Finding 503295 (2024-001)

Agency: U.S. Department of Housing and Urban Development Federal Assistance Listing Number: 14.155 Federal Program: Mortgage insurance for the purchase or refinancing of existing multifamily housing projects Statement of Condition: The Project did not have adequate and effective controls over compliance relating to special tests and provisions requirements. The U.S. Department of Housing and Urban Development (HUD) allowed the Project to borrow $9,079 of funds from the reserve for replacements account during fiscal year 2023 to assist in cash operational needs, but the amount borrowed was not repaid to the reserve for replacements account by the former project manager on a timely basis, therefore carrying over to the current fiscal year. Criteria: Uniform Guidance states that controls should be implemented to ensure the Project is in compliance with special tests and provisions. As stated in the regulatory agreement, reserve for replacements funds are only to be utilized for HUD approved purposes. The amount borrowed should have been paid back to the reserve for replacements account in a timely fashion. Questioned Costs: No questioned costs were identified. Context: There was one (1) reserve for replacements withdrawal request to borrow funds from the account to assist with operational cash flows. Effect: Inadequate controls over this area of compliance resulted in the Project not being in compliance with the HUD requirements to repay the borrowed funds. Cause: Management overlooked paying back the amounts borrowed from the reserve for replacements account in a timely fashion. Recommendation: We recommend management review their processes and controls surrounding all deposits and withdrawals from the reserve for replacements account to ensure the Project is meeting the requirements of HUD. Management's Response: Current management contends that these funds should have been repaid to the replacements reserve in fiscal year 2023 as operating cash was replenished and that due to the transition of project managers during fiscal 2024, this yet unpaid amount was overlooked and has been corrected as of September 13, 2024.