Finding 1171710 (2025-002)

U.S. Department of Housing and Urban Development Federal Financial Assistance Listing #14.155 Section 223(f) Mortgage Insurance for the Purchase or Refinance of Existing Multifamily Housing Projects Special Tests and Provisions – Distribution of Project Funds Significant Deficiency in Internal Control over Compliance Criteria: The Project shall not allow any affiliate to receive or retain any distribution of assets except from surplus cash. Condition: Cash distributions were made to affiliated organizations in the amount of $95,000, which is approximately $23,000 in excess of the calculated surplus cash of $72,109. Cause: The Project did not have an internal control process in place to ensure that the surplus cash distribution was made in accordance with the regulatory agreement. Effect: Cash distributions were made in excess of the amount of allowable distributions. Questioned Costs: None reported. Context/Sampling: Sampling was not used. Testing consisted of reviewing cash distributions for the year and compared to available surplus cash. Repeat Finding from Prior Year: No Recommendation: We recommend that controls be implemented to prevent excess cash distributions from being made after the semi-annual and annual surplus cash calculations are prepared. Views of Responsible Officials: Management agrees with the finding.