Carbondale Senior Housing Phase IINon-Profit

Finding: Special Tests and Provisions Federal Assistance Listing 14.157 Supportive Housing for the Elderly – Section 202 Capital Advance Program Department of Housing and Urban Development Criteria: The Capital Advance Program Regulatory Agreement (“Regulatory Agreement”) entered into August 27, 1996 between CSHC Phase II and HUD requires CSHC Phase II to establish and maintain certain insurance coverage, including a minimum of $50,000 of employee dishonesty coverage. Condition: CSHC Phase II’s property insurance renewal in October 2023 only included $25,000 of employee dishonesty coverage, which is less than the HUD-required minimum of $50,000. Questioned Costs: None. Context: We reviewed CSHC Phase II’s insurance renewal documents to ensure compliance with HUD standards. Effect: CSHC Phase II is currently in violation of the Regulatory Agreement and is required to revise its insurance coverage to ensure compliance with HUD requirements. Cause: CSHC Phase II renews its insurance annually. In the October 2023 renewal, its insurance carrier mistakenly lowered CSHC Phase II’s employee dishonesty coverage below the HUD-required minimum. This change was not caught by management prior to renewing insurance coverage. Identification as a repeat finding: Not applicable. Recommendation: Management should update its insurance coverage to comply with UUD minimums. All future withdrawals of these funds are required to be approved by HUD. Additionally, upon renewing its annual insurance coverage, management should review to ensure that all coverage is the same as previous coverage and that amounts are in compliance with HUD-required minimums. Views of Responsible Officials and Planned Corrective Action: CSHC Phase II agrees with the finding. See separate auditee document for planned corrective action.

Finding: Special Tests and Provisions Federal Assistance Listing 14.157 Supportive Housing for the Elderly ? Section 202 Capital Advance Program Department of Housing and Urban Development Criteria: The Capital Advance Program Regulatory Agreement (?Regulatory Agreement?) entered into August 27, 1996 between CSHC Phase II and HUD requires CSHC Phase II to establish and maintain a residual receipts account, if CSHC Phase II has residual receipts realized from the operation of the mortgaged property available for distribution at the end of the fiscal year. The agreement requires the owners to deposit surplus cash (residual receipts) into this account within 60 days after the end of the annual fiscal period within which it was generated. These deposits are in the entity?s name, but under the control of HUD, and shall only be disbursed at the discretion of HUD with prior authorization. Condition: Management did not make the required residual receipts reserve deposit in the amount of $3,879 within 60 days of year end, as required by HUD, based on the June 30, 2021 surplus cash calculation. At June 30, 2022, $3,879 was still required to be deposited. Questioned Costs: None. Context: We reviewed CSHC Phase II?s cash accounts and balances as part of compliance procedures to verify the June 30, 2021 surplus cash (residual receipts) deposit had been made. Effect: CSHC Phase II is liable to transfer these funds to another bank account, regardless of the current cash balances available, and is currently in violation of the Regulatory Agreement. Cause: The unexpected transition of financial statement and compliance auditors led to a delay in the release of CSHC Phase II?s 2021 financial statements beyond the typical 60-day period after year-end, preventing CSHC Phase II from making the required deposit in time. Additionally, certain cash balances held by CSHC Phase II had previously been treated as statutorily restricted, when in fact, no such restrictions were determined to be in place, leading to an internal miscalculation of surplus cash that was not resolved until completion of the 2021 audit. Identification as a repeat finding: Not applicable. Recommendation: Management should transfer the funds of $3,879 from the available cash in the operating or insurance reserve unrestricted cash accounts to bring the residual receipts account to current. All future withdrawals of these funds are required to be approved by HUD. Additionally, immediately at the end of each fiscal year, management should compute an estimate of the surplus cash (residual receipts) available at the end of the period and make such deposits within the 60-day required period. Views of Responsible Officials and Planned Corrective Action: CSHC Phase II agrees with the finding. See separate auditee document for planned corrective action.