Finding Text
Federal Program – U.S. Department of Housing and Urban Development Assistance Listing Number 14.181 – Supportive Housing for Persons with Disabilities (Section 811) Material Weakness & Noncompliance Category of Finding – Special Tests and Provisions Criteria - HUD regulations and Metro Apartments, Inc.’s Project Rental Assistance Contract (PRAC) require that withdrawals from the project’s replacement reserve be specifically approved by HUD prior to disbursement and limited to the approved amount. Replacement reserve funds are restricted and may only be used for eligible purposes authorized by HUD. Condition - Metro Apartments, Inc. submitted a replacement reserve withdrawal request to HUD totaling $39,746 for maintenance-related expenses. HUD approved $13,839 of the request and denied the remaining $25,907. Contrary to HUD’s approval, the organization withdrew the entire $39,746 from the replacement reserve. Cause - Management did not ensure that replacement reserve withdrawals were restricted to the amounts approved by HUD, resulting in a withdrawal that exceeded the approved amount. Effect - The organization withdrew $25,907 from restricted replacement reserve funds without HUD authorization, resulting in noncompliance with Special Tests and Provisions applicable to the Supportive Housing for Persons with Disabilities Program. This noncompliance could result in HUD requiring repayment of unapproved amounts or taking other corrective actions. Questioned Costs - $25,907 - representing the portion of the replacement reserve withdrawal that exceeded the amount approved by HUD. Identification of repeat finding – No Recommendation - We recommend that management strengthen controls over replacement reserve withdrawals to ensure that disbursements are limited to amounts specifically approved by HUD. Management should implement procedures to review HUD approval documentation prior to withdrawal and reconcile approved amounts to actual disbursements. Views of responsible officials and planned corrective actions - Management agrees with the finding. Management acknowledges that the withdrawal exceeded the amount approved by HUD and is reviewing internal procedures to ensure replacement reserve withdrawals comply with HUD approval requirements. Management will coordinate with HUD to resolve the unapproved portion of the withdrawal and take corrective action as necessary.