical assets and the related accounting records, or to all phases of a transaction. Cause: There is a limited number of staff for accounting functions. Effect: Risk is present that errors or irregularities in amounts that would be material to the basic financial statements may occur and not be detected and corrected within a timely period by employees in the normal course of performing assigned functions. Context: Auditor discovered lack of segregation of duties during internal control analysis. Recommendation: We recommend that the board of directors continue to work on developing processes and procedures to mitigate the lack of segregation of duties and maintain effective oversight over the Organization. Response: In October of 2019, we hired a management company to perform accounting and property management functions to better segregate duties and improve internal controls over compliance.

2019-004 ? Compliance Finding and Material Weakness ? Invoices and Documented Approvals Condition: Documentation of invoices and disbursement approval was not present for some invoices prior to disbursement of funds. Criteria: Standards for internal controls over disbursements require invoices and proper approval of invoices prior to disbursement of funds to ensure funds are for approved expenditures. Cause: The Organization was not aware of the standards in regard to the documentation of controls over disbursements. Effect: Invoices could be paid for unapproved and unallowed expenses. Context: A sample of 25 disbursements was selected for audit. The test found lack of invoices on 4 of the 25 disbursements. The test found lack of documented invoice approval on 18 of the 25 disbursements. All 4 of the missing invoices and all 18 undocumented invoices were before the new management company took control. Our sample was a statistically valid sample. Recommendation: We recommend that the Organization adopt and monitor a documented approval process for all invoices prior to disbursement of funds. Response: In October of 2019, we hired a management company to perform accounting and property management functions to better segregate duties and improve internal controls over financial reporting. Procedures include a process for proper approval of invoices.

2019-005 ? Compliance Finding and Material Weakness ? Late Audit Submission to U.S. Department of Agriculture Condition: The Organization did not have an audit performed for fiscal years 2019 and 2020 in a timely manner. Criteria: The Organization is required to have an audit performed and submitted to the U.S. Department of Agriculture (USDA) within ninety days after the fiscal year end. Cause: The Organization did not have controls in place regarding reporting requirements. Effect: The required audit for fiscal years ended 2019 and 2020 was not provided to USDA in a timely manner. Context: Auditor was aware of the lack of timely filing at acceptance of audit. Recommendation: We recommend that the Organization complete and submit the required audits as soon as possible and have subsequent audits completed as soon as possible. Response: We have had the 2019 audit performed and will have it submitted to USDA as soon as possible. We will have subsequent audits performed and submitted as soon as possible.

2019-006 ? Compliance Finding and Material Weakness ? Submission to Federal Audit Clearinghouse Condition: The Organization has not submitted the audit reports for 2017, 2018 or 2019 to the Single Audit Clearinghouse within nine months of the fiscal year end. Criteria: The Organization is required to complete a data collection form and submit the form and audit to the Single Audit Clearinghouse within nine months after the end of the fiscal year. Cause: The Organization did not have controls in place regarding reporting requirements. Effect: The Organization has not complied with requirements of the Uniform Guidance. Context: Auditor was aware of the lack of timely filing at acceptance of audit. Recommendation: We recommend that the Organization complete the data collection forms for the 2017, 2018 and 2019 audits and submit the audits to the Single Audit Clearinghouse as soon as possible. Response: The data collection forms and the audit reports for 2017, 2018 and 2019 will be completed and submitted to the Single Audit Clearinghouse as soon as possible.

2019-007 ? Compliance Finding and Material Weakness ? Lack of Reserve Deposits Condition: The Organization has not made the appropriate deposits into the reserve account as required by Rural Development guidelines. Criteria: The Organization is required to deposit into the reserve account a monthly amount from operations to properly fund the account. Cause: The Organization did not the available cash flow or controls in place to properly fund the account. Effect: The Organization has not complied with requirements of Rural Development loan program. Context: Auditor discovered the noncompliance during reserve account testing. Recommendation: We recommend that the Organization work with the Rural Development Area Specialist to determine the appropriate monthly reserve deposit to be made to properly fund the reserve account and ensure future monthly reserve deposits are made in accordance with Rural Development guidelines. Response: In October of 2019, we hired a management company to perform accounting and property management functions. The Organization has since worked with the Rural Development Area Specialist in determining the appropriate monthly reserve deposit and began funding the reserve timely starting in January of 2020.

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