STOVALL TERRACE

The lack of proper controls caused the submission of Required Audit Report to HUD REAC to be late. The Audit report was dated 11/25/2025. Thus, the REAC submission was late. Entities must adhere strictly to these deadlines to maintain compliance and funding eligibility.

Findings-Financial Statement HUD PROJECT NO. 12211231 STOVALL TERRACE YEAR ENDED JUNE 30, 2019 Criteria Management is required to design, implement and maintain internal controls. over compliance and financial reporting. In this case the condition reflected non-material deficiency when compared to the dollar amount of the program. Statement of Condition 1. Embezzlement loss of $26,906 by Management Company Employee The scheme was to input bogus invoices from a fake vendor then also process a check and forge the signature of the Owner of the Manaement Company. The employee would then deposit the check into a bank account established in the name of the bogus vendor. 2. The Management Company did extensive research to isolate the scheme to one vendor. 3. The scheme was discovered during the auditors disbursements testing. 4. The periods affected was the fiscal year from 8/2018 to 6/2019 for the amount of $16,646 and for the period July 2017 to June 30, 2018 in the amount of $10,260. and for the month of July 2019 for the amount of $4,150. 5. The compensating control for the embezzlement was that the Owner of the Management Company signed all checks. However her signature was duplicated and forged onto the embezzled checks. Further for invoices that exceed $1,500 the owners signature was required. Here the invoices were less than $1,500. 6. The average check amount was $299 over 90 forged checks. With the highest individual check amount totaling $765. Cause 1. Breakdown in the Separations of Duties. The Management Company Employee was allowed to both enter accounts payable invoices into the Accounts Payable System and also write checks to the vendors in the cash disbursement system. 2. Neither the Accountants nor management supervisory personel recognized that the wrongfully paid vendor was not an approved vendor for the company. 3. The Owner's signature is not distinctive and easily duplicated. The signature was used by the employee to approve the invoices and also sign the check for payment to the bogus vendor possibly controlled by the Employee Effect Loss of Cash, the effect of which created a receivable from the Management Company. The result is a unauthorized distribution. Reporting Views of Responsible Officials Management agrees that their system has been changed to separate the duties of the accounts payable from the invoice paying activities. The management company has terminated the employee. The embezzlement has also been reported to local law enforcement. Context This project has been in existence since 1987 and has not had any deficiencies. This was an isolated occurance with a Management employee who was employed for 11 years. The scheme did not take place until 2017 & 2018. The employee has been terminated and the company will now follow the recommendations which should eliminate this type of defalcation from reoccuring. In prior years the Project has been considered a Low Risk Auditee.