Audit 385457

2024-001 NonCompliance with HUD Requirements for Restricted Reserve Accounts - Significant Deficiency Criteria for Specific Requirements: According to HUD Handbook 4350.1 REV-1 and 24 CFR section 891.605, withdrawals from the Residual Receipts Account require prior written approval from HUD, and no funds may be withdrawn without such authorization. Similarly, the Replacement Reserve Account must receive monthly deposits in the HUD- approved amount, and any withdrawals also require prior HUD approval. All funds in the Replacement Reserve Account must be maintained in a separate account and used solely for HUD-approved capital replacements. Condition: During the course of our engagement, we identified the following instances of noncompliance with HUD requirements: A withdrawal of $3,849 was made from the Residual Receipts account without HUD approval, reducing the account balance to near zero at year-end. Withdrawals of $29,312 and $57,842 were made from the Replacement Reserve account without HUD approval. Required monthly deposits of $575 were not made to the Replacement Reserve account for October–December 2024, and no HUD waiver was obtained. Questioned Cost: There were no questioned costs associated with the condition identified. Cause: Management explained that due to staff turnover, they were not aware of HUD’s approval and deposit requirements. Effect: Restricted reserve accounts were not maintained in accordance with HUD requirements, which may result in HUD questioning or disallowing the withdrawals and deposits. This also reflects a weakness in internal controls over compliance with HUD regulations. Auditor's Recommendation: We recommend that management work with HUD to obtain approval or resolution for the unapproved withdrawals, deposit the missed Replacement Reserve amounts, and establish recurring transfers to ensure compliance going forward. In addition, management should strengthen internal controls and provide staff training so that HUD approval is obtained before withdrawals and deposits are made in a timely manner.

2024-002 – Late Submission of Unaudited Financial Statements to HUD - Significant Deficiency Criteria for Specific Requirements: In accordance with HUD’s Uniform Financial Reporting Standards (24 CFR section 5.801), project owners are required to submit a financial statement annually, prepared in accordance with generally accepted accounting principles (GAAP) and in the electronic format specified by HUD. The unaudited financial statement must be submitted within three months (90 days) after the fiscal year-end, while the audited financial statement is due within nine months. These statements should include all financial activities of the program to ensure proper monitoring and compliance with HUD requirements. Condition: During the course of our engagement, we noted that the unaudited financial statements for the year ended were submitted in April 2025, which was after the 90-day deadline. Questioned Cost: There were no questioned costs associated with the condition identified. Cause: Management indicated that staffing changes resulted in a lack of the reporting requirement. The submission was made only after HUD issued a late notice. Effect: The project did not comply with HUD’s reporting requirements, resulting in delayed submission of required financial information and reducing HUD’s ability to perform timely oversight. Auditor's Recommendation: We recommend that management establish procedures and assign clear responsibility to ensure that all HUD-required reports, including unaudited financial statements, are completed and submitted within the required deadlines each year.