Fowler Christian Apartments IIINon-Profit

Federal Agency: U.S. Department of Housing and Urban Development Federal Program: Section 202 Capital Advance and Project Rental Assistance Contract ALN: 14.157 Award Period: 2024 Type of Finding: Significant Deficiency Criteria or specific requirement: According to the Regulatory Agreement, “mortgagor will establish and maintain a reserve fund for replacements in a separate account in a bank…concurrently with the effective commencement of rental assistance payments under the Project Rental Assistance Contract, the Mortgagor will deposit an amount…per month unless a different date or amount is approved in writing by HUD”. Condition: The Organization did not make all required deposits into the Reserve for Replacements bank account in a timely manner. Questioned costs: $3,752 Cause: A process control to ensure the automatic transfer of deposits from the operating account to the replacements reserve on a monthly basis was not in place. Effect: Deposits for three of the twelve months of the year were not made timely. Therefore, the Organization is not in compliance with the Regulatory Agreement. Recommendation: We recommend management implement a control to ensure the monthly transfer is completed automatically and in accordance with the Regulatory Agreement. Views of responsible officials: The Organization agrees with the finding and the recommendation will be implemented. Controls implemented include scheduling of automatic transfers to our reserve for replacement savings account as well as updating our treasury standard operating procedures to ensure funds are available for the transfer. Condition status: Resolved. Repeat Finding: No.

Federal Agency: U.S. Department of Housing and Urban Development Federal Program: Section 202 Capital Advance and Project Rental Assistance Contract ALN: 14.157 Award Period: 2024 Type of Finding: Significant Deficiency Condition: The Organization did not submit a budget related to their project rental assistance contract. Criteria: An annual budget must be submitted to HUD for project rental assistance contracts. Questioned costs: None Context: During reporting testing, it was determined that budgets had not been submitted to HUD on a timely basis, as required. Effect: The annual budget was not submitted to HUD on a timely basis, as required. Cause: The Organization was not able to submit an annual budget to HUD prior to the submission deadline. Recommendation: We recommend the annual budget is submitted to HUD on a timely basis, as required. Views of Responsible Officials: A process will be put into place to ensure annual budgets will be submitted timely. Repeat Finding: No

2022 ? 002 Federal Agency: U.S. Department of Housing and Urban Development Federal Program: Section 202 Capital Advance and Project Rental Assistance Contract, Section 202 Demonstration Planning Grant ALN: 14.157 and 14.159 Award Period: 2022 Type of Finding: Significant Deficiency Condition: The Organization did not submit a budget related to their project rental assistance contract. Criteria: An annual budget must be submitted to HUD for project rental assistance contracts. Questioned costs: None Context: During reporting testing, it was determined that budgets had not been submitted to HUD as required. Effect: The annual budget was not submitted to HUD as required. Cause: The Organization was not able to submit an annual budget to HUD due to delays in previous audit submissions. Recommendation: We recommend audits are completed timely to ensure the annual budget is submitted to HUD as required. Views of Responsible Officials: Annual budgets will begin being submitted in 2023 now that audits are caught up in the hope we can bring our rental rates and approved budgets closer into alignment with current rental rates and cost to operate in the DFW area. Repeat Finding: No.

2022 ? 003 Federal Agency: U.S. Department of Housing and Urban Development Federal Program: Section 202 Capital Advance and Project Rental Assistance Contract, Section 202 Demonstration Planning Grant ALN: 14.157 and 14.159 Award Period: 2022 Type of Finding: Significant Deficiency Criteria or specific requirement: According to the Regulatory Agreement, ?mortgagor will establish and maintain a reserve fund for replacements in a separate account in a bank?concurrently with the effective commencement of rental assistance payments under the Project Rental Assistance Contract, the Mortgagor will deposit an amount?per month unless a different date or amount is approved in writing by HUD?. Condition: The Organization did not make all required deposits into the Reserve for Replacements bank account in a timely manner. Questioned costs: None Cause: A process control to ensure the automatic transfer of deposits from the operating account to the replacements reserve on a monthly basis was not in place. Effect: Deposits for six of the twelve months of the year were not made timely. Therefore, the Organization is not in compliance with the Regulatory Agreement. Recommendation: We recommend management implement a control to ensure the monthly transfer is completed automatically and in accordance with the Regulatory Agreement. Views of responsible officials: The Organization agrees with the finding and the recommendation will be implemented. Controls implemented include scheduling of automatic transfers to our reserve for replacement savings account as well as updating our treasury standard operating procedures to ensure funds are available for the transfer. Condition status: In progress. Repeat Finding: Yes; finding is a repeat from prior audit finding 2021-003.

