Finding Text
Finding 2025-003 – Public Housing Advance to Creative Housing Limited Partnership – ALN 14.850 Low Rent Public Housing Program – Noncompliance and Material Weakness Condition & Cause: During the audit, we determined that the Housing Authority advanced $257,202.70 of Public Housing funds to Creative Housing Limited Partnership (CHLP) for cash flow purposes. CHLP is a tax credit limited partnership and is a separate legal entity from the Housing Authority. Public Housing funds were used to provide cash flow financing to CHLP rather than for allowable Public Housing program purposes. The condition appears to have resulted from management's determination that Public Housing funds could temporarily be used to meet CHLP's cash flow needs without obtaining the necessary HUD authorization or establishing that such use was an allowable Public Housing expenditure. Criteria: Public Housing Operating Funds are restricted Federal funds and may only be used for purposes authorized under Section 9(e) of the United States Housing Act of 1937, applicable HUD requirements, and the terms and conditions of the Federal award. HUD identifies the Operating Fund as funding provided to PHAs for the operation and management of public housing. HUD PIH Notice 2025-14, Revised FDS Line Definitions, specifically cautions PHAs that Federal funds are normally not fungible between different Federal programs and states that the inappropriate use of restricted funds, including operating subsidy, for even a temporary loan, constitutes an ineligible cost and results in program noncompliance. The Notice further states that Public Housing Operating Funds are restricted funds that may only be used for the operation and management of Public Housing and may not be used to cover or support non-public-housing program activities. HUD's guidance also distinguishes between transactions involving Public Housing activities and transactions involving affiliated or separate entities. HUD explains that affiliates are treated as separate entities for purposes of applicable requirements and that Public Housing funds may not be used to finance or develop projects that do not include Public Housing units. Accordingly, Public Housing funds may not be advanced or temporarily loaned to a separate tax-credit entity for cash-flow purposes when the funds are not being used for an allowable Public Housing purpose or otherwise authorized by HUD. Effect: The use of Public Housing funds for CHLP's cash flow needs resulted in $257,202.70 of Public Housing funds being unavailable for authorized Public Housing program purposes. Because the funds were advanced to a separate tax credit limited partnership, the transaction represents noncompliance with the requirements governing the use of Public Housing funds. Recommendation: We recommend that the Housing Authority immediately discontinue the use of Public Housing funds to provide advances or other financing to CHLP unless specifically authorized by HUD and otherwise determined to be allowable. The Housing Authority should require CHLP to repay the $257,202.70 advance as soon as practicable and maintain documentation supporting the repayment. Management should also establish procedures requiring review and approval of all transfers or advances between the Housing Authority and related entities to ensure that such transactions comply with federal requirements and applicable HUD guidance. Questioned Costs: $257,202.70 Repeat Finding: No Was sampling statistically valid? Yes Views of responsible officials: The PHA agrees with the results of the audit and recommendations.