LINCOLN SCHOOL SENIOR APARTMENTS

FINDINGS – MAJOR FEDERAL AWARD PROGRAMS AUDIT DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT S3800-010 Finding Reference Number 2026-001 – Inadequate Documentation of Supervisory Review and Compliance Oversight of Tenant Certifications S3800-011 Title and Assistance Listing Number of Federal Program - 14-157 Supportive Housing for the Elderly S3800-015 Type of Finding - Federal Award Finding S3800-016 Finding Resolution Status – In Process S3800-017 Information on Universe Population Size – 43 rental units S3800-018 Sample Size Information – 7 rental units S3800-019 Identification of Repeat Finding and Finding Reference Number – Not Applicable S3800-020 CRITERIA: 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain effective internal control over Federal awards that provides reasonable assurance the entity is managing Federal awards in compliance with Federal statutes, regulations, and the terms and conditions of the award. Internal controls should be consistent with the principles in the GAO Standards for Internal Control in the Federal Government (Green Book) or the COSO Internal Control–Integrated Framework. HUD Handbook 4350.3, REV-1, Change 4 requires owners and management agents to: • Verify household income, assets, and eligibility prior to completing certifications; • Ensure tenant certifications are accurate and compliant with HUD requirements through appropriate supervisory or compliance review; • Maintain documentation supporting eligibility determinations and certifications within each tenant file. S3800-030 STATEMENT OF CONDITION: A review of tenant certification files identified deficiencies in the design and operation of internal controls over supervisory review of tenant certifications. The population consisted of 43 tenant units, from which a sample of seven (7) tenant files was selected for testing. Four (4) of the seven (7) files reviewed lacked sufficient evidence that tenant certifications received an independent supervisory or compliance review prior to the certification effective date. Specifically, tenant files lacked documentation demonstrating review and approval of income and asset calculations, including supervisory approval signatures, review checklists, approval stamps, electronic approvals, or other evidence that an independent review was completed before certifications became effective. As a result, management could not demonstrate that key compliance controls operated as designed to detect and prevent errors before certifications were finalized. S3800-032 CAUSE: Management transitioned to a new independent compliance review provider and although the written procedures for defining supervisory review responsibilities, documentation standards or approval requirements did not change, management did not ensure site personnel consistently followed the standardized procedures for documenting supervisory reviews and approvals. As a result, supervisory review controls were inconsistently applied and documentation supporting management oversight was not consistently maintained. S3800-033 EFFECT OR POTENTIAL EFFECT: Because documented supervisory review controls were not consistently performed or retained: • Audit testing identified multiple undetected certification errors attributable to weaknesses in supervisory review. • Weaknesses in supervisory review also contributed to incomplete move-in documentation. • The deficiencies increase the risk of improper Housing Assistance Payments (HAP), tenant rent miscalculations, HUD noncompliance, repeat audit findings, and potential repayment obligations. S3800-035 Auditor Non-Compliance Code - (S) Internal Control Deficiencies S3800-040 Questioned Costs Questioned costs were not quantified during this audit. However, because supervisory review controls were not consistently documented or performed, management cannot demonstrate that tenant certifications were properly reviewed prior to certification. As a result, there is an increased risk that improper Housing Assistance Payments were made. Any repayment obligation would depend upon the results of recalculating affected tenant certifications. Property(s) and associated questioned costs this finding applies to: S3800-037 FHA/Contract Number - 127EE034 S3800-038 Questioned Costs - $0 S3800-045 REPORTING VIEWS OF RESPONSIBLE OFFICIALS: Management will endeavor to check files at the site level to ensure that the approval of each certification is retained on file. Management will work with the site managers and the compliance reviewing company to ensure accuracy of certifications, verifications and rent calculations. The deficiencies found in the files audited will be corrected by Compliance and the site manager and reviewed by the Affordable Housing Director for completion and accuracy. S3800-050 CONTEXT See statement of condition and effect. S3800-080 RECOMMENDATION We recommend management: 1. Enforce written policies and procedures requiring documented independent supervisory or compliance review of all tenant certifications prior to certification approval. 2. Require documentation of supervisory approval, electronic workflow approvals, or other verifiable documentation, to be retained in each tenant file. 3. Implement ongoing monitoring activities, including periodic quality control reviews and internal testing of tenant certifications, to verify that supervisory review controls are operating effectively and deficiencies are promptly corrected. S3800-090 Auditor's Summary of the Auditee's Comments on the Findings and Recommendations Management will endeavor to check files at the site level to ensure that the approval of each certification is retained on file. Management will work with the site managers and the compliance reviewing company to ensure accuracy of certifications, verifications and rent calculations. The deficiencies found in the files audited will be corrected by Compliance and the site manager and reviewed by the Affordable Housing Director for completion and accuracy. S3800-130 Response Indicator – Agree S3800-140 Completion Date – 6/29/2026 S3800-150 Response Management concurs with the finding and has taken appropriate corrective action as indicated previously.

