HOGAR SANTA ROSA (A DIVISION OF CLINICA SANTA ROSA, INC.)Non-Profit

FINDING NO. 2020-001 MORTGAGOR ELIGIBILITY Federal Program Name Supportive Housing for the Elderly (Section 202) Name of Federal Agency U.S. Department of Housing and Urban Development (HUD) Pass-through Entity N/A Criteria The U.S. Department of Housing and Urban Development (HUD) rules and regulations states that an eligible mortgagor (24 CFR sections 200.5): ?Shall be a single asset mortgagor entity acceptable to the Commissioner, as limited by the applicable section Act, and shall possess the powers necessary and incidental to operating the Project, except that the Commissioner may approve a non-single asset mortgagor entity under such circumstances, terms and conditions determined and specified as acceptable to the Commissioner?. Condition Due to Clinica Santa Rosa, Inc. filed a bankruptcy petition, Hogar Santa Rosa?s assets have been included as part of the bankruptcy proceedings. Currently there is no active eligible single asset mortgagor entity approved by HUD with the powers to operate the project. Cause The ownership of the Hogar Santa Rosa?s assets is still with Clinica Santa Rosa, Inc. Management is aware of the requirement and has submitted and requested approval from the Department of Housing and Urban Development (HUD) for a transfer of physical assets (TPA) to a separate entity known as Hogar Santa Rosa, Inc. Effect Hogar Santa Rosa is not complying with the requirements set forth by federal regulations, which could affect the future of its federal grants and the Project?s operations in accordance with federal requirements. Questioned Costs No questioned costs. Context The assets and liabilities of Hogar Santa Rosa were never transferred to a legal entity separated from Clinica Santa Rosa, Inc. Therefore, they were included within the bankruptcy procedures which impair Clinica Santa Rosa, Inc. to operate the Project. The Project?s assets cannot continue to be part of the assets of Clinica Santa Rosa, Inc. Identification of a repeat finding Yes Recommendation Management should follow up and/or may continue in the process to obtain the approval from the U.S. Department of Housing and Urban Development (HUD) for a transfer of physical assets (TPA) to Hogar Santa Rosa, Inc. and release them from the bankruptcy procedures of Clinica Santa Rosa, Inc. Views form responsible officials Recommendation accepted. Management is following up and still working in the process to obtain the final approval from the U.S. Department of Housing and Urban Development (HUD) for the transfer of physical assets (TPA) to Hogar Santa Rosa, Inc.

FINDING NO. 2019-001 MORTGAGOR ELIGIBILITY Federal Program Name Supportive Housing for the Elderly (Section 202) Name of Federal Agency U.S. Department of Housing and Urban Development (HUD) Pass-through Entity N/A Criteria The U.S. Department of Housing and Urban Development (HUD) rules and regulations states that an eligible mortgagor (24 CFR sections 200.5): ?Shall be a single asset mortgagor entity acceptable to the Commissioner, as limited by the applicable section Act, and shall possess the powers necessary and incidental to operating the Project, except that the Commissioner may approve a non-single asset mortgagor entity under such circumstances, terms and conditions determined and specified as acceptable to the Commissioner?. Condition Due to Clinica Santa Rosa, Inc. filed a bankruptcy petition, Hogar Santa Rosa?s assets have been included as part of the bankruptcy proceedings. Currently there is no active eligible single asset mortgagor entity approved by HUD with the powers to operate the project. Cause The ownership of the Hogar Santa Rosa?s assets is still with Clinica Santa Rosa, Inc. Management is aware of the requirement and has submitted and requested approval from the Department of Housing and Urban Development (HUD) for a transfer of physical assets (TPA) to a separate entity known as Hogar Santa Rosa, Inc. Effect Hogar Santa Rosa is not complying with the requirements set forth by federal regulations, which could affect the future of its federal grants and the Project?s operations in accordance with federal requirements. Questioned Costs No questioned costs. Context The assets and liabilities of Hogar Santa Rosa were never transferred to a legal entity separated from Clinica Santa Rosa, Inc. Therefore, they were included within the bankruptcy procedures which impair Clinica Santa Rosa, Inc. to operate the Project. The Project?s assets cannot continue to be part of the assets of Clinica Santa Rosa, Inc. Identification of a repeat finding Yes Recommendation Management should follow up and/or may continue in the process to obtain the approval from the U.S. Department of Housing and Urban Development (HUD) for a transfer of physical assets (TPA) to Hogar Santa Rosa, Inc. and release them from the bankruptcy procedures of Clinica Santa Rosa, Inc. Views form responsible officials Recommendation accepted. Management is following up and still working in the process to obtain the final approval from the U.S. Department of Housing and Urban Development (HUD) for the transfer of physical assets (TPA) to Hogar Santa Rosa.

