Audit 399613

Federal Program – U.S. Department of Housing and Urban Development Assistance Listing Number 14.157 – Supportive Housing for the Elderly (Section 202) Noncompliance Category of Finding – Special Tests and Provisions Criteria - HUD regulations and the organization’s Project Rental Assistance Contract (PRAC) require that withdrawals from the project’s replacement reserve be approved by HUD prior to disbursement. Replacement reserve funds are restricted and may only be used for eligible purposes with documented HUD authorization, as outlined in 24 CFR Part 891 and related PRAC terms. Condition - During 2025, while the organization’s PRAC renewal was pending and housing assistance payments were temporarily not being received, the organization made five withdrawals from the replacement reserve to cover operating costs. Of these withdrawals, three were approved by HUD, while two withdrawals were made without documented HUD approval at the time of disbursement. Cause - The absence of approval for the two withdrawals was due to a federal government shutdown, which temporarily prevented HUD from processing and approving replacement reserve withdrawal requests. Management proceeded with the withdrawals to maintain project operations during the lapse in rental assistance payments. Effect (Potential Effect) - Two replacement reserve withdrawals were not in compliance with HUD approval requirements at the time they were made. This resulted in noncompliance with Special Tests and Provisions applicable to the program and increased the risk that restricted funds could be used without proper authorization. Identification of repeat finding – No Recommendation - We recommend that management continue to strengthen controls over replacement reserve withdrawals to ensure that HUD approval is obtained prior to disbursement, even during periods of operational disruption. Management should also document contingency procedures to address future interruptions in HUD operations or funding to ensure continued compliance with program requirements. Views of responsible officials and planned corrective actions - Management agrees with the finding. Due to the federal government shutdown and the temporary suspension of HUD operations, approval for two replacement reserve withdrawals could not be obtained prior to disbursement. The withdrawals were necessary to maintain essential project operations during the lapse in rental assistance payments. Management has since resumed compliance with all HUD approval requirements and will enhance documentation and contingency planning to address similar circumstances in the future.