Finding 502108 (2024-001)

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 $20,419 were taken from the general operating reserve without obtaining the proper HUD approval. Cause - The Cooperative inadvertently omitted obtaining the proper HUD approval to withdrawal 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 March 31, 2024. Recommendation - We recommend that the Cooperative implement a control process to ensure adherence to the regulatory agreement and obtain the proper HUD approval to withdrawal general operating reserve funds. Auditee’s comment - In April 2024, prior to the conclusion of the audit, the Cooperative made deposits totaling $36,916 to the general operating reserve to fund the reserve to its proper balance. The management agent will implement a process to ensure withdrawals are made as required by the regulatory agreement. Status - Resolved Responsible party for corrective action – Alexis Anderson, President of Anderson Asset Property Group, LLC (Management Agent)