Gallagher Mansion Inc.

Lack of Proper Approval of Journal Entries Condition: During our audit, we became aware of the process of journal entries which does not include review of support or approval by an individual independent of the preparer. Criteria: Controls over recording of journal entries. Cause: The transition of management companies and limited data received by the new management company as well as challenges with the new software led to need for several journal entries. The process did not include policies and procedures to require formal review and documentation of journal entries before posting. Effect: The lack of proper review and approval increases the risk of material misstatements, either due to unintentional errors or intentional fraud, in the financial statements. This weakness could also lead to noncompliance with the HUD regulations. Recommendation: We recommend that management revise its policies and procedures to require all journal entries to be reviewed and approved by an individual independent of the preparer. The approval process should be documented, either via a signature or within an automated accounting system, prior to posting entries to the general ledger. Managements Response: Management agrees with the recommendation and has begun revising the policy. Management fully expects to implement this in the April 30, 2025 year end audit.

Management agrees with the recommendation and has begun revising the policy. Management fully expects to implement this in the April 30, 2025 year end audit.

Lack of Required Authorization for Residual Receipts Withdrawals Condition: During our audit, we became aware that withdrawals from residual receipts accounts had been executed without obtaining the necessary approval from HUD. Criteria: HUD regulations and the project’s governing Regulatory Agreement require that all withdrawals from the residual receipts account be authorized in advance by HUD. Cause: Residual receipts withdrawals were made without prior HUD approval in order to address temporary cash flow constraints while awaiting the initiation of HUD payments. HUD TRACS access was delayed and requests were not able to be made timely by management. Effect: Making withdrawals from residual receipts without prior HUD approval resulted in noncompliance with HUD requirements and increased the risk of improper use or misallocation of project funds. Recommendation: We recommend that management obtain prior HUD approval for all future residual receipts withdrawals, reimburse the account for any withdrawals made without approval, and implement procedures to address temporary cash flow needs in compliance with HUD requirements. Managements Response: Management agrees with the recommendation and has written correspondence to HUD stating their intention to repay the utilized cash to the residual receipts reserve.

Management agrees with the recommendation and has written correspondence to HUD stating their intention to repay the utilized cash to the residual receipts reserve.

Failure to Make Required Deposits to Replacement Reserve Account Condition: During our audit, we noted that the Company did not make the required deposits to the Replacement Reserve account as specified in the HUD Regulatory Agreement for the project. Criteria: Per the project’s HUD Regulatory Agreement and HUD Handbook 4381.5, the owner is required to make periodic deposits to the Replacement Reserve account to fund capital repairs, replacements, and improvements of the property. The account must be maintained at or above the minimum required balance at all times. Cause: Management did not make the required Replacement Reserve deposits, likely due to cash flow constraints and lack of monitoring procedures to ensure compliance with HUD deposit requirements. Effect: Failure to make required Replacement Reserve deposits resulted in noncompliance with HUD requirements and increased the risk that sufficient funds would not be available for necessary capital repairs or replacements. This exposes the project to potential HUD findings or penalties and may compromise the long-term maintenance and safety of the property. Questioned costs: $163,845 Recommendation: We recommend that management monitor the Replacement Reserve account regularly to maintain the required minimum balance and ensure compliance with HUD requirements. Managements Response: Management agrees with the finding and recommendation. Management will implement monitoring procedures to ensure required Replacement Reserve deposits are made timely and that the account is maintained in compliance with HUD requirements.

Management agrees with the finding and recommendation. Management will implement monitoring procedures to ensure required Replacement Reserve deposits are made timely and that the account is maintained in compliance with HUD requirements.

2023-002

Failure to Make Required Surplus Cash Payment Condition: During our audit, we noted that the Company did not remit surplus cash to HUD as required under the HUD Regulatory Agreement for the project. As of year-end, surplus cash calculated for the prior fiscal year had not been paid to HUD. Criteria: Per the project’s HUD Regulatory Agreement and HUD Handbook 4370.2, the owner is required to remit surplus cash to HUD within the required timeframe after the end of the fiscal year, as calculated on the annual Surplus Cash computation. Any surplus cash not remitted timely is subject to HUD enforcement actions and potential withholding from future Housing Assistance Payments (HAP). Cause: Management did not remit surplus cash timely due to cash flow constraints and insufficient monitoring procedures to ensure compliance with HUD surplus cash remittance requirements. Effect: Failure to remit surplus cash resulted in noncompliance with HUD requirements. This noncompliance may subject the project to HUD findings, enforcement actions, or withholding of future HAP payments and limits HUD’s ability to ensure that surplus project funds are appropriately distributed in accordance with regulatory requirements. Recommendation: We recommend that management establish procedures to ensure surplus cash calculations are completed timely, required amounts are remitted to HUD in accordance with the Regulatory Agreement, and compliance with HUD surplus cash requirements is monitored on an ongoing basis. Managements Response: Management agrees with the finding and recommendation. Management will remit any outstanding surplus cash owed to HUD and implement procedures to ensure future surplus cash amounts are calculated and paid timely in accordance with HUD requirements. The amount has been repaid via HUD voucher withholding payments in January and February 2026.

