GULF COAST COMMUNITY SERVICES ASSOCIATION, INC.

FINDING NO. 2023-001: NON-COMPLIANCE WITH SPECIAL TESTS AND PROVISIONS RELATED TO TRI-PARTITE BOARD COMPLIANCE AND SIGNIFICANT DEFICIENCY IN INTERNAL CONTROL OVER NONCOMPLIANCE WITH THE RELEVANT SPCIAL TESTS AND PROVISIONS Condition: Gulf Coast Community Services Association, Inc. (the “Organization) currently has nine (9) members on its Board with one (1) vacant seat pending nomination from an elected public official. As such, only two (2) members currently represent elected public officials. The vacant board position has not been filled and has exceeded the length of time the state allows for the seat to remain vacant. Additionally, no appointive public official was nominated to fill this vacant seat. Criteria: The CSBG Act at 42 USC 9910(a)(2)(A) and Title 10 of the Texas Administrative Code (TAC) Part 1, Chapter 6, Subchapter B, Rule §6.210(a) requires GCCSA to administer the CSBG Program through a tripartite board with a condition that one-third (1/3) of such members be elected public officials, holding office on the date of the selection, or their representatives. In the event that there are not enough elected public officials reasonably available and willing to serve on the board, the entity may select appointive public officials to serve on the board. The public officials selected to serve on the board may each choose one permanent representative or designate an alternate to serve on the board. Appointive public officials or their representatives or alternates may be counted in meeting the 1/3 requirement. Per May 2023 OMB Compliance Supplement, the CSBG Act does not provide for a grace period for entities to get into compliance when a vacancy exists, however, entities are required to not exceed the length of time permitted by the state. Rule §6.212(b)(1) of Subchapter B above of the TAC, allows the board position to remain vacant for no more than 90 days. Cause: The Organization did not take the necessary steps to ensure and support the Board’s timely selection and seating of a public official or public official’s permanent representative to fill the vacant public sector seat. Perspective Information: The Organization has not filled the board vacancy for the selected public official for over one (1) year. Questioned Costs: None noted. Effect or Potential Effect: The Organization is not in compliance with its corporate bylaws as well as regulatory provisions related to tri-partite board requirements.Identification of Repeat Finding: Not applicable since this is a new finding. Recommendation: We recommend that the Organization fill the vacant public sector seat, strengthen monitoring of compliance with corporate bylaws and report such compliance to the Governance & Operations Committee and/or its Board of Directors, at least on an annual basis. Views of Responsible Officials: Although there were several unforeseen circumstances that adversely impacted the timely filling of the vacancy for the public sector seat, none validate the fact that the Organization did not adhere to the expectations outlines in the corporate bylaws and regulatory provisions. It is important, however, that the Organization is aware of the need for key members of management to work with the Board to develop a plan for board recruitment, development and training.

FINDING NO. 2023-002: ALLEGED USE OF FEDERAL FUNDS IN FRAUDULENT MANNER Condition: On August 11, 2023, the Organization’s Chief Executive Officer and Chief Financial Officer received electronic communication from an anonymous email account alleging that the Organization’s Interim Assistant Client Services (CS) Manager was engaged in illegal and dishonest activities. Based upon this initial predication, the Organization put together a Fraud Investigative Team who reviewed relevant financial records, studied case file documents, and interviewed CS personnel. The Investigative Team discovered that two (2) employees, the Interim CS Assistant Manager and a Quality Assurance (QA) Specialist, colluded to defraud the Organization of approximately $56,680, over the course of six (6) months. Their actions consisted of, but was not limited to the formation of fake management companies to receive rental assistance payments from non-existent and former clients; the manipulation of leases and pay statements to secure job placement and Transition Out of Poverty incentives; the circumvention of established procedures and protocols to obtain rental assistance payments for their friends and family members; and the re-creation and dissemination of the Organization’s communication notifications to unsuspecting applicants luring them to send their personal information to a fake email address. Criteria: Title 2 U.S. Code of Federal Regulations Part 200, Subpart D, Section §200.302 (4), Financial Management, communicate expectation for effective control over, and accountability for, all federal funds, property, and other assets. The non-Federal entity must adequately safeguard all assets and assure that they are used solely for authorized purposes. Cause: Personnel involved in fraudulent activities were part of CSBG program management who colluded with others to override controls for personal financial gains. Perspective Information: The Organization took initial steps to mitigate the fraud by terminating the persons responsible for improper conduct. However, emergence of evidence by a forensic review of client files housed internally and in the NewGen Case Management System indicated patterns of behavior of additional schemers who were not employees of the Organization. Formal reports have been filed with the Federal Bureau of Investigation, Houston Police Department, and Harris County District Atorney’s office to pursue all parties complicit in the misappropriation of funds. Questioned Costs: Per the initial assessment made by the Investigative Team, it was estimated that the Organization was defrauded for $56,680 ($50,680-CSBG funds, $6,000 Unrestricted funds), over the course of six (6) months. The Organization submitted insurance claims for $55,680, the amount determined to be fraudulent rental assistance payments based on documentation reviewed by the Investigative Team. The Organization repaid $50,680 to Texas Department of Housing and Community Affairs (TDHCA), the Organization’s pass-through entity for CSBG grant, on April 30, 2024. Additionally, the investigation is still ongoing with local and federal law enforcement agencies. Effect or Potential Effect: Misappropriation of grant funds provided under CSBG Program. Identification of Repeat Finding: Not applicable since this is a new finding. Recommendation: We recommend that management monitor results of ongoing investigation with local and federal law enforcement agencies, closely coordinate with TDHCA for additional guidelines, and implement mitigating operating controls to strengthen compliance for adherence with pre-established policies and procedures related to conflict of interest and seek to minimize opportunities for employees to engage in fraudulent activities. Views of Responsible Officials: The Organization is aware that fraud poses a significant risk to the integrity of the federal programs it administers as well as erodes public trust. In the wake of discovering that GCCSA had been compromised by colluders committing fraud, the Organization is committed to combatting fraud by creating an organizational culture and structure conducive to focusing on the following control activities: data-analytics activities, fraud-awareness initiatives, reporting mechanisms, and employee-integrity activities.