HIP Housing Development Corporation, Inc.Non-Profit

Finding #: 2023-001 Questioned Costs: N/A Condition: Complete and reconciled financials were not available within a reasonable period after the fiscal year end. Criteria: A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of HIP Housing Development Corporation and Subsidiaries’ financial statements will not be prevented, or detected and corrected on a timely basis. Cause: Management's accounting and review process does not have sufficient controls to ensure accurate and timely reporting. Effect: Management's was unable to produce accurate and timely financial statements to meet the reporting requirements of the entity. Recommendation: We recommend that Management review their processes and procedures for identifying and reconciling the financials for the entity. Reporting Views of Responsible Officials: We acknowledge the audit finding regarding the timeliness of our financial reconciliation and not having reconciled financials available within a reasonable period after the fiscal year end. HIP Housing had a system conversion from QuickBooks to Yardi in July 2021. Our go live date was July 1, 2021 which makes fiscal year 22-23 our second year of audit in our new system for HHAV, HIP Housing, and HHDC. This comprehensive system conversion delayed the closing of FY 21-22 which also impacted the timing of the FY 21-22 audit. The delay in FY 21-22 audit made it difficult for us to deliver the reconciled financials and trial balances for the FY 22-23 audit by the beginning of December. Once we missed the December deadline, we had to wait until the end of April to start the audit. We recognize the importance of timely financial reconciliation and have taken several measures to address this issue and prevent recurrence in future fiscal years. 1. Review and Enhancement of Processes: We have conducted a thorough review of our existing processes and procedures for identifying and reconciling financials. As a result, we have implemented more efficient and streamlined processes to ensure timely and accurate financial reporting. 2. System Conversion: The recent system conversion, while initially causing delays, has now been fully integrated into our operations. This new system is designed to enhance our financial management capabilities and support faster and more accurate financial reconciliations. 3. Addition of Key Personnel: To further strengthen our financial team, we have hired an experienced accounting manager. This new team member brings a wealth of expertise and will play a crucial role in overseeing the financial reconciliation process, ensuring that all entries are reviewed and finalized promptly. We are confident that these improvements will significantly enhance our ability to provide complete and reconciled financials within a reasonable period after the fiscal year end. Management remains committed to continuous improvement and will monitor the effectiveness of these changes to ensure ongoing compliance and efficiency.

Finding #: 2023-002 Questioned Costs: N/A Condition: A significant number of account balances required adjustments resulting in a significant amount of audit adjusting journal entries. Criteria: Identification by the auditor of a material weakness in internal control over financial reporting such that a misstatement would not have been detected by the Entity's internal control should be regarded as a material weakness in internal controls. Cause: Management's review process does not have sufficient controls to detect misstatements to the financial statements. Effect: The unadjusted financial statements were materially misstated. Recommendation: We recommend that Management review their processes and procedures for identifying, capturing, and recording transactions accurately. Reporting Views of Responsible Officials: . We acknowledge the audit finding concerning the number of account balances that required adjustments and the resulting audit adjusting journal entries. 1. System Conversion: Recently, we underwent a comprehensive system conversion and creation of uniform chart of accounts for all the properties and entities in our portfolio, which, while beneficial in the long term, contributed to the initial discrepancies in our account balances. 2. Improvement in Adjusting Entries: We are pleased to note that there has been a significant reduction in the number of adjusting entries required this year compared to previous years. This indicates that the measures we have put in place are moving us in the right direction. 3. Additional Support: To further support our efforts, we have hired a new accounting manager. This addition to our team will provide the necessary expertise and oversight to ensure accurate transaction recording and reconciliation. 4. Process Improvements: We have implemented several process improvements to streamline data entry, making the recording of transactions more efficient and reducing the likelihood of errors. 5. Enhanced Review Process: To further ensure the accuracy of our financial records, we will implement a review process for all journal entries before they are posted to the general ledger. This additional layer of oversight will help identify and correct any discrepancies early in the process. We are confident that these actions will enhance the accuracy of our financial transactions and reduce the need for adjusting journal entries in future audits. Management is committed to continuous improvement and will closely monitor these changes to ensure their effectiveness.

Questioned Costs: N/A Condition: Complete and reconciled financials were not available within a reasonable period after the fiscal year end. Criteria: A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of HIP Housing Development Corporation and Subsidiaries’ financial statements will not be prevented, or detected and corrected on a timely basis. Cause: Management's accounting and review process does not have sufficient controls to ensure accurate and timely reporting. Effect: Management's was unable to produce accurate and timely financial statements to meet the reporting requirements of the entity. Recommendation: We recommend that Management review their processes and procedures for identifying and reconciling the financials for the entity. Reporting Views of Responsible Officials: HIP Housing had a system conversion from QuickBooks to Yardi in July 2021. Our go live date was July 1, 2021 which makes fiscal year 21-22 our first year of audit in our new system for HHAV, HIP Housing, and HHDC. Due to difficulties and complications related to our conversion, mapping of conversion data, validating beginning balances, and closing out the year took us much longer that we expected. That significantly delayed our year end closing process. Such a delay is common when organizations are going through system conversions. Now that we will have audited beginning balances in Yardi, such delays should be reduced. We have already started taking measures to ensure that financials are completed and reconciled in a reasonable period for future audits. Some of these measures include monthly A/R and A/P tie outs of the A/R and A/P sub-ledgers to the general ledger and also a monthly reconciliation of intercompany reconciliations. We have also started using import files to record most of the intercompany transactions which will simplify/improve our intercompany reconciliation.

Questioned Costs: N/A Condition: A significant number of account balances required adjustments resulting in a significant amount of audit adjusting journal entries. Criteria: Identification by the auditor of a material weakness in internal control over financial reporting such that a misstatement would not have been detected by the Entity's internal control should be regarded as a material weakness in internal controls. Cause: Management's review process does not have sufficient controls to detect misstatements to the financial statements. Effect: The unadjusted financial statements were materially misstated. Recommendation: We recommend that Management review their processes and procedures for identifying, capturing, and recording transactions accurately. Reporting Views of Responsible Officials: A big part of our systems conversion was the creating of a uniform chart of accounts throughout our portfolio. This was necessary to optimize our new system, to simplify financial analysis and reporting, and to streamline account reconciliations. However, changing the organization’s chart of accounts involved the consolidating, splitting-up, adding and removing of some general ledger line items. This created a number of issues when it comes to validating the beginning balances data in Yardi with the audited ending balances in QuickBooks. Furthermore, in the first few months after the system conversion, most of the finance team staff members were getting used to a new system and a new chart of accounts. This resulted in several data entry errors and inconsistencies. As a result of these some balance sheet account balances needed adjustment. HIP Housing’s team has provided the most of the adjusting entries necessary to rectify the account balances. We have also provided our team with ample training of the new system and have implemented several process improvements to streamline data entry. We are confident that a combination of these measures we have taken have already come to fruition and future audits will have far less account balances that need adjustments.