Federal expenditures for the mortgage insurance program represent the fully funded amount of the loan. A loan modification occurred in 2024, reducing the loan by $1,396,602. The federal government imposes continuing compliance requirements on this loan. The loan balance at December 31, 2024, was $16,817,194.
Criteria - Management is responsible for establishing and maintaining internal controls in order to safeguard the assets of the Cooperative and achieve accurate financial reporting. Condition - The Cooperative lacked sufficient controls and procedures related to financial reporting, resulting in no formal documentation and review of financial activity, and a lack of understanding the segregation of duties. Cause - Appropriate internal controls and procedures related to financial reporting were not established when the property management agent was hired. Effect - The Cooperative was exposed to an increased risk that misstatements (whether caused by error or fraud) may occur and not be prevented or detected by management on a timely basis. A significant number of journal entries were required to adjust the 2024 financial statements. Recommendation - We recommend that management design and document their internal control process to ensure that they have an adequately designed system of internal controls. Auditee’s comment - Management will design, document and implement a control environment to provide proper internal controls and procedures related to financial reporting and a proper segregation of duties of the Cooperative. Status - Unresolved. Management is in the process of designing and documenting an internal control process to safeguard the assets of the Cooperative and achieve accurate financial reporting.
Significant Deficiency and Noncompliance Category of Finding – Special Tests and Provisions Criteria - The Cooperative’s regulatory agreement with HUD requires monthly payments to a General Operating Reserve. Deposits are 3% of member carrying charges until the balance of the reserve exceeds 15% of current annual member carrying charges. The required deposits are then reduced to 2% of monthly charges until the balance of the reserve exceeds 25% of annual carrying charges. Condition - Deposits to the segregated account for the General Operating Reserve during the period ended December 31, 2024 were $9,850 less than the required amount for the year. Cause - The Cooperative and management agent were unaware of the HUD regulatory agreement requirement and inadvertently omitted making the required deposits to the General Operating Reserve. Effect - The Cooperative was out of compliance with their HUD regulatory agreement at December 31, 2024, because the General Operating Reserve was underfunded. Recommendation - We recommend that the Cooperative implement a control process to ensure adherence to the regulatory agreement and make required monthly deposits to the General Operating Reserve. Auditee’s comment - The Cooperative is making required monthly deposits to the General Operating Reserve. The management agent will implement a process to ensure deposits are made as required by the HUD regulatory agreement. Status - Resolved