Audit 390832

Finding # 2025-001 Federal Grantor: U.S. Department of Housing and Urban Development AL # / Program: 14.155 - Section 223(f) Mortgage Insurance for the Purchase or Refinancing of Existing Multifamily Housing Projects Type of Finding: Federal Award Finding Finding Resolution Status: In Process Information on Universe Population Size: N/A Sample size information: N/A Criteria: Rider II to the Regulatory Agreement for Multifamily Housing Projects on Form HUD-92466 paragraph 1. prohibits the 'distribution of income or project assets' except surplus cash. Statement of Condition: The Project made additional principal payments totaling $220,000 from the project account prior to the calculation of surplus cash and without the consent of HUD. Cause: The Owner used project assets from the operating account to make additional principal payments without HUD approval on Form HUD-9250. Effect or Potential Effect: The Project is out of compliance with the Regulatory Agreement for Multifamily Housing Projects on Form HUD-92466. Auditor Non-Compliance Code: H - Unauthorized distribution of project assets Questioned Costs: $220,000 Reporting Views of Responsible Officials: Agree Context: Section 223(f) mortgage note was prepaid with project assets without the approval of HUD. Recommendations: We recommend the Owner review controls over the use of project funds. We recommend that the request HUD approval to make approved distributions of residual receipts from the Residual Receipts Fund. Auditor's Summary of the Auditee's Comments on the Findings and Recommendations: "• The Owner has ended the additional principal payments being paid to the mortgage company, effective August 2025. • The Owner is also in the process of requesting authorization from the US Department of HUD to disburse $260,000 from residual receipts (the sum of the additional principal payments made on the mortgage from August 2024 - August 2025, without previous HUD approval) to reimburse the operating account for these disbursements." Response Indicator: Agree Completion Date: 6/30/2026 Response: See above