Criteria: The Organization?s regulatory agreement provides that the Organization properly maintain their books and records for sound financial reporting. Additionally, the Organization has reporting objectives under Uniform Guidance. Condition: The Organization lacks sufficient controls surrounding financial reporting and year-end close, performance of timely reconciliations of intercompany transactions and material accounts, and oversight of the Organization?s financial reporting and internal controls by those charged with governance. Cause: The Organization was severely impacted by the COVID-19 pandemic and is considered an essential care facility. Safety protocols, employee illness, and staffing difficulties required accounting and management personnel to share operational duties and provide coverage, including responsibilities outside of the accounting and finance department. Appropriate consideration was not given to the heightened risks posed to the Organization and its internal control environment. In addition, timely performance and review of monthly reconciliations and year-end close was not performed consistently, resulting in controls not functioning properly throughout the year. Effect: The issues discussed above resulted in substantial delay in intercompany reimbursements and the completion of the Organization?s financial statement audit. The matter is considered a finding and a significant deficiency in internal control over financial reporting and compliance in accordance with Government Auditing Standards. Recommendation: We recommend Management (1) complete an updated analysis of the Organization?s internal controls and risks posed by the COVID-19 pandemic; (2) determine what staffing changes are necessary to ensure the Organization has adequate personnel to perform the duties and responsibilities vital to the accounting and finance function, while minimizing the sharing of non-accounting/finance responsibilities; and (3) ensure that reconciliations of all key accounts are reviewed and approved by someone independent of the individual performing the reconciliation, preferable by an individual within senior management. Views of Responsible Officials: Executive Management agrees with the finding?s content described above and intends to implement all of the recommendations. The COVID-19 pandemic was an unforeseen event that put the lives of the Organization?s residents and employees at risk. Management and the Board of Directors were required to make quick decisions in an ever-evolving environment, often with conflicting guidance from government authorities, to prevent a more tragic scenario from coming to fruition. Management?s election to deploy all available resources, both personnel and otherwise, to prevent infection and ensure the livelihood of the Project?s residents did indeed result in certain controls not working as intended, or being overridden for the ultimate collective welfare of the residents and the property. It is Management?s position that its assessment performed in the wake of the audit has allowed the Project to identify areas of weakness, and amend policies to address those weaknesses, and implement changes that will improve the accuracy of financial information and effectiveness of the Organization as a whole. The Organization has made personnel changes starting in 2021, including placement of a Chief Financial Officer and additional hires, to ensure that all prescribed responsibilities within accounting and finance are completed timely and accurately. Management has also changed the policy for intercompany expense allocation and reimbursement, and starting in 2022 is requiring all transactions be performed solely between JFC and FCA III rather than a combination of JFC, FCA, FCA II, and FCA III. Condition Status: In Progress Repeat Finding: Yes; finding is a repeat from prior audit finding 2020-001.

