Finding Text
Title and Assistance Listing Number of Federal Program: 14.131 – Mortgage Insurance-Rental Housing [Section 207(a)/223(f)] and 14.856 Lower Income Housing Assistance Program (Section 8 Moderate Rehabilitation)
Type of Finding: Federal Award Finding
Finding Resolution Status: In Process
Information on Universe Population Size - N/A
Sample Size Information - N/A
Identification of Repeat Finding and Finding Reference Number - Not Applicable
Criteria: HUD Handbook 4381.5, Paragraph 2.14 - Bonding Requirements for Agents, requires that management agents maintain at least two months’ gross potential rents computed using the project with the highest gross potential income.
Statement of Condition: Management changed insurance coverage and as part of the transition, only $25,000 of fidelity coverage was included in the policy, which was less than two months’ gross income for Argus Manor Association.
Cause: Due to management oversight, the coverage was reduced below the required level.
Effect or Potential Effect: Management was not in compliance with the requirements of HUD Handbook 4381.5, Paragraph 2.14 - Bonding Requirements for Agents.
Auditor Noncompliance Code: Z – Other
Questioned Costs: $0
FHA Contract Number: 127-11114
Reporting Views of Responsible Officials: The Corporation took corrective action and has increased fidelity coverage that exceeds the HUD required amount. The coverage limit was increased to $1,000,000.
Context: Monthly rent potential is currently $67,200, so the required level of insurance is $134,400 to equal two months’ potential rent. Actual coverage was only $25,000.
Auditor Recommendation: We recommend that management increase the insurance coverage to at least $134,400, and monitor insurance limits for increases in rents and income to stay in compliance with the minimum requirement of two months’ gross potential income.
Auditor’s Summary of the Auditee’s Comments on the Findings and Recommendations:
After we were made aware of the conditions noted by the auditor, we increased our coverage limit to $1,000,000 which exceeds the HUD required insurance limit.
Response Indicator: Agree
Completion Date: December 7, 2023