THF Highland Oaks Holdings, LLC

Finding reference number: 2024-001 Assistance Listing (Federal award identification number and year): Mortgage Insurance for the Purchase or Refinancing of Existing Multifamily Housing Projects, CFDA N0. 14.155 (Project identification number 115-11319, 2020) Auditor non-compliance code: Z – Other Finding resolution status: Resolved Universe population size: The universe population size is not applicable to the finding Sample size population: The sample size is not applicable to the finding Statistically valid sample: N/A Name of Federal agency: U.S. Department of Housing and Urban Development Pass-through entity: N/A Questioned costs: N/A Statement of condition 2024-001: For the year ended December 31, 2024, the Company did not submit the Data Collection Form (SF-SAC) to the Federal Audit Clearinghouse in the time period required by Uniform Guidance Section 2 CFR 200.512. Criteria: Pursuant to Uniform Guidance Section 2 CFR 200.512, the Company is required to submit the Data Collection Form to the Federal Audit Clearinghouse within the earlier of 30 calendar days after receipt of the auditor's report or 9 months after the end of the audit period. Effect: The Company is not in compliance with Uniform Guidance Section 2 CFR 200.512. Cause: The Company did not submit the Data Collection Form within the required time period due to oversight. Recommendation: The Company should submit the Data Collection Form to the Federal Audit Clearinghouse within the required time period. Management's response: Management concurs with the finding and agrees with the auditor's recommendation. The Data Collection Form was submitted to the Federal Audit Clearinghouse on May 10, 2024 and management will submit the Data Collection Form timely going forward.

Condition: Approximately one and one-half months of net rental revenue for April 14, 2020 to May 31, 2020 was not deposited into the Organization?s operating cash account as of December 31, 2020. Additionally, the tenant security deposit cash account was not properly funded at April 14, 2020 and through December 31, 2020. Criteria: In accordance with the 2 CFR Part 200, Appendix XI Compliance Supplement, all rents and other receipts will be deposited into the Project?s fund receipts account established in a federally insured deposit. Additionally, the HUD Regulatory agreement requires any funds collected as security deposits shall be kept (a) separate and apart from all other funds of the Project; (b) in interest bearing trust accounts, to the extent required by State or local law; and (c) in an amount which shall at all times equal or exceed the aggregate of all outstanding obligations under said account. Effect: The operating cash account and tenant security deposit cash accounts remained underfunded by $62,522 and $17,356, respectively, as of December 31, 2020. Cause: Management did not fully implement or monitor results of its transition accounting reconciliation procedures and review processes. Recommendation: Management should ensure all owner transition account reconciliation procedures and reviews take place, so the proper cut-off and determination of completeness of accounting records and transfers of funds occur in a timely manner. Management should also regularly monitor the balance of the tenant security deposit cash accounts to ensure that at all times it equals or exceeds the current balance of tenant security deposit liability account. Client Response: Management agrees with the finding item 2020-2. Management will implement the suggested review processes. It should be noted that there was adequate funds within the operating cash account to fund the $17,356 as of December 31, 2020. On March 29, 2021, the Organization received $62,522 from the affiliate entity which was deposited into the operating cash account. Additionally, funds of $17,356 were transferred from the Project?s operating cash account to the tenant security deposit cash account on March 29, 2021.

Condition: During the period from April 14, 2020 to December 31, 2020, the Organization inadvertently paid a loan payment and an operating expense on the behalf of two affiliated entities. Criteria: In accordance with the HUD Regulatory agreement, no affiliate of the Organization will receive or retain any distributions of assets or any income of any kind of the Project, except from surplus cash or in accordance with program obligations. Effect: Unauthorized distributions of $4,967 and $2,220 were made on behalf of two affiliates. Cause: Management did not fully implement its monitoring of disbursements to ensure they were supported by approved invoices, bills, or other supporting documentation; the supporting documents were in the name of the Project; and the costs were reasonable and necessary for the operation of the Project. Recommendation: Management more closely monitor all disbursements to ensure they are expenses of the Project prior to paying. Client Response: Management agrees with the finding item 2020-3. Management will more closely monitor all disbursements from Project funds. One affiliate repaid $4,967 in January 2021. The other affiliate repaid $2,220 in late June 2021.