Audit 410130

Type of Finding: Significant Deficiency / Noncompliance Repeat Finding: No. Criteria: The Regulatory Agreement requires the Project to receive approval from HUD for all distributions from the residual receipts account. Condition: The Project did not receive permission to withdraw funds from the residual receipts reserve prior to distribution. Cause: The Project's controls over authorized distributions were not working properly. Effect or Potential Effect: The unauthorized distribution of residual receipts funds could, at the discretion of HUD, result in the capital advance being called due, which would require the Project to reimburse HUD for the advance and pay interest. Perspective Information: The Project failed to receive HUD approval for withdrawal of residual receipt funds prior to distribution. Through prior history with Project, this is not a systemic issue that cannot be rectified. Recommendations: The Project should notify HUD of the unauthorized distribution and request approval for the residual receipts distribution for Project operations. Views of Responsible Officials: Management concurs with the finding. Management will submit a request to HUD for authorization of the distribution of the residual receipt funds.