FINDING NO. 2019-002 ELIGIBILITY Federal Program Name Section 8 Housing Assistance Payments Program Name of Federal Agency U.S. Department of Housing and Urban Development (HUD) Pass-through Entity N/A Criteria According to 24 CFR part 982.204, the participants, except for special admissions, must be selected from the Public Housing Agency (PHA) or private non-profit entity that was administering a Section 8 tenant-based assistance program?s waiting list. The PHA or private non-profit entity must select participants in the waiting list in accordance with the admission policies in its administrative plan and maintain documentation which shows that, at the time of admission, the family met the preference criteria that determined the family?s place in the waiting list. Condition The Project did not include in its waiting list a participant?s application which was moved in to the Project during the current year. Cause During the year ended June 30, 2019, the management of the Hogar Santa Rosa did not include in the waiting list a participant?s application as per its policies and procedures. Management was not able to detect this omission. Effect As a result of this omission, no previous or subsequent participants? application and/or eligibility in the waiting list were affected since these eligible participants moved-in before and after the move-in date of the participant that was omitted in the waiting list. Questioned Costs No questioned costs. Context Of the twenty (20) move-ins during the year ended June 30, 2019, we selected four (4) participants for testing and noted one (1) instance of noncompliance. Identification of a repeat finding No Recommendation We recommend to management to review participants? eligibility and to monitor the participants? waiting list in order to accommodate the participant in the correct order and eligibility according to Hogar Santa Rosa?s policies and procedures. Views of responsible officials Recommendation accepted. The participant?s application was not included in the waiting list because there was no other applicant in the waiting list, notwithstanding, J.A Machuca & Associates, Inc., as Management Agent of Hogar Santa Rosa, will revise the design of internal control activities and implement procedures to avoid these omissions or errors in the waiting list.

FINDING NO. 2019-003 SPECIAL TESTS AND PROVISIONS - Wage Rate Requirements Federal Program Name Supportive Housing for the Elderly (Section 202) Name of Federal Agency U.S. Department of Housing and Urban Development (HUD) Pass-through Entity N/A Criteria All laborers and mechanics employed by contractors or subcontractors to work on construction contracts in excess of $2,000 financed by Federal assistance funds must be paid wages not less than those established for the locality of the project (prevailing wage rates) by the Department of Labor (DOL) (40 USC 3141-3144, 3146, and 3147). Non-federal entities shall include in their construction contracts subject to the Wage Rate Requirements (which still may be referenced as the Davis-Bacon Act) a provision that the contractor or subcontractor comply with those requirements and the DOL regulations (29 CFR part 5, Labor Standards Provisions Applicable to Contacts Governing Federally Financed and Assisted Construction). This includes a requirement for the contractor or subcontractor to submit to the non-Federal entity weekly, for each week in which any contract work is performed, a copy of the payroll and a statement of compliance (certified payrolls) (29 CFR sections 5.5 and 5.6; the A-102 Common Rule (?___.36(i)(5)); OMB Circular A-110 (2 CFR part 215, Appendix A, Contract Provisions); 2 CFR part 176, subpart C; and 2 CFR section 200.326). Condition The Hogar Santa Rosa?s construction/repair contract related to plumbing repairs includes a general clause indicating compliance with laws and regulations, without specifying this provision in particular. Cause The Hogar Santa Rosa?s construction/repair contract does not include a provision that the contractor or subcontractor comply with the wage rate requirements and the DOL regulations. Effect Hogar Santa Rosa is not complying with the requirements set forth by federal regulations, which could affect the future of its federal grants. Questioned Cost No questioned costs. Context In one out of one contract examined, we noted an instance of non-compliance. The Hogar Santa Rosa?s construction/repair contract must be revised to include those clauses required by federal regulations. Identification of a repeat finding No Recommendation The Hogar Santa Rosa?s construction/repair contracts must include the prevailing wage rate clauses to be in compliance with HUD?s requirements. Management should revise active contracts and potential future contracting to ascertain that such information is included as part of the contracts? clauses. Views of Responsible Officials Recommendation accepted. The Hogar Santa Rosa?s construction/repair contract has been revised in order to include the prevailing wage rate clauses to be in compliance with HUD?s requirements.

