Finding 1215394 (2024-002)

Condition: During our audit of Project Support Housing II for the year ended December 31, 2024, we noted that management made withdrawals totaling $4,700 from the property’s Residual Receipts Account without obtaining the required prior written approval from the U.S. Department of Housing and Urban Development (HUD). The withdrawn funds were used for maintenance expenses. Criteria: HUD regulatory agreements and program requirements stipulate that withdrawals from the Residual Receipts Account must be approved in writing by HUD prior to disbursement. Specifically, the Regulatory Agreement requires that reserve funds “shall be withdrawn only with the written consent of HUD” and must be used solely for the replacement of capital items approved by HUD. Cause: The noncompliance occurred because management did not follow HUD approval procedures prior to withdrawing funds. This appears to have resulted from a misunderstanding of HUD requirements and lack of review procedures. Effect: By withdrawing funds from the Residual Receipts Account without HUD approval, the Organization was not in compliance with its Regulatory Agreement. This action could result in HUD sanctions, require repayment of the withdrawn funds, or otherwise affect the Organization’s future eligibility for HUD programs. The misuse of restricted funds also weakens the Organization’s ability to maintain the property in accordance with HUD standards. Recommendation: We recommend that management: • Submit proper documentation to HUD to request retroactive approval. • Implement internal controls to ensure that all future withdrawals from restricted accounts receive required HUD authorization prior to disbursement. • Provide staff training on HUD regulatory requirements related to restricted accounts. Views of Responsible Officials: Management concurs with the finding. The Organization will initiate corrective action by submitting proper documentation to HUD to request retroactive approval and establishing procedures requiring HUD approval prior to any future withdrawals.