Finding Text
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 $52,850 were taken from the general operating reserve without obtaining the 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 July 31, 2025. Recommendation - We recommend that the Cooperative implement a control process to ensure adherence to the regulatory agreement and obtain the proper HUD approval to withdrawal general operating reserve funds. Auditee’s comment - The Cooperative will make deposits to the general operating reserve to meet the HUD regulatory agreement. The management agent will implement a process to ensure withdrawals are made as required by the regulatory agreement. Status - Unresolved