Finding Text
Significant Deficiency and Noncompliance – Unapproved General Operating Reserve Withdrawal Department of Housing and Urban Development Assistance Listing Number 14.126 – Mortgage Insurance – Cooperative Projects Significant Deficiency and Noncompliance Category of Finding – Special Tests and Provisions Criteria - The HUD regulatory agreement requires the Cooperative to establish and maintain a general operating reserve. Withdrawals from the reserve in excess of 20% of the balance of the previous year-end require prior written approval by HUD. Condition - Excess withdrawals of $9,497 were taken from the general operating reserve without obtaining proper HUD approval. Cause - The Cooperative did not obtain the proper HUD approval to withdraw the general operating reserve funds in excess of 20% of the balance of the previous year-end. Effect - The Cooperative was out of compliance with their HUD regulatory agreement at August 31, 2025. Recommendation - We recommend that the Cooperative implement a control process to ensure adherence to the regulatory agreement and obtain proper HUD approval prior to withdrawing general operating reserve funds. Auditee’s comment - The Cooperative will obtain appropriate approvals for general operating reserve withdrawals in excess of 20% of the previous year-end balance to meet the HUD regulatory agreement requirements. In September 2025, the Cooperative entered into a management agreement with Paramark Real Estate Services to manage the Cooperative. The management agent will implement a process to ensure approvals are obtained as required by the regulatory agreement. Status - Resolved