Finding Number: 2019-004 PROCUREMENT AND SUSPENSION AND DEBARMENT Federal Program Name Supportive Housing for the Elderly (Section 202) Name of the Federal Agency U.S. Department of Housing and Urban Development (HUD) Pass-through entity N/A Criteria Non-Federal entities are prohibited from contracting with or making subawards under covered transactions to parties that are suspended or debarred. ?Covered transactions? include contracts for goods and services awarded under a non-procurement transaction (e.g., grant or cooperative agreement) that are expected to equal or exceed $25,000 or meet certain other criteria as specified in 2 CFR section 180.220. All nonprocurement transactions entered into by a pass-through entity (i.e. subawards to subrecipients), irrespective of award amount, are considered covered transactions, unless they are exempt as provided in 2 CFR section 180.215. When a non-Federal entity enters into a covered transaction with an entity at a lower tier, the non-Federal entity must verify that the entity, as defined in 2 CFR section 180.995 and agency adopting regulations, is not suspended or debarred or otherwise excluded from participating in the transaction. This verification may be accomplished by (1) checking the Excluded Parties List System (EPLS) maintained by the General Services Administration (GSA), (2) collecting a certification from the entity, or (3) adding a clause or condition to the covered transaction with that entity (2 CFR section 180.300). Condition Hogar Santa Rosa entered into a construction repair contract with a third party without evaluating and determining if the third party selected is not debarred or suspended. Cause Hogar Santa Rosa has not established formal procedures to verify, before contracting, that the third party is not debarred or suspended. Effect Without proper internal controls, the risk increases that Hogar Santa Rosa enters into contracts with third parties or contractors that were included in the Excluded Parties List System (EPLS) and thus having the Project to reimburse the federal funds disbursed. Questioned Costs No questioned costs. Context In one out of one contract examined, we noted an instance of non-compliance. The Hogar Santa Rosa?s construction/repair contract must be revised to determine if the Project verified that the contractor was not debarred or suspended. Identification of a repeat finding No Recommendation We recommend to Hogar Santa Rosa to include, as part of the internal control process, to evaluate and verify, before contracting with a third party or contractor, that the third party or contractor is excluded from the Excluded Parties List System (EPLS) or collect a certification from the third party or contractor or adding a clause or condition to the covered transaction with that third party or contractor according to 2 CFR 180.300. Views of Responsible Officials Recommendation accepted. J.A. Machuca & Associates, Inc., as Management Agent of Hogar Santa Rosa, as part of its internal control process will evaluate and verify, before contracting an entity if it is not suspended or debarred or otherwise excluded from participating in such process.

Finding Number: 2019-005 ACTIVITIES ALLOWED OR UNALLOWED and ALLOWABLE COSTS AND COST PRINCIPLES Federal Program Name Supportive Housing for the Elderly (Section 202) Name of Federal Agency U.S. Department of Housing and Urban Development (HUD) Pass-through entity N/A Criteria According to Title 2, Part 200, Subpart E, section 200.405 related to Allocable Costs, a cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to the Federal award or cost objective in accordance with the benefits received. Paragraph (d) states that if a cost benefits two or more projects or activities in proportions that can be determined without undue effort or cost, the cost must be allocated to the projects based on the proportional benefit. If a cost benefits two or more projects or activities in proportions that cannot be determined because of the interrelationship of the work involved, then, notwithstanding paragraph (c) of this section, the costs may be allocated or transferred to benefitted projects on any reasonable documented basis. Condition The Project was charged as part of its expenses 75% of the total annual renewal subscription of an accounting software that it is also used for other external entity not related to the Project. Such prorated charges did not include the proper documentation evidencing that the estimated or current use of the accounting software of the Project was indeed 75%. Cause Hogar Santa Rosa shares the software with other entity. The software is able to have several entities as part of list of clients. Effect The absence of a factible cost allocation process might cause that the Project be over or under charged of such costs. Questioned Costs $1,742 Context Of the eight-hundred and ninety-seven (897 debits to the accounts) expenses recorded by the Project, we selected twenty-five (25 debits) expense transactions in which we noted one (1) noncompliance. Identification of a repeat finding No Recommendation Management should establish factible allocation basis for such shared services/goods and ascertain that they are determined according to federal regulations. Views of responsible officials Recommendation accepted. J.A. Machuca & Associates, Inc., as Management Agent of Hogar Santa Rosa, will ensure to analyze and determine the reasonability of the allocation of an expense, thus it is allocated to the Project based on the proportional benefit.

