BICENTENNIAL APARTMENTS, INC.

Significant Deficiency in Internal Controls over Compliance/Compliance with Regulations – Federal Awards Compliance – Allowable Costs Criteria: Under the Code of Federal Regulations Title 2, Part 2, Subpart E, Section 200.438: Costs of entertainment, including amusement, diversion, and social activities and any associated costs are unallowable, except where specific costs that might otherwise be considered entertainment have a programmatic purpose and are authorized either in the approved budget for the Federal award or with prior written approval of the Federal awarding agency. Condition: The Project has paid for tenant cable with federal funds in a bulk package where not all of the costs was covered by the tenants. Context: The Project was not fully aware that cable was considered an entertainment expense, and therefore unallowed under Federal regulations. Cause: The Project did not have sufficient controls in place to ensure the allowability of expenses being paid under Federal regulations were appropriate. Effect: The Project was not in compliance with the Code of Federal Regulations Title 2, Part 2, Subpart E, Section 200.438. Recommendation: The Project should develop adequate controls over compliance in relation to allowability to allow the Project comply with Federal regulations regarding the use of cash received through Federal awards. Auditee Response/Corrective Action Plan: See pages 37. Significant Deficiency in Internal Controls over Compliance/Compliance with Regulations – Federal Awards Compliance – Allowable Costs Federal Program: ALN 14.157 – Supportive Housing for the Elderly Pass-Through Entity: U.S. Housing and Urban Development Award Number: 103-HD010-NP-CMI Compliance Requirements: Allowable Costs Type of Finding: Significant Deficiency in Internal Control over Compliance Criteria: See Part II, Finding 2023-001 Condition and Context: See Part II, Finding 2023-001 Questioned Costs: N/A Cause: See Part II, Finding 2023-001 Effect or Potential Effect: See Part II, Finding 2023-001 Recommendation: See Part II, Finding 2023-001 Repeat Finding: N/A Responsible Official’s Response and Corrective Action Plan: See Page 37, Finding 2023-001 Planned Implementation Date: See Page 37, Finding 2023-001 Person Responsible for Corrective Action: Director of Finance

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT SUPPORTIVE HOUSING FOR THE ELDERLY (ASSISTANCE LISTING #14.157) Significant Deficiency Internal Control over Compliance Lack of Effective Internal Control System over Residual Receipts 2021-002 Condition: The Organization lacks an appropriate system of internal control to ensure the annual residual receipt deposit of surplus cash is made by the required 60-day timeframe. Criteria: The U.S. Department of Housing and Urban Development requires the annual residual receipt deposit of surplus cash be made within 60 days following year-end. Cause: The Organization has not established an effective system of internal control over residual receipt requirements. The Organization?s current process is to deposit surplus cash after receiving the initial HUD Assessment of Electronic Submission of Annual Financial information. This is not an effective control because the assessment is not always received within 60 days after year-end. Effect: The Organization did not deposit surplus cash within 60 days after year-end. Repeat Finding: This finding was reported in a prior year as 2019-003. Auditor?s Recommendation: We recommend management develop a system of internal control to ensure the annual residual receipts deposit of surplus cash is deposited within the required timeframe. View of Management: Management agrees with the finding. A response can be found in the Corrective Action Plan.

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT SUPPORTIVE HOUSING FOR THE ELDERLY (ASSISTANCE LISTING #14.157) Material Weakness Internal Control over Compliance and Noncompliance Drafting the Financial Statements, Related Notes, and Schedule of Expenditures of Federal Awards 2021-003 See finding 2021-001 for the condition, criteria, cause, effect, repeat finding, auditor?s recommendation, and view of management.

Condition: The Organization requests its auditor to draft the year-end financial statements, accompanying notes to the financial statements, and Schedule of Expenditures of Federal Awards. Criteria: Establishing internal controls over the preparation of the financial statements and drafting the financial statements are the responsibility of management. The Organization should have an internal control system in place related to the preparation of the financial statements. In addition, the Uniform Guidance requires the auditee to prepare appropriate financial statements in accordance with section 200.510. Cause: The Organization does not have an internal control system in place to prepare the financial statements, which is common for an Organization of this size due to the limited number of office staff. Effect: The Organization engages its auditor to draft the financial statements, notes to the financial statements, and Schedule of Expenditures of Federal Awards. There is a risk that errors may occur and not be detected. Repeat Finding: This finding was reported in the prior year as 2019-005.Auditor?s Recommendation: It is the responsibility of management and those charged with governance to decide whether to accept the degree of risk associated with the Organization?s auditor drafting the financial statements, notes to the financial statements, and Schedule of Expenditure of Federal Awards because of the cost or other considerations. The Organization should continually work to expand on the information provided to the auditor in drafting the financial statements and perform a thorough review of the drafted financial statements, which includes reconciling information to the underlying documentation provided by management and other supporting schedules. If the Organization chooses not to accept this risk, a third-party accountant should be engaged to prepare a draft of the financial statements, related notes, and Schedule of Expenditures of Federal Awards. View of Management: Management agrees with the finding. A response can be found in the Corrective Action Plan.

