Finding Text
Federal Program - Assistance Listing Number 14.155 - Section 223 Mortgage Insurance Population, sample size, and instances of non-compliance The population consists of two reserve for replacements reimbursement requests made by SDSI Housing Corporation, Inc. (SDSI Housing). Both of the reimbursement requests were tested, and one instance of non-compliance was noted. Condition SDSI Housing received reimbursement from the reserve for replacements of $135,824 for roof repairs that were previously funded with insurance proceeds. Criteria Under HUD Occupancy Handbook 4350.3 REV-1, the reserve for replacements is generally used to help defray the costs of replacing a project's capital items. Effect SDSI Housing’s reserve for replacements is under funded by $135,824 due to the reimbursement of ineligible items. Cause A reimbursement request was submitted for SDSI Housing’s major roof repairs which are traditionally contemplated as eligible for draws under HUD Occupancy Handbook 4350.3 REV-1. However, management did not consider the fact that such repairs had already been funded by insurance proceeds, so the major roof repairs resulted in no cost to SDSI Housing. Recommendation Management should return $135,824 to SDSI Housing’s reserve for replacements for the ineligible withdrawal. Reporting views of management Management agrees with the finding. Management returned ineligible funds of $135,824 to SDSI Housing’s reserve for replacements on April 16, 2026. Auditor Non-Compliance Classification Special Tests and Provisions - Unauthorized withdrawals from replacement reserve account