Finding Text
1. Criteria: The Project’s regulatory and grant agreements mandate that project funds be used solely for the benefit of the specific audited HUD project. The project is strictly prohibited from loaning or utilizing project funds for non-project purposes, including making disbursements or advances on behalf of other affiliated entities or projects without prior written consent from HUD. 2. Condition: During the review of related-party transactions and cash disbursements, it was noted that the Project disbursed restricted federal funds totaling $255,270 to cover the costs of an elevator replacement project on behalf of an affiliated entity. This transaction effectively functioned as an unauthorized loan or advance of project funds to an affiliated entity. 3. Cause: The Project utilizes a centralized cash account to manage and disburse payments to shared vendors across all its affiliates. While these entities share a management structure and vendor relationships, the internal control and accounting procedures failed to prevent or flag a disbursement made for separate cost objectives that did not benefit the project. 4. Effect: By utilizing project funds to pay for the expenses of related entities, the Organization diverted restricted federal funds away from the specific project for which they were intended. 5. Questioned Costs: $255,270 - Representing the total amount due from the affiliate entity for the unauthorized disbursement. 6. Recommendations: We recommend management establish and implement robust internal control policies that strictly prohibit the payment of non-project expenses from the Project funds. 7. Views of Responsible Officials: Management agrees with the findings and recommendations. Management will review and implement an updated cash disbursement procedure to ensure that Project funds are restricted solely to project-specific operations and are not disbursed on behalf of separate entities. 8. Current Status: Management is in the process of receiving the full reimbursement of the $255,270 from the affiliated entity.