SUMMARY OF AUDIT RESULTS 1. The auditor?s report expresses an unmodified opinion on whether the financial statements of Lincoln School Senior Apartments are prepared and presented in accordance with U.S. generally accepted accounting principles. 2. No material weaknesses or significant deficiencies were identified during the audit of the financial statements. 3. No instances of noncompliance material to the financial statements of Lincoln School Senior Apartments were disclosed during the audit. 4. No material weaknesses or significant deficiencies were identified during the audit of the major federal awards program. 5. The auditor?s report on compliance for major federal awards programs for Lincoln School Senior Apartments expresses an unmodified opinion. 6. There were audit findings relative to the major federal program for Lincoln School Senior Apartments that are required to be reported in accordance with 2 CFR Section 200.516(a) reported in this schedule as Finding 2022-001. 7. The program tested as a major program included: CFDA #14-157 HUD Section 202 - Supportive Housing for the Elderly. 8. The threshold for distinguishing Types A and B programs was $750,000. 9. Lincoln School Senior Apartments was not determined to be a low-risk auditee. FINDINGS ? FINANCIAL STATEMENTS AUDIT NONE. FINDINGS ? MAJOR FEDERAL AWARD PROGRAMS AUDIT DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT S3800-010 Finding Reference Number 2022-001 S3800-011 Title and CFDA Number of Federal Program - 14-157 Supportive Housing for the Elderly S3800-015 Type of Finding - Federal Award Finding S3800-016 Finding Resolution Status - Resolved S3800-017 Information on Universe Population Size ? Not Applicable S3800-018 Sample Size Information ? Not Applicable DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (Continued) S3800-010 Finding Reference Number 2022-001(Continued) S3800-019 Identification of Repeat Finding and Finding Reference Number - Not Applicable S3800-020 Criteria ? The HUD Regulatory Agreement requires monthly deposits to a replacement reserve account. S3800-030 Statement of Condition ? All of the deposits were made at year end, but due to availability of funds, three of the twelve deposits were made late. S3800-032 Cause ? Because the Project did not always have sufficient funds to make the required deposit, some deposits were delayed. By the end of the fiscal year all of the deposits had been made. S3800-033 Effect or Potential Effect ? Management did not always follow the requirements of the regulatory agreement of making monthly deposits. S3800-035 Auditor Non-Compliance Code - (N) Replacement Reserve Deposits under Special Tests and Provisions S3800-040 Questioned Costs - $0 S3800-045 Reporting Views of Responsible Officials - Management applied for and received a significant rent increase from HUD that should help improve liquidity so that sufficient funds are available to make the required reserve deposit when due. Property(s) and associated questioned costs this finding applies to: S3800-037 FHA/Contract Number - 127EE034 S3800-038 Questioned Costs - $0 S3800-050 Context ? See statement of condition. S3800-080 Recommendation - Management has taken steps to improve liquidity so that sufficient funds should be available for monthly deposits. Management should ensure those deposits are made monthly. S3800-090 Auditor's Summary of the Auditee's Comments on the Findings and Recommendations - Management concurs with the auditor?s recommendation, and has taken corrective actions to improve liquidity so sufficient funds are available to make the deposits monthly. S3800-130 Response Indicator - Agree S3800-140 Completion Date ? June 20, 2022 S3800-150 Response - Management has taken corrective action and concurs with the auditor?s recommendation.