Criteria: Per the regulatory agreement, the Organization is required to submit audited financial statements to HUD within 90 days of a Project?s fiscal year end. For 2020, HUD granted an extension through June 30, 2021. In addition, Uniform Guidance 2 CFR Subpart F 200.512, the audit must be completed and the data collection form and reporting package submitted within the earlier of 30 days after receipt of the auditor?s report, or nine-months after the end of the audit period. Condition: The Organization did not meet its financial statement filing requirements under both HUD regulations and those under Uniform Guidance for the year ended December 31, 2021. Cause: The Organization has suffered from the ongoing effects of the COVID-19 pandemic, turnover, and other administrative matters. It was unable to dedicate resources to ensure completion of the Organization?s financial statement audit. Effect: The 2021 financial statement audit was not completed and, therefore, no financial statements were submitted to the federal audit clearinghouse. The filing is considered delinquent. HUD does not have the financial information of the project available for review. HUD may request the immediate repayment of the capital advance due to non-compliance with the regulatory agreement. Recommendation: We recommend that management submit the audited financial statements to HUD and the federal audit clearinghouse. Views of Management: The Organization agrees with the finding and the recommendation will be completed. Condition Status: In Progress Repeat Finding: Yes; finding is a repeat from prior audit finding 2020-002.

Criteria: According to the Regulatory Agreement, ?mortgagor will establish and maintain a reserve fund for replacements in a separate account in a bank?concurrently with the effective commencement of rental assistance payments under the Project Rental Assistance Contract, the Mortgagor will deposit an amount?per month unless a different date or amount is approved in writing by HUD?. Condition: The Organization did not make all required deposits into the Reserve for Replacements bank account in a timely manner. Cause: A process control to ensure the automatic transfer of deposits from the operating account to the replacements reserve on a monthly basis was not in place. Effect: One deposit during 2021 was considered delinquent. Therefore, the Organization is not in compliance with the Regulatory Agreement. Recommendation: We recommend management implement a control to ensure the monthly transfer is completed automatically and in accordance with the Regulatory Agreement. Views of Management: The Organization agrees with the finding and the recommendation will be implemented. Condition Status: In Progress Repeat Finding: Yes; finding is a repeat from prior audit finding 2020-003.

Questioned Costs: $ 2,501 Criteria: The Organization?s Regulatory Agreement states that disbursements ?may be made only after the consent in writing of HUD.? Condition: Disbursements of $2,501 were made in excess of the amount approved by HUD. Cause: Sufficient controls were not in place at the Managing Agent to ensure that transfers between bank accounts for managed properties were initiated in the correct amount, for the correct entity, between the correct bank account accounts, and only subsequent to HUD?s and Management?s approval. Effect: The Managing Agent transferred funds in excess of the amount approved by HUD on Form 9250. Therefore, the Organization is not in compliance with the Regulatory Agreement. Recommendation: We recommend management implement a control to ensure releases from the Reserve for Replacement are initiated by an individual separate from those approving the transfer. In addition, a review of the transfer should be performed to ensure that the correct bank accounts are being used, and that transfers agree with the amount approved by HUD on Form 9250. Views of Management: The Organization agrees with the finding and the recommendation will be implemented. Condition Status: In Progress Repeat Finding: No

Questioned Costs: $ 36,081 Criteria: HUD?s rules and regulations prohibit the commingling of funds from any other Projects. Condition: Funds from the reserve for replacement were improperly transferred to the operating bank account of Fowler Christian Apartments II, Inc. (HUD Project No. 112-EE046), a related party. Cause: Sufficient controls were not in place at the Managing Agent to ensure that transfers between bank accounts for managed properties were initiated in the correct amount, for the correct entity, between the correct bank account accounts, and only subsequent to HUD?s and Management?s approval. Effect: The Managing Agent transferred funds from the incorrect entity?s Reserve for Replacement account to FCA II?s operating bank account related to a release from the reserve for replacement. The Organization recorded a receivable from the related party for the amount improperly withdrawn. Recommendation: We recommend management implement a control to ensure releases from the Reserve for Replacement are initiated by an individual separate from those approving the transfer. In addition, a review of the transfer should be performed to ensure that the correct bank accounts are being used, and that transfers agree with the amount approved by HUD on Form 9250. Views of Management: The Organization agrees with the finding and the recommendation will be implemented. Condition Status: In Progress Repeat Finding: No

