Finding Text
II. FINDINGS – FINANCIAL STATEMENTS AUDIT See Finding 2025-001 under Part III Findings – Major Federal Award Program Audit III. FINDINGS – MAJOR FEDERAL AWARD PROGRAM AUDIT S3800-010: Finding Reference Number: 2025-001 (Repeat Finding) S3800-011: ALS 14.181 Supportive Housing for Persons With Disabilities S3800-15: Type of Finding: Financial Statement Findings and Federal Award Finding S3800-16: Finding Resolution Status: Unresolved S3800-17: Information on Universe of Population Size: N/A – Sampling was not used in connection with this finding S3800-18: Sample Size Information: N/A – Sampling was not used in connection with this finding S3800-19: Identification of Repeat Finding and Finding Reference Number: 2024-001 S3800-20: Criteria: 24 CFR § 891.405(a) requires the Owner to establish and maintain a replacement reserve to aid in funding extraordinary maintenance and the repair and replacement of capital items. Section 891.405(d) further provides that replacement-reserve funds may be drawn and used only in accordance with HUD guidelines and with the approval of, or as directed by, HUD. The regulation also permits use of the reserve, with HUD approval, for certain approved capital purposes. In addition, 24 CFR § 891.400(e), applicable to projects operating under a PRAC, requires project funds to be used for operation of the project, including required insurance coverage, and for required deposits to the replacement reserve, in accordance with the HUD-approved budget. S3800-030: Statement of Condition: During fiscal year 2024, the management company made a withdrawal of $12,027 to pay the annual insurance premium from the replacement reserve account without prior HUD approval. The withdrawal was not refunded to the replacement reserve account during the current year. During fiscal year 2025, the management company made an additional withdrawal totaling $7,777 to pay the insurance premium from the replacement reserve account without prior HUD approval. S3800-032: Cause: Management has designed controls to ensure that all replacement reserve withdrawals are approved before disbursement, but the control was not always operating as intended. III. FINDINGS – MAJOR FEDERAL AWARD PROGRAM AUDIT (Continued) S3800-010: Finding Reference Number: 2025-001 (Repeat Finding) (Continued) S3800-011: ALS 14.181 Supportive Housing for Persons With Disabilities S3800-033: Effect: The Corporation is not in compliance with HUD requirements with respect to withdrawals from the replacement reserve account. S3800-035: Auditor Non-Compliance Code: A – Unauthorized withdrawals from the replacement reserve account S3800-040: Questioned Costs: $19,804 S3800-037: FHA/Contract Number: 171-HD013 S3800-038: Questioned Costs: $19,804 S3800-045: Reporting Views of Responsible Officials: Management agrees with the finding and the auditor’s recommendation, and will take the necessary steps to mitigate further non-compliance. Management will seek approval from HUD for these withdrawals and any future withdrawals from the replacement reserve account. S3800-050: Context: The Corporation is experiencing liquidity concerns and had insufficient cash flow to pay the insurance premiums. Insurance premiums are an allowable Project expense, but management should have sought HUD approval to pay the insurance premiums from the replacement reserve. S3800-080: Recommendation: Management should ensure that all staff are aware of the HUD requirements regarding withdrawals from the replacement reserve account and establish the necessary procedures to ensure all withdrawals are approved prior to payment. S3800-090: Auditor’s Summary of the Auditee’s Comments on the Findings and Recommendations: Management agrees with the finding and the auditor’s recommendation, and will take the necessary steps to mitigate further non-compliance. Management will seek approval from HUD for these withdrawals and any future withdrawals from the replacement reserve account. S3800-130: Response Indicator: Agree S3800-140: Completion Date: 08/31/2026 S3800-150: Response: Management agrees with the finding and the auditor’s recommendation, and will take the necessary steps to mitigate further non-compliance.