Applewood Pointe Cooperative of Eagan

2020-001 ?Material Weakness - Financial Reporting Process Condition ? The financial statements for the year ended December 31, 2019 were restated during the current year to properly record a mortgage insurance premium payment and refund receivable and its impact on other assets and accruals. Criteria ? Effective internal control over the financial reporting process is necessary to prevent material misstatements of the financial statements. Cause - The transactions which were not recorded correctly were related to mortgage insurance premiums paid by the developer shortly after the project opened, and the subsequent refund of excess mortgage insurance premiums to the developer. The mortgage insurance premium was paid directly by the developer and the refund was remitted to the developer. Because neither transaction passed through the Cooperative?s bank account, they were not recorded by management. Effect - The premium payment and refund receivable and their related effect on the 2019 financial statements was not recorded. A prior period adjustment was required to correct in 2020. Recommendation ? These transactions were related to the development process and occurred after construction was complete. There will not be similar transactions in future years, as all liabilities related to the development of the Cooperative have been paid. No further changes in internal control are recommended. Auditee?s comment ? This was a unique situation which will not be repeated. The CFO of the management agent will monitor accounting information for unusual transactions, but does not anticipate changing any internal control processes related to this finding. Status - Resolved Auditor?s non-compliance code - Z - Other Responsible party for corrective action ? Jesse Lambrecht, CFO of Paramark (Management Agent)

2019-001 ? Significant Deficiency and Noncompliance ? Required Payments to General Operating Reserve Department of Housing and Urban Development CFDA Number 14.126 ?Mortgage Insurance - Cooperative Projects Significant Deficiency and Noncompliance Category of Finding ? Special Tests and Provisions Criteria - Section three of the Cooperative?s regulatory agreement with HUD requires monthly payments to a General Operating Reserve. Deposits are 3% of member carrying charges until the balance of the reserve exceeds 15% of current annual member carrying charges. The required deposit is then reduced to 2% of monthly charges until the balance of the reserve exceeds 25% of annual carrying charges. Condition - Deposits to the segregated account for the General Operating Reserve during the year ended December 31, 2019 were $38,482 less than the required amount for the period. Cause - The Cooperative inadvertently omitted making monthly deposits to the General Operating Reserve in 2019. The control in place to assure the required monthly deposits were made failed to work; however, a monitoring control identified the error and corrected the deficiency prior to the conclusion of the audit. Effect - The Cooperative was out of compliance with their HUD regulatory agreement at December 31, 2019, because the General Operating Reserve was underfunded. Recommendation - We recommend that the Cooperative implement a control process to ensure adherence to the regulatory agreement and make the required monthly deposits to the General Operating Reserve. Auditee?s comment - On March 9, 2020, prior to the conclusion of the audit, the Cooperative made a deposit of $51,702 to the General Operating Reserve to fund the reserve to its proper balance. The CFO of the management agent will implement a process to ensure deposits are made as required by the regulatory agreement. Status - Resolved Auditor?s non-compliance code - Z - Other Responsible party for corrective action ? Jesse Lambrecht, CFO of Paramark (Management Agent)