Criteria: The Organization?s regulatory agreement provides that the Organization properly maintain their books and records for sound financial reporting. Additionally, the Organization has reporting objectives under Uniform Guidance. Condition: The Organization lacks sufficient controls surrounding financial reporting and year-end close, performance of timely reconciliations of intercompany transactions and material accounts, and oversight of the Organization?s financial reporting and internal controls by those charged with governance. Cause: The Organization was severely impacted by the COVID-19 pandemic and is considered an essential care facility. Safety protocols, employee illness, and staffing difficulties required accounting and management personnel to share operational duties and provide coverage, including responsibilities outside of the accounting and finance department. Appropriate consideration was not given to the heightened risks posed to the Organization and its internal control environment. In addition, timely performance and review of monthly reconciliations and year-end close was not performed consistently, resulting in controls not functioning properly throughout the year. Effect: The issues discussed above resulted in substantial delay in intercompany reimbursements and the completion of the Organization?s financial statement audit. The matter is considered a finding and a significant deficiency in internal control over financial reporting and compliance in accordance with Government Auditing Standards. Recommendation: We recommend Management (1) complete an updated analysis of the Organization?s internal controls and risks posed by the COVID-19 pandemic; (2) determine what staffing changes are necessary to ensure the Organization has adequate personnel to perform the duties and responsibilities vital to the accounting and finance function, while minimizing the sharing of non-accounting/finance responsibilities; and (3) ensure that reconciliations of all key accounts are reviewed and approved by someone independent of the individual performing the reconciliation, preferable by an individual within senior management. Views of Responsible Officials: Executive Management agrees with the finding?s content described above and intends to implement all of the recommendations. The COVID-19 pandemic was an unforeseen event that put the lives of the Organization?s residents and employees at risk. Management and the Board of Directors were required to make quick decisions in an ever-evolving environment, often with conflicting guidance from government authorities, to prevent a more tragic scenario from coming to fruition. Management?s election to deploy all available resources, both personnel and otherwise, to prevent infection and ensure the livelihood of the Project?s residents did indeed result in certain controls not working as intended, or being overridden for the ultimate collective welfare of the residents and the property. It is Management?s position that its assessment performed in the wake of the audit has allowed the Project to identify areas of weakness, and amend policies to address those weaknesses, and implement changes that will improve the accuracy of financial information and effectiveness of the Organization as a whole. The Organization has made personnel changes starting in 2021, including placement of a Chief Financial Officer and additional hires, to ensure that all prescribed responsibilities within accounting and finance are completed timely and accurately. Management has also changed the policy for intercompany expense allocation and reimbursement, and starting in 2022 is requiring all transactions be performed solely between JFC and FCA III rather than a combination of JFC, FCA, FCA II, and FCA III. Condition Status: In Progress Repeat Finding: Yes; finding is a repeat from prior audit finding 2019-001.

Criteria: Per the regulatory agreement, the Organization is required to submit audited financial statements to HUD within 90 days of a Project?s fiscal year end. For 2020, HUD granted an extension through June 30, 2021. In addition, Uniform Guidance 2 CFR Subpart F 200.512, the audit must be completed and the data collection form and reporting package submitted within the earlier of 30 days after receipt of the auditor?s report, or nine-months after the end of the audit period. Condition: The Organization did not meet its financial statement filing requirements under both HUD regulations and those under Uniform Guidance for the year ended December 31, 2020 Cause: The Organization has suffered from the ongoing effects of the COVID-19 pandemic, turnover, and other administrative matters. It was unable to dedicate resources to ensure completion of the Organization?s financial statement audit. Effect: The 2020 financial statement audit was not completed and, therefore, no financial statements were submitted to the federal audit clearinghouse. The filing is considered delinquent. HUD does not have the financial information of the project available for review. HUD may request the immediate repayment of the capital advance due to non-compliance with the regulatory agreement. Recommendation: We recommend that management submit the audited financial statements to HUD and the federal audit clearinghouse. Views of Management: The Organization agrees with the finding and the recommendation will be completed. Condition Status: In Progress Repeat Finding: Yes; finding is a repeat from prior audit finding 2019-002.