S3800-010 Finding Reference Number 2020-001 (Repeat Finding) S3800-011 Title and CFDA Number of Federal Program - 14-157 Supportive Housing for the Elderly S3800-015 Type of Finding - Federal Award Finding S3800-016 Finding Resolution Status - Resolved S3800-011 Title and CFDA Number of Federal Program - 14-157 Supportive Housing for the Elderly S3800-017 Information on Universe Population Size - 43 Rental Unit Tenant Files S3800-018 Sample Size Information - 8 Rental Unit Tenant Files S3800-019 Identification of Repeat Finding and Finding Reference Number ? 2019-001 S3800-020 Criteria - 24 CFR Section 891.410(c)(1) requires the entity to provide documented evidence of eligibility of applicants for the HUD program prior to move-in. Relevant HUD requirements include HUD Handbook 4350.3 Chapter 3 Eligibility. S3800-030 Statement of Condition - 1. One household did not meet the income limit guidelines at move-in, causing the unit to be ineligible under program requirements due to improperly verified assets and income of the tenant. 2. In 4 out of 8 files tested, the six-month average of cash account balances not properly computed which could lead to improper rent calculations. 3. In 2 out of 8 files tested, medical expenses were improperly documented or computed which could lead to improper rent calculations. S3800-032 Cause - Management is not routinely following all HUD regulations regarding the calculation of rent, such as using a six-month average of all bank accounts, or is not properly documenting medical expenses, income and assets. S3800-033 Effect or Potential Effect ? An Ineligible tenant was housed. Discrepancies in income verifications and errors made by management in calculation of income also occurred. In some cases, documentation was incomplete it is not possible to project the amount of potential error in tenant rent and subsidy payments. S3800-035 Auditor Non-Compliance Code - (S) Internal Control Deficiencies S3800-040 Questioned Costs - $0 S3800-045 Reporting Views of Responsible Officials - Management has hired third party professional management experienced with HUD programs to ensure proper compliance. The new management agent has been approved by HUD and started management effective November 1, 2019. The unqualified tenant relocated on July 30, 2020. The management agent?s system of internal control includes policies and procedures to prevent this noncompliance from occurring. Property(s) and associated questioned costs this finding applies to: S3800-037 FHA/Contract Number - 127EE034 S3800-038 Questioned Costs - $0 S3800-050 Context ? A total of 8 rental unit tenant files out of a population of 43 rental unit tenant files were tested for eligibility requirements and proper rent calculations. The conditions noted as specified in the statement of condition has resulted in an applicant being granted admission that is not eligible for HUD assistance or to participate in the HUD program at move-in. This occurred prior to the new management agent being hired. S3800-080 Recommendation ? Due to the continued noncompliance with regard to documentation requirements of eligibility and the difficulty encountered by management to find qualified personnel to properly self-manage, we recommended management consider seeking HUD experienced professional third-party management. The unqualified tenant moved in prior to the hiring of the new management agent. S3800-090 Auditor's Summary of the Auditee's Comments on the Findings and Recommendations - Management has made the determination to hire third party management experienced with HUD programs to ensure proper compliance. Pan Pacific Properties has been approved by HUD as the management agent, and began managing the property effective November 1, 2019. The unqualified tenant relocated on July 30, 2020. S3800-130 Response Indicator - Agree S3800-140 Completion Date ? July 31, 2020 S3800-150 Response - Management concurs with the auditor?s recommendation, and has hired a third-party management experienced with HUD programs to assist with compliance with HUD program requirements.

