Finding Text
Federal Agency: U.S. Department of Housing and Urban Development Program Name: Section 811 Supportive Housing for Persons with Disabilities Assistance Listing Number: 14.181 Federal Award Year: Funding periods between January 1, 2025 and December 31, 2025 Compliance Requirement: Special Tests and Provisions Finding Type: Significant Deficiency - Compliance Criteria The compliance supplement states the following: “Any Surplus Funds in the project funds account (including earned interest) at the end of the fiscal year shall be deposited in a federally insured account within 60 days following the end of the fiscal year". Surplus funds are required to be calculated and returned to HUD within 60 days of the end of the period. Condition During Special Tests and Provision – Residual Receipts, the auditor identified that the Arc did not complete the preliminary audited financial statements that require a calculation of surplus funds as of December 31, 2025 unaudited information. This was the key control identified to ensure that excess funds were remitted, and as it was not completed until after 60 days past year end, the Arc was not able to remit the funds timely if a return existed. Additionally, the Arc calculated that a return was required for one of their projects, however, this was related to issues related to the allocation of intercompany payables and receivables, and the Arc did have sufficient current obligations that they were not required to remit funds despite the calculation. Effect The Arc was not in compliance with Special Tests and Provisions – Residual Receipts. Cause Due to lack of internal controls surrounding timely review of project level accounting and reporting, specifically with respect to surplus fund calculations. In addition, no reconciliations of intercompany payables and receivables were completed. Questioned Costs There are no questioned costs related to the finding. Statistical Sampling The sample was not intended to be, and was not, a statistically valid sample. Repeat Finding This finding is a repeat of prior year finding 2024-002 and has not been fully corrected as of December 31, 2025. While management has taken steps to address the issue, the control deficiency related to timely calculation of surplus funds has not been fully remediated as of December 31, 2025. Recommendation We recommend that the Arc enhance its policies and procedures to ensure responsible program personnel timely complete preliminary assessment of the requirements to calculate surplus funds to ensure no funds are required to be remitted in the 60-day window of year end. View of Responsible Official Management agrees with the audit finding. There was turnover in the controller position, and there were issues with receiving communications from HUD and access to the REAC website as a result of this transition, which led to the lack of timely reporting. Management has emphasized the importance of completing this calculation prior to the 60-day window next year.