Finding Text
Criteria: Project funds must be used for the operation of the project, including required insurance coverage, and to make required deposits to replacement reserve and residual receipts accounts (24 CFR section 891.400(e)). Condition: During 2023, the management company used operating and mortgage escrow funds in the amount of $283,467 for purposes unrelated to the Project. The management company returned $130,000 to the operating cash account during the year. Remaining $144,135 is included in accounts receivable, other and $9,332 is included in prepaid expenses as of December 31, 2023. Questioned Costs: $283,467 Cause: Management company’s oversight of Project funds did not ensure compliance with requirements related to the use of Project funds. Effect: The unauthorized use of Project funds by the management company resulted in the Project not to be in full compliance with its Regulatory Agreement regarding use of project funds. Recommendation: Management should enhance its internal controls to ensure Project funds are only used for Project activities and expenses necessary for the ongoing operation and maintenance of the Project.