Finding Text
Criteria: Internal controls are required to be in place to ensure proper procedures are being followed and the Project is in compliance with HUD requirements regarding disbursements from the replacement reserve. Condition: During the testing of the replacement reserve it was noted the Project made unauthorized disbursements from the replacement reserve. We consider the finding to be a significant deficiency with the Special Tests and Provisions compliance requirement. Effect: The Project is not in compliance with HUD requirements regarding special tests and provisions which could result in inadequate reserves and unauthorized disbursements from the replacement reserve. Questioned Costs: $5,000 Cause: The Project experienced turnover resulting in inconsistent file management practices and ineffective internal control review procedures to ensure that all required eligibility documentation is obtained and retained. Recommendation: The Project should consider reevaluating their established procedures and controls currently in place to ensure full compliance regarding replacement reserve funding and disbursements. The Project should return the unauthorized disbursements to the replacement reserve account. Views of Responsible Officials: Management agrees with the findings and a response is included in the Corrective Action Plan. The unauthorized disbursements were deposited back to the replacement reserve account on March 3, 2026.