FINDINGS ? FEDERAL AWARDS PROGRAMS AUDITS DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT S3800-010 Finding Reference Number 2019-001 (Repeat Finding) S3800-011 Title and CFDA Number of Federal Program - 14-157 Supportive Housing for the Elderly S3800-015 Type of Finding - Federal Award Finding S3800-016 Finding Resolution Status - In Process S3800-010 Finding Reference Number 2019-001 (Repeat Finding)(Continued) S3800-011 Title and CFDA Number of Federal Program - 14-157 Supportive Housing for the Elderly S3800-017 Information on Universe Population Size - 43 Rental Unit Tenant Files S3800-018 Sample Size Information - 8 Rental Unit Tenant Files S3800-019 Identification of Repeat Finding and Finding Reference Number ? 2018-003 S3800-020 Criteria - 24 CFR Section 891.410(c)(1) requires the entity to provide documented evidence of eligibility of applicants for the HUD program prior to move-in. Relevant HUD requirements include HUD Handbook 4350.3 Chapter 3 Eligibility, Chapter 9 EIV Regulations, HUD Screening and Eviction and Sex Offender Screening requirements and HUD Notices 2002-22 and 2012-11. S3800-030 Statement of Condition - 1. Required HUD screening for Sex Offender status in all state?s applicant is known to have lived is missing from 2 of the 8 tenant files required to contain this information 2. Proof of utilization of the required EIV Existing Tenant Search report is missing from 6 of the 8 tenant files required to contain this information S3800-032 Cause - Management is not routinely following all HUD regulations regarding initial eligibility and admission. S3800-033 Effect or Potential Effect ? Ineligible tenants could be admitted and/or discrepancies in income reporting by tenants or errors made by management in calculation of certifications may occur by not properly utilizing the EIV system for verification as required. S3800-035 Auditor Non-Compliance Code - (S) Internal Control Deficiencies S3800-040 Questioned Costs - $0 S3800-045 Reporting Views of Responsible Officials - Management has made the determination to hire third party management experienced with HUD programs to ensure proper compliance. The interviewing process began as of the date the financial statements were available to be issued. Property(s) and associated questioned costs this finding applies to: S3800-037 FHA/Contract Number - 127EE034 S3800-038 Questioned Costs - $0 S3800-010 Finding Reference Number 2019-001 (Repeat Finding)(Continued) S3800-011 Title and CFDA Number of Federal Program - 14-157 Supportive Housing for the Elderly S3800-050 Context ? A total of 8 rental unit tenant files out of a population of 43 rental unit tenant files were tested for eligibility requirements and proper rent calculations. The conditions noted as specified in the statement of condition could result in applicants being granted admission that may not be eligible for HUD assistance or to participate in the HUD program at move-in. S3800-080 Recommendation - Management should review HUD regulations regarding sex offender status, eligibility requirements and the proper use of the HUD EIV system, and implement controls to ensure proper use of the EIV system, and address the deficiencies noted in the statement of condition section with the following corrective actions: 1. Begin screening criteria to include screening for sex offender status in all states the applicant is known to have lived to prevent admission of tenants with disqualifying sex offender status. 2. Design controls to ensure proof of utilization of the EIV Existing Tenant Search Report exists in each tenant file in accordance with HUD guidelines and ensure that such reports are created in a timely manner. 3. Obtain verification of age and/or social security number for eligibility with age or disability qualification requirements of admission. S3800-090 Auditor's Summary of the Auditee's Comments on the Findings and Recommendations - Management has made the determination to hire third party management experienced with HUD programs to ensure proper compliance. The interviewing process began as of the date the financial statements were available to be issued. S3800-130 Response Indicator - Agree S3800-140 Completion Date ? September 6, 2019 S3800-150 Response - Management concurs with the auditor?s recommendation, and has made the determination to hire third party management experienced with HUD programs to assist with compliance with HUD program requirements.

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