Santa Fe Apartments CorporationNon-Profit

Finding reference number: 2023-001 Assistance Listing (Federal award identification number and year): Mortgage Insurance – Rental Housing, Assistance Listing No. 14.134, 122-11398 and 2018 Auditor non-compliance code: Z - Other Finding resolution status: Resolved Universe population size: The universe population size is not applicable to the finding. Sample size information: The sample size information is not applicable to the finding. Statistically valid sample: N/A Name of Federal agency: U.S. Department of Housing and Urban Development Pass-through entity: N/A Questioned costs: N/A Statement of condition 2023-001: For the year ended December 31, 2022, the Corporation did not submit audited financial statements to the Federal Audit Clearinghouse within 30 calendar days after receipt of the auditor's report on March 31, 2023. The audited financial statements were submitted to the Federal Audit Clearinghouse on May 11, 2023. Criteria: Pursuant to 2 CFR 200.512(a), the Corporation is required to electronically submit audited financial statements to the Federal Audit Clearinghouse within the earlier of 30 calendar days after receipt of the auditor's report or nine months after the end of the audit period. Effect: The Corporation is not in compliance with the federal reporting requirements. Cause: Management oversight. Recommendation: The Corporation should submit audited financial statements to the Federal Audit Clearinghouse within the time frames required. Management's response: Management concurs with the finding and agrees with the auditor's recommendation. The audited financial statements have been submitted to the Federal Audit Clearinghouse. No further action required.

Finding No. 2020-001: Overpayment of Management Fees (Significant Deficiency) Statement of condition Allowable costs Activities allowed or unallowed During the year ended December 31, 2020, the Project's management company invoiced the Project at $61 per unit, or $3,477 monthly, which was greater rate than 5.4% of residential income collected during the year. The management company overcharged the Project $3,008 in management fees during the year ended December 31, 2020. Criteria Per the HUD form 9839-B Project Owner?s/Management Agent?s Certification, the management company is contracted to charge fees based on a percentage of residential income collected. Cause While there are processes in place to review the monthly management fee calculation, there was not a clear understanding of how the management fees were required to be calculated, resulting in an overcharging of management fees during the year ended December 31, 2020. Effect The Project has made excess payments of management fees and is therefore out of compliance with its HUD Regulatory Agreement. Auditor noncompliance code S - Internal control deficiencies Questioned costs None Recommendation The Project's management company should review its management agreement certification and update its management fee calculation procedures to ensure management fees are being charged in compliance with the Project's Regulatory Agreement and its HUD form 9839-B Project Owner?s/Management Agent?s Certification. Management should refund the overpayment of $3,008 back to the Project. Identification as a repeat finding This finding is not a repeat finding. Finding resolution status Completed Views of responsible officials and planned corrective actions The Project's management company agrees with the finding. During the 2020 audit, it was noted HDSI Management, Inc. had overbilled 2020 management fees. This was due to the unusually high vacancy turnover during the COVID-19 pandemic, which caused a decrease in rent collections. In order to avoid any future overbilling, HDSI Management, Inc. has implemented the following preventive measures: 1. Accounting will provide total rent collections to Accounts Payable/Receivable department for management fee calculation. 2. Monthly invoice will be created to reflect the total monthly rent collected multiplied by the HUD approved percentage vs. the per unit per month fee. HDSI Management, Inc. will use the lesser of the two figures. The 2020 overpaid management fees in the amount of $3,008 has been reimbursed back to the Project on April 20, 2021.

Condition: On August 29, 2019, fraud and embezzlement was detected at the Project?s management company, HDSI Management, Inc. (?HDSI?). An HDSI employee (the ?Employee?) was fraudulently preparing false invoices to a certain vendor (the ?Vendor?) and forging HDSI company checks payable to the Vendor. he amount embezzled by the Employee from the Project totaled approximately $10,675, over a three-year period, which included $990 during 2019. During the year ended December 31, 2019, HDSI received reimbursement from its insurance company, and accordingly, HDSI reimbursed the Project for $10,675 on December 10, 2019. The investigation could result in the detection of embezzlement effecting this Project. Criteria: HDSI is required to have internal controls in place to prevent and detect fraudulent activity and provide for the protection of project assets. Effect of Condition: An HDSI employee was able to falsify records and embezzle project assets, and the fraudulent activity went undetected for three years. Cause of Condition: The Employee was an accounts payable clerk, had access to check stock, was able to prepare fraudulent invoices to the Vendor, and able to forge the signatures of on-site managers and forge the signature of an authorized check signer. Management believes there might have been collusion between the Employee and the Vendor. In addition, the Vendor was not included on HDSI?s master vendor list, although HDSI had the Vendor?s documents; such as certificate of insurance, business license, and W-9. Recommendation: Project management should ensure that HDSI implements processes and controls that provide for the proper segregation of duties between the authorization, execution, and review of transactions; such as, approval of all new vendors, regular review of its master vendor list, implement segregation of duties between the processing of vendor invoices and the review and authorization of disbursements by someone independent of the processing function, reviewing bank statements for unusual activity, and the on-site manager?s review of monthly expenditures. Additionally, Project management should develop policies and procedures to enhance its periodic reviews of the work performed by HDSI to ensure it is performing its functions as expected. Questioned Costs: $10,675 Management?s response: The management company, HDSI, is in process of implementing additional internal controls that would ensure that such fraud and embezzlement will less likely occur. These controls include reviewing monthly bank statements for unusual vendors and reviewing copies of all checks for all disbursements to ensure that they were made out to the appropriate vendor, sending each on-site manager a list of monthly disbursements related to the Organization for review to ensure that each disbursement is related to work performed on the building.