Management agrees with the finding and recommendation. Management will remit any outstanding surplus cash owed to HUD and implement procedures to ensure future surplus cash amounts are calculated and paid timely in accordance with HUD requirements. The amount has been repaid via HUD voucher withholding payments in January and February 2026.

Tenant File Missing Information Federal Program: Supportive Housing for Elderly; Federal Assistance Listing Number 14.157 Compliance Requirement: Internal control of compliance – Special Testing Type of Finding: Material weakness in internal control over compliance. Criteria: Per HUD Consolidated Audit Guide – Chapter 4, Internal Controls over Federal Funds, entities must maintain accurate, complete, and reconciled records of program income and federal assistance to ensure compliance with the Uniform Guidance (2 CFR 200). Condition: During the audit, we noted instances of tenant files missing criminal background checks for adult household members, leaving eligibility unsupported. There was an instance noted of a missing annual recertification of income. Additionally, instances were noted that recertification tenant amount for the lease payment did not agree to the rent roll for the tenant. Move out documentation was also noted as missing documentation in a file of the selected move out tenant. Cause: Management did not have sufficient internal controls or reconciliation procedures in place to ensure that tenant files accurately and completely document compliance requirements including tenant rent amounts, move outs, background checks and annual recertification. Effect or potential effect: Discrepancies could result in misreporting of federal subsidies and potential repayment obligations. Non Compliance Code: R - Eligibility Repeat Finding: No Recommendation: We recommend management to update policies and procedures to attain and retain records supporting compliance requirements were met. Views of Responsible Officials and Planned Corrective Actions: Management agrees with the finding. See corrective action plan. Planned Implementation Date of Corrective Actions: The 2025 audit files will be complete and accurate. Person Responsible for Corrective Actions: Company

A. Comments on Finding and Recommendations Management understands the need to document and retain records supporting tenant eligibility to be in compliance with regulations. B. Actions Taken or Planned Tenant files and ledgers will be reviewed for completeness and any discrepancies will be researched and corrected. C. Status of Corrective Action on Prior Findings Not corrected

Finding 2023-002: Supportive Housing for the Elderly; CFDA 14.157 Information on the Universe Population Size 12 monthly payments. Sample Size Information 12 monthly payments. Criteria The regulatory agreement requires monthly payments to fund the replacement reserve. Statement of Condition Two monthly payments were not made to the replacement reserve during the year. Cause Change in managing agent during the fiscal year. Effect or Potential Effect The replacement reserve was underfunded by a total of $1,698. Auditor Non-Compliance Code N – Reserve for Replacements Deposits Questioned Costs There were no known questioned costs. Recommendation We recommend that the Entity reinstate a system of monthly transfers to the account. Repeat Finding No Views of Responsible officials See corrective action plan.

Replacement Reserve Deposits Unexpected delays were encountered due to the change in the Managing Agent at the end of the fiscal year and the transfer of cash accounts were delayed The Entity has reviewed the replacement reserve account and will deposit the shortfall of funds upon receipt of HUD Monthly subsidy payments to ensure the account is properly funded.

Criteria In accordance with HUD regulations, the Entity is required to make monthly deposits into the reserve for replacement account. Condition Only nine payments were made during the year ended April 30, 2020. Cause The missing deposits were due to a change in personnel and a lack of oversight by management. Possible Asserted Effect The possible asserted effect is that the funds will be spent and not available for purposes contemplated by HUD regulations. Known Questioned Costs There were no known questioned costs. Perspective During the testing of the reserve for replacement activity, auditor noted the missing deposits. Repeat Finding No Recommendations We recommend that additional deposits be made during the year end April 30, 2021. Views of Responsible Officials See Corrective Action Plan

Yet to be received

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