Condition: The Organization lacks an appropriate system of internal control to ensure the annual residual receipt deposit of surplus cash is made by the required 60-day timeframe. Criteria: Housing and Urban Development requires the annual residual receipt deposit of surplus cash be made within 60 days following year-end. Cause: The Organization has not established an effective system of internal control over residual receipt requirements. The Organization?s current process is to deposit surplus cash after receiving the initial the HUD Assessment of Electronic Submission of Annual Financial information. This is not an effective control because the assessment is not always received within 60 days after year-end. Effect: The Organization did not deposit surplus cash within 60 days after year-end. Repeat Finding: No. Auditor?s Recommendation: We recommend management develop a system of internal control to ensure the annual residual receipts deposit of surplus cash is deposited within the required timeframe. View of Management: Management agrees with the finding. A response can be found in the Corrective Action Plan.

Condition: The Organization lacks the appropriate system of internal control to ensure that replacement reserve withdrawals are based on underlying documentation and HUD approval. Criteria: During our review of replacement reserve withdrawals, we noted the following inconsistencies: ? The Organization requested a withdrawal using the higher bid from a vendor other than the vendor the Organization contracted with for the purchase of goods. Upon review of the final bill, the amount paid exceeded the replacement reserve withdrawal and the excess was paid with project funds. ? Management withdrew replacement reserves to pay an invoice in excess of the HUD approved withdrawal. The excess was not a material amount. ? An invoice exceeded the authorized reserve withdrawal. Further, HUD authorized withdrawal based on a square footage allocation between the Organization and other projects. However, when the disbursement was paid, management allocated the invoice based on the number of units, resulting in more being allocated to the apartments than authorized by HUD. The excess was not withdrawn from reserves but was paid with project funds. Cause: The Organization has not established an effective system of internal control over replacement reserve withdrawals. Lack of communication between maintenance, management, and finance has resulted in errors between bids accepted from vendors and bids used in preparing reserve withdrawal requests. Further, there is a lack of review over reserve requests and ultimate purchase of goods to ensure accuracy and detection of errors. The errors did not result in material noncompliance with replacement reserve requirements. Effect: The lack of an adequately designed system of internal control creates higher risk of material noncompliance with replacement reserve requirements. Repeat Finding: No. Auditor?s Recommendation: We recommend management develop a system of internal control to ensure reserve withdrawals and purchase of goods agree to underlying documentation and HUD authorization. The Organization should implement a review of reserve withdrawals to ensure that support included with the withdrawal request consists of vendors the Organization has chosen to contract with, and ultimate withdrawal of funds are consistent with that approved in the HUD?s withdrawal authorization. View of Management: Management agrees with the finding. A response can be found in the Corrective Action Plan.

Condition: The Organization requests its auditor to draft the year-end financial statements, accompanying notes to the financial statements, and Schedule of Expenditures of Federal Awards. Criteria: Establishing internal controls over the preparation of the financial statements and drafting the financial statements are the responsibility of management. The Organization should have an internal control system in place related to the preparation of the financial statements. In addition, the Uniform Guidance requires the auditee to prepare appropriate financial statements in accordance with section 200.510. Cause: The Organization does not have an internal control system in place to prepare the financial statements, which is common for an Organization of this size due to the limited number of office staff. Effect: The Organization engages its auditor to draft the financial statements, notes to the financial statements, and Schedule of Expenditures of Federal Awards. There is a risk that errors may occur and not be detected. Repeat Finding: This finding was reported in the prior year as 2018-006. Auditor?s Recommendation: It is the responsibility of management and those charged with governance to make the decision whether to accept the degree of risk associated with the Organization?s auditor drafting the financial statements, notes to the financial statements, and Schedule of Expenditure of Federal Awards because of the cost or other considerations. If the Organization chooses not to accept this risk, a third-party accountant should be engaged to prepare a draft of the financial statements, related notes, and Schedule of Expenditures of Federal Awards. View of Management: Management agrees with the finding. A response can be found in the Corrective Action Plan

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