Finding Text
Department of Housing and Urban Development 2025-001 Project Based Rental Assistance Criteria: HUD regulations require that funds held in a project’s replacement reserve account be used only for eligible capital repair and replacement costs and only after obtaining prior written approval from HUD. Unauthorized use of replacement reserve funds is not permitted and may result in noncompliance with program requirements. Condition: During the audit period, the Organization used funds from the replacement reserve account without obtaining the required prior written authorization from HUD. Cause: The Organization did not have adequate internal controls in place to ensure that HUD approval was obtained and documented before disbursements were made from the replacement reserve account. Effect: The Organization expended replacement reserve funds without proper authorization, resulting in noncompliance with HUD program requirements. Auditor’s Recommendation: We recommend that management implement and enforce procedures requiring documented HUD approval prior to any use of replacement reserve funds, including review and approval by appropriate management personnel, to ensure compliance with HUD requirements. Management response: We were not aware that the use of these funds required HUD approval. We are creating a policy to prevent any use of the HUD reserve account funds, without prior approval from HUD. We have subsequently returned all funds that were borrowed without prior HUD authorization, and will not access them in future, without proper approval from HUD.