LIGHTHOUSE LIVING CENTERS NO. 2, INC.Non-Profit

Findings #2025-001 and #2025-002 – Material Weakness and Other Noncompliance. Condition and context: Adjustments were required to properly state accrued interest payable and interest expense, depreciation and accumulated depreciation, maintenance expense and building equipment, tenant deposits held in trust and tenant charges, salary expense and related payables, and accounts payable and related expense. These adjustments decreased the change in net assets by approximately $59,500. Additionally, an audit adjustment of approximately $24,350 was required to properly state cash and intercompany payables. Recommendation: Policies and procedures should be designed and implemented to ensure that transactions are appropriately recognized in the accounting records, supported by appropriately approved documentation and that accounts, including accruals, are timely reviewed and reconciled. Planned corrective action: Following turnover that resulted in accounting challenges, we hired a CFO to develop standard operating procedures and best practices to ensure we maintain operational excellence in non-profit accounting. We implemented strategies to address opportunities in training, best practices and oversight. Responsible officer: Terry Vaughn, Vice President of Operations and Sales. Estimated completion date: November 2025.

Finding #2025-003 – Significant Deficiency and Other Noncompliance. Condition and context: The required monthly replacement reserves deposit amount increased from $842 to $885 during the year, but Living Centers No. 2 failed to increase the monthly deposit. Recommendation: Reemphasize current policies and procedures to ensure that the required monthly deposit is made in accordance with HUD requirements. Planned corrective action: Following turnover that resulted in accounting challenges, we hired a CFO to develop standard operating procedures and best practices to ensure we maintain operational excellence in non-profit accounting. We implemented strategies to address opportunities in training, best practices and oversight. Responsible officer: Terry Vaughn, Vice President of Operations and Sales. Estimated completion date: November 2025.

Finding #2021-002 ? Significant Deficiency Applicable federal programs: U. S. Department of Housing and Urban Development Supportive Housing for the Elderly Assistance Listing #: 14.157 Contract Number: TX24-T841006 Contract Year: 07/01/20 ? 06/30/21 Section 8 Rental Voucher Program Assistance Listing #: 14.855 Contract Number: TX24-T841006 Contract Year: 07/01/20 ? 06/30/21 Condition and context: During the fiscal year ended June 30, 2021, Living Centers No. 2 had turnover in their President, Chief Financial Officer (CFO), and clerical staff positions. These changes in staffing resulted in a lack of segregation of duties between processing and reviewing cash disbursements. Throughout the year, the CFO or acting CFO had access to check stock and to the general ledger, and was responsible for submitting the Positive Pay file to the bank. Recommendation: Strengthen internal controls by eliminating incompatible duties. If duties cannot be adequately segregated, implement mitigating controls such as independent reviews of bank statements and reconciliations. Planned corrective action: Due to the COVID-19 pandemic and staff turnover, proper segregation of duties was not achievable. Lighthouse of Houston has hired key positions to ensure that proper segregation of duties exist. Mitigating controls have been put in place by having the President review all monthly bank reconciliations and bank activity, including ACHs and cancelled check images, in a timely manner. Responsible officer: Daniel Williams, Vice President of Operations Estimated completion date: August 16, 2021