Mahalo Homes, Inc.Non-Profit

Statement of Condition: Project funds were used to pay a related party. The related party, in turn, paid the operating expenses of the Project. Cause: For ease of administration, common vendors were paid by the related party. Effect: The payments made to the related party could be disallowed. Auditor Non-Compliance Code: H - Unauthorized distribution of project assets. Questioned Costs: $80,216. Reporting View of Responsible Officials: The Organization agrees with the finding. The auditor's recommendations, as well as the local HUD field office's recommendations, are in the process of being implemented. Context: Review of the detail in the account provided evidence that project funds were paid to the related party. Personnel were forthcoming with this practice and are in the process of correcting this finding. Recommendation: In conjunction with the Organization's local HUD field office, it was determined that the related party should invoice the entity for project expenses on a monthly basis. In turn, the Organization should pay the invoice amount on a monthly basis.

Statement of Condition: Residual receipts balance is over the calculated compliance amount. Cause: The prior year surplus cash amount was deposited into the residual receipts account. However, approval was not requested to pay back excess residual receipt note. Effect: Residual receipts balance is over the compliance amount. Auditor Non-Compliance Code: Z. Questioned Costs: $258. Reporting View of Responsible Officials: The Organization agrees with the finding. The auditor's recommendations are in the process of being implemented. Context: Review of the residual receipt activity showed that the client had deposited surplus cash money into the account; however approval was not sought to pay back excess residual receipts. Recommendation: Training of staff should be performed to bring the staff up to date with the implementation of all residual receipts compliance requirements. Additionally, the Organization should request approval for current overage.

Statement of Condition: Replacement reserve account was underfunded at year end. Cause: Monthly deposits are required to be made into the replacement reserve account throughout the year. During the year, the amount for a specific deposit was under the required deposit amount. Effect: Replacement reserve balance is under the compliance amount. Auditor Non-Compliance Code: N - Reserve for Replacements Deposits. Questioned Costs: $30. Reporting View of Responsible Officials: The Organization agrees with the finding. The auditor's recommendations are in the process of being implemented. Context: Review of the replacement reserve activity showed that the client had not deposited the required amount into the account. Recommendation: Training of staff should be performed to bring the staff up to date with the implementation of all replacement reserve compliance requirements.

Statement of Condition: Tenant files after October 2022 were mising Form 50059. Cause: The Organization lost access to the federal form writing software and there was a delay getting it corrected due to a change in staffing. Effect: Potential miscalculation of tenant eligibility. Auditor Non-Compliance Code: Z. Questions Costs: $0. Reporting View of Responsible Officials: The Organization agrees with the finding. The auditor's recommendations are in the process of being implemented. Context: Review of the tenant files provided evidence that the Form 50059 reports were not being printed and stored in tenant files. Recommendation: Training of staff should be performed to bring the staff up to date with the implementation of all the tenant file compliance requirements.

S3800-010 Finding Reference Number: 2022-001 S3800-011 Title and CFDA Number of Federal Program: Supportive Housing for Persons with Disabilities - 14.181 S3800-015 Type of Finding: Federal Award Finding S3800-016 Finding Resolution Status: In Process S3800-019 Identification of Repeat Finding and Finding Reference Number: 2021-001. S3800-020 Criteria: Project funds must be used for the operation of the Project. S3800-030 Statement of Condition: Project funds were used to pay a related party. The related party, in turn, paid the operating expenses of the Project. S3800-032 Cause: For ease of administration, common vendors were paid by the related party. S3800-033 Effect:The payments made to the related party could be disallowed. S3800-035 Auditor Non-Compliance Code: H - Unauthorized distribution of project assets. S3800-040 Questioned Costs: $40,083 S3800-045 Reporting View of Responsible Officials: The Organization agrees with the finding. The auditor's recommendations, as well as the local HUD field office's recommendations, are in the process of being implemented. S3800-050 Context: Review of the detail in the account provided evidence that project funds were paid to the related party. Personnel were forthcoming with this practice and are in the process of correcting this finding. S3800-080 Recommendation: In conjunction with the Organization's local HUD field office, it was determined that the related party should invoice the entity for project expenses on a monthly basis. In turn, the Organization should pay the invoice amount on a monthly basis. S3800-090 Auditor's Summary of the Auditee's Comments on the Findings and Recommendations: The auditors have worked with the auditee in conjunction with their local HUD field office to determine a course of action. All parties were in agreement with the recommendation. S3800-130 Response Indicator: Agree S3800-140 Completion Date: September 30, 2022 S3800-150 Response: The auditee is committed to correcting the finding.

S3800-010 Finding Reference Number: 2022-002 S3800-011 Title and CFDA Number of Federal Program: Supportive Housing for Persons with Disabilities - 14.181 S3800-015 Type of Finding: Federal Award Finding S3800-016 Finding Resolution Status: In Process S3800-020 Criteria: Residual receipts balance at year end should be equal to the number of units multiplied by $250. After the overage is calculated, the Organization is to request approval for the withdrawal from HUD. After approval, this overage is to be withdrawn and used to pay the surplus cash note. S3800-030 Statement of Condition: Residual receipts balance is over the calculated compliance amount. S3800-032 Cause: The prior year surplus cash amount was deposited into the residual receipts account and was then given withdrawal approval by HUD. However, the approved amount was never withdrawn from the account to pay the residual receipts note. S3800-033 Effect: Residual receipts balance is over the compliance amount. S3800-035 Auditor Non-Compliance Code: Z S3800-040 Questioned Costs: $14,449 S3800-045 Reporting View of Responsible Officials: The Organization agrees with the finding. The auditor's recommendations are in the process of being implemented. S3800-050 Context: Review of the residual receipts activity showed that the client had deposited surplus cash money into the account and obtained approval to use said money to pay the residual receipts note. However, at year end the money was never withdrawn from the account. S3800-080 Recommendation: Training of staff should be performed to bring the staff up to date with the implementation of all residual receipts compliance requirements. S3800-090 Auditor's Summary of the Auditee's Comments on the Findings and Recommendations: The Organization did not move money from the residual receipts account in order to pay down surplus cash note despite receiving HUD approval. This led to the residual receipts account being greater than its compliance amount. S3800-130 Response Indicator: Agree S3800-140 Completion Date: September 30, 2022

FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL AWARD PROGRAMS AUDIT: Project funds must be used for the operation of the Project. Project funds were used to pay a related party. The related party, in turn, paid the operating expenses of the Project. For ease of administration, common vendors were paid by the related party. The payments made to the related party could be disallowed.

FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL AWARD PROGRAMS AUDIT: Reports viewed from EIV system must be printed and included in the tenant files in order to demonstrate EIV system compliance. Reports demonstrating the proper use of EIV system were not printed and retained in the tenant files. The Organization was not storing EIV reports into the tenant files. Potential miscalculation of tenant rent responsibility.

FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL AWARD PROGRAMS AUDIT: Project funds were used to pay a related party. The related party, in turn, paid the operating expenses of the Project. For ease of administration, common vendors were paid by the related party. The payments made to the related party could be disallowed.

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