Core Issue: Funds meant for multi-family projects were improperly used for a vehicle refurbishment benefiting a related entity.
Impacted Requirements: Noncompliance with HUD regulations on the use of replacement reserve funds due to co-mingling of finances.
Recommended Follow-Up: Implement strict cash management practices to ensure operational separation between entities, possibly using a third-party line of credit.
Finding Text
Finding No. 2022-001 (Noncompliance) - ALN 14.155 Mortgage Insurance for the Refinancing of Existing Multi-Family Housing Projects Criteria: Funds withdrawn from the replacement reserve with HUD?s approval to purchase a vehicle, were used for refurbishment of an old truck that was on the books of another non-HUD funded related entity. Condition: Funds for operating the multi-family projects were co-mingled between related entities. Context: Audit procedures over compliance relating to special tests and provisions revealed non-compliance with respect to the use of funds withdrawn from the replacement reserve. Cause: The Organization co-mingled funds required to operate its various multi-family projects. Effect: The Organization was not in compliance with the requirements relating to withdrawal of funds from the replacement reserve as the amount was used for the benefit of a related entity which is not a permitted use of the funds. Recommendation: Management should avoid transfers of cash between entities and maintain an operational discipline to keep the operations of each entity separate by 1) being self sufficient or 2) implementing a third-party line of credit to cover peaks and valleys on cash flow. Response: Management concurs with the finding and is working towards operational discipline to prevent transfers between entities.
Corrective Action Plan
Windmill HDFC?s Response Management concurs with the findings. The Organization is modifying its internal control processes to more quickly identify approvals for disbursements of funds that pertain to specific entities under management. In addition, enhanced training will be provided to employees with direct involvement with federal funds and allocation of the use of those funds.