Federal expenditures for the mortgage insurance program represent the fully funded amount of the loan. Loan proceeds of $2,473,696 were received during the period ended August 31, 2025. The federal government imposes continuing compliance requirements on this loan. The loan balance at August 31, 2025 was $16,710,112.
Material Weakness – Lack of Internal Controls 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 2025 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 - In September 2025, the Cooperative entered into a management agreement with Paramark Real Estate Services to manage the Cooperative. The management company maintains controls and procedures related to financial reporting and has segregation of duties in place intended to safeguard the assets of the Cooperative. Status - Resolved
Significant Deficiency and Noncompliance – Unapproved General Operating Reserve Withdrawal Department of Housing and Urban Development Assistance Listing Number 14.126 – Mortgage Insurance – Cooperative Projects Significant Deficiency and Noncompliance Category of Finding – Special Tests and Provisions Criteria - The HUD regulatory agreement requires the Cooperative to establish and maintain a general operating reserve. Withdrawals from the reserve in excess of 20% of the balance of the previous year-end require prior written approval by HUD. Condition - Excess withdrawals of $9,497 were taken from the general operating reserve without obtaining proper HUD approval. Cause - The Cooperative did not obtain the proper HUD approval to withdraw the general operating reserve funds in excess of 20% of the balance of the previous year-end. Effect - The Cooperative was out of compliance with their HUD regulatory agreement at August 31, 2025. Recommendation - We recommend that the Cooperative implement a control process to ensure adherence to the regulatory agreement and obtain proper HUD approval prior to withdrawing general operating reserve funds. Auditee’s comment - The Cooperative will obtain appropriate approvals for general operating reserve withdrawals in excess of 20% of the previous year-end balance to meet the HUD regulatory agreement requirements. In September 2025, the Cooperative entered into a management agreement with Paramark Real Estate Services to manage the Cooperative. The management agent will implement a process to ensure approvals are obtained as required by the regulatory agreement. Status - Resolved
Significant Deficiency and Noncompliance – Required Payments to General Operating Reserve Department of Housing and Urban Development Assistance Listing Number 14.126 – Mortgage Insurance – Cooperative Projects Significant Deficiency and Noncompliance Category of Finding – Special Tests and Provisions Criteria - The HUD regulatory agreement requires the Cooperative to deposit monthly payments at 3% of annual member carrying charges until the balance exceeds 15% of current annual member carrying charges. The required deposit may be reduced to 2% of annual member carrying charges until the balance of the reserve exceeds 25% of annual member carrying charges. Condition - Required deposits were made in amounts insufficient to exceed 3% of annual member carrying charges. Cause - The Cooperative did not make monthly deposits to the general operating reserve in accordance with the HUD regulatory agreement. Effect - The Cooperative was out of compliance with their HUD regulatory agreement at August 31, 2025. Recommendation - We recommend that the Cooperative implement a control process to ensure adherence to the regulatory agreement and make the required monthly deposits to the general operating reserve. Auditee’s comment - The Cooperative will make deposits to the general operating reserve to meet the HUD regulatory agreement. In September 2025, the Cooperative entered into a management agreement with Paramark Real Estate Services to manage the Cooperative. The management agent will implement a process to ensure deposits are made as required by the regulatory agreement. Status - Resolved