Criteria: The regulatory agreement provides that the Organization make monthly deposits into the replacements reserve. Condition: The required deposits for the months of May through August 2020 were not made timely and were remitted in bulk in September 2020. Cause: A process control to ensure the automatic transfer of deposits from the operating account to the replacements reserve on a monthly basis was not in place. Effect: Four deposits during 2020 were considered delinquent. Recommendation: We recommend management implement a control to ensure the monthly transfer is completed automatically. Views of Management: The Organization agrees with the finding and the recommendation will be implemented. Condition Status: In Progress Repeat Finding: No

Criteria: The Organization?s regulatory agreement provides that the Organization properly maintain their books and records for sound financial reporting. Additionally, the Organization has reporting objectives under Uniform Guidance. Condition: The Organization lacks sufficient controls surrounding financial reporting and year-end close, performance of timely reconciliations of intercompany transactions and material accounts, and oversight of the Organization?s financial reporting and internal controls by those charged with governance. Cause: The Organization was severely impacted by the COVID-19 pandemic and is considered an essential care facility. Safety protocols, employee illness, and staffing difficulties required accounting and management personnel to share operational duties and provide coverage, including responsibilities outside of the accounting and finance department. Appropriate consideration was not given to the heightened risks posed to the Organization and its internal control environment. In addition, timely performance and review of monthly reconciliations and year-end close was not performed consistently, resulting in controls not functioning properly throughout the year. Effect: The issues discussed above resulted in substantial delay in intercompany reimbursements and the completion of the Organization?s financial statement audit. The matter is considered a finding and a significant deficiency in internal control over financial reporting and compliance in accordance with Government Auditing Standards. Recommendation: We recommend Management (1) complete an updated analysis of the Organization?s internal controls and risks posed by the COVID-19 pandemic; (2) determine what staffing changes are necessary to ensure the Organization has adequate personnel to perform the duties and responsibilities vital to the accounting and finance function, while minimizing the sharing of non-accounting/finance responsibilities; and (3) ensure that reconciliations of all key accounts are reviewed and approved by someone independent of the individual performing the reconciliation, preferable by in individual within senior management. Views of Responsible Officials: Executive Management agrees with the finding?s content described above and intends to implement all of the recommendations. The COVID-19 pandemic was an unforeseen event that put the lives of the Organization?s residents and employees at risk. Management and the Board of Directors were required to make quick decisions in an ever-evolving environment, often with conflicting guidance from government authorities, to prevent a more tragic scenario from coming to fruition. Management?s election to deploy all available resources, both personnel and otherwise, to prevent infection and ensure the livelihood of the Project?s residents did indeed result in certain controls not working as intended, or being overridden for the ultimate collective welfare of the residents and the property. It is Management?s position that its assessment performed in the wake of the audit has allowed the Project to identify areas of weakness, and amend policies to address those weaknesses, and implement changes that will improve the accuracy of financial information and effectiveness of the Organization as a whole. The Organization has made personnel changes starting in 2021, including placement of a Chief Financial Officer and additional hires, to ensure that all prescribed responsibilities within accounting and finance are completed timely and accurately. Management has also changed the policy for intercompany expense allocation and reimbursement, and starting in 2022 is requiring all transactions be performed solely between JFC and FCA III rather than a combination of JFC, FCA, FCA II, and FCA III.

Criteria: Submission of the audited financial statements to the federal audit clearinghouse is required to be completed no later than nine months after the end of the audit period. Condition: Submission of the audited financial statements to the federal audit clearinghouse for the period ending December 31, 2019 was not completed. Cause: The Organization has suffered from the ongoing effects of the COVID-19 pandemic, turnover, and other administrative matters. It was unable to dedicate resources to ensure completion of the Organization?s financial statement audit. Effect: The 2019 financial statement audit was not completed and, therefore, no financial statements were submitted to the federal audit clearinghouse. The filing is considered delinquent. Recommendation: We recommend that management submit the audited financial statements to the federal audit clearinghouse. Views of Responsible Officials: The Organization agrees with the finding and the recommendation will be completed.

GSA_MIGRATION