Finding Number: 2019-006 SPECIAL TESTS AND PROVISIONS - Replacement Reserve Federal Program Name Supportive Housing for the Elderly (Section 202) Section 8 Housing Assistance Payments Program Name of Federal Agency U.S. Department of Housing and Urban Development (HUD) Pass-through entity N/A Criteria 24 CFR section 891.605 indicates that the Project shall make monthly deposits to the replacement reserve in an amount determined by HUD. Also, replacement reserve funds must be deposited with HUD or in a Federally insured depository in an interest-bearing account(s) whose balances are fully insured at all times. All earnings including interest on the reserve must be added to the reserve. Condition The Project did not deposit on a timely basis the monthly deposit for the months of October and December 2018. These amounts were deposited in November 2018 and March 2019, respectively. Cause The issuance of the checks was delayed waiting for the authorization and signature of management members of Hogar Santa Rosa. Effect The replacement reserve account had a deficiency of $2,222 in the months of October and December 2018, respectively. Questioned Costs No questioned costs since the Project fully deposited those deficiencies before June 30, 2019. Context Condition observed in two months of the twelve-monthly deposits. Identification of a repeat finding Yes Recommendation Hogar Santa Rosa should ensure to make the monthly deposit to the replacement reserve in a timely matter. Also, must maintain the reserve at the level determined by HUD, to be sufficient to meet projected requirements. Views from responsible officials Recommendation accepted. J.A. Machuca & Associates, Inc., as Management Agent of Hogar Santa Rosa, will ensure to make the monthly deposit of the replacement reserve account in a timely manner and in the amount determined by HUD. We will also maintain the reserve at the level determined by HUD, to be sufficient to meet projected requirements in order to avoid future findings.

Finding Number: 2019-007 SPECIAL TESTS AND PROVISIONS - Residual Receipts Account Federal Program Name Supportive Housing for the Elderly (Section 202) Section 8 Housing Assistance Payments Program Name of Federal Agency U.S. Department of Housing and Urban Development (HUD) Pass-through entity N/A Criteria 24 CFR section 891.400(e) indicates that any remaining project fund in the project funds account (including interest earned) following the expiration of the fiscal year shall be deposited in a federally-insured residual receipts account within 60 days following the end of the fiscal year. Condition The Project did not deposit on a timely basis (within 60 days following the end of prior fiscal year) the amount of $45,481 to the residual receipts reserve bank account. Actual amount was deposited on November 5, 2018 which represents 128 days following the end of its prior fiscal year. Cause Hogar Santa Rosa waited for external consultants to calculate and confirm final results to determine if any amount should be deposited to the residual receipts account. Effect The residual receipt account had a deficiency of $45,481 including interest. Questioned Costs No questioned costs since the Project fully deposited the deficiency on November 5, 2018. Context Condition observed in this period with the prior year residual receipt payment (for the year ended June 30, 2018) made on November 5, 2018. Identification of a repeat finding Yes Recommendation Management should ensure to have the necessary procedures in place to make the residual receipts payment within 60 days following the end of the fiscal year by calculating the Computation of Surplus Cash, Distributions and Residual Receipts according HUD regulations. Views of responsible officials Recommendation accepted. J.A. Machuca & Associates, Inc., as Management Agent of Hogar Santa Rosa, will ensure to make the annual computation of surplus cash and the residual receipts payment within 60 days following the end of the fiscal year according to federal regulations.

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