MIAMI BEACH COMMUNITY DEVELOPMENT CORPORATION, INC. AND SUBSIDIARIES

SECTION II ? CURRENT YEAR FINDINGS AND RECOMMENDATIONS 2019-001 Tenant Eligibility Records (previously 2018-003) Condition: We selected 13 files for testing in the current year. Out of the 13 files selected, we identified seven tenants for whom an annual recertification was not performed within one year of the previous lease start date. Criteria: Eligibility criteria is set forth in the August 2019 Compliance Supplement. Cause: Management failed to exercise effective oversight over the processing and maintenance of records related to tenant information. Effect: Failure to perform the required re-certification may result in an event of default under the terms of the corresponding loan. Recommendation: Management should perform monthly reviews of the rent rolls, which include verifying that an annual re-certification has been performed for any tenant who has reached the anniversary date of their lease during that month. View of Responsible Officials and Planned Corrective Actions: During fiscal year 2019, the Organization transitioned its property management and affordable housing compliance to a reputable third-party management company with robust internal controls over compliance. However, given the timing of the transition and the volume of tenant records involved in the overall transfer of the MBCDC affordable housing projects to the new management company, there were some delays in processing the annual reexaminations of tenant eligibility. Management does not expect to encounter these delays moving forward as all tenant files have been uploaded to the management system where internal controls are in place to ensure timeliness of reexaminations, including automated system reminders at least 60 days prior to the tenant?s annual renewal date.

SECTION II ? CURRENT YEAR FINDINGS AND RECOMMENDATIONS (CONTINUED) 2019-002 Tenant Rent Overcharge (previously 2018?005) Condition: One HOME-assisted unit was found to have been charged a rental that exceeded the allowed rent limit. Criteria: In accordance with the compliance supplement, HOME-assisted units in a rental housing project must be occupied only by households that are eligible as low-income families and must meet certain limits on the rents that can be charged. Cause: Management?s controls over ensuring tenants are being charged the correct rent amount did not operate effectively during the period. Effect: Failure to charge tenants within the appropriate guidelines could result in an event of default under the terms of the corresponding loan. Recommendation: Management should perform in-depth reviews of the rent rolls and corresponding guidelines to ensure rents charged to tenants do not exceed the allowed rent limit. View of Responsible Officials and Planned Corrective Actions: During fiscal year 2019, the Organization transitioned its property management and affordable housing compliance to a reputable third-party management company with robust internal controls over compliance. However, given the timing of the transition and the volume of tenant records involved in the overall transfer of the MBCDC affordable housing projects to the new management company, there were some delays in processing the annual reexaminations of tenant eligibility. Management does not expect to encounter these delays moving forward as all tenant files have been uploaded to the management system where internal controls are in place to ensure timeliness of reexaminations, including automated system reminders at least 60 days prior to the tenant?s annual renewal date.

SECTION II ? CURRENT YEAR FINDINGS AND RECOMMENDATIONS (CONTINUED) 2019-004 Annual Re-Certification (previously 2018-007) A selected tenant file submitted for review was missing evidence of a current annual recertification. Per the Rental Regulatory Agreement, tenant income for NSP-assisted units shall be certified by the Owner annually on the anniversary of each tenant?s lease and maintained in the tenant file. Management?s controls over ensuring annual re-certifications are completed and kept in the tenant file did not operate effectively during the period. Failure to perform the required re-certification may result in an event of default under the terms of the corresponding loan. Management should perform monthly reviews of the rent rolls, which include verifying that an annual re-certification has been performed for any tenant who has reached the anniversary date of their lease during that month. Management should also employ sufficiently competent personnel to remediate conditions existing in the tenant files and exercise more effective oversight over the tenant eligibility process for re-examination of existing tenants. During fiscal year 2019, the Organization transitioned its property management and affordable housing compliance to a reputable third-party management company with robust internal controls over compliance. However, given the timing of the transition and the volume of tenant records involved in the overall transfer of the MBCDC affordable housing projects to the new management company, there were some delays in processing the annual reexaminations of tenant eligibility. Management does not expect to encounter these delays moving forward as all tenant files have been uploaded to the management system where internal controls are in place to ensure timeliness of reexaminations, including automated system reminders at least 60 days prior to the tenant?s annual renewal date.

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