Finding Text
FINDINGS - MAJOR FEDERAL AWARD PROGRAM AUDIT (CONTINUED)
Department of Housing and Urban Development Finding, 2024-004: Major Programs: Capital Advance Program, Federal Assistance Listing Number 14.U01 and Section 8 New Construction and Substantial Rehabilitation, Federal Assistance Listing Number 14.182
STATEMENT OF CONDITION
There was an unauthorized withdrawal of funds from the residual receipts reserve account during the year ended September 30, 2024.
CRITERIA
HUD Handbook 4370.2 Revision 1 for HUD Subsidized Multifamily Housing Programs requires funds to be released from the Project’s residual receipts account only with prior written approval from HUD.
EFFECT OF CONDITION
Management withdrew funds from the residual receipts account without prior written approval from HUD.
CONTEXT
During audit fieldwork, the residual receipts account was tested for compliance with required approved withdrawals from HUD. An unapproved withdrawal of $163,679 was made during the year ended September 30, 2024.
CAUSE OF CONDITION
Management withdrew the 2023 surplus cash that was deposited into the residual receipts account without HUD approval.
RECOMMENDATION
The auditor recommends the Property receive HUD approval before withdrawing funds from its residual receipts account and repay the $163,679 to the residual receipts account.
VIEWS OF RESPONSIBLE OFFICIALS AND PLANNED CORRECTIVE ACTIONS
Carrasquillo Management LLC acknowledges the finding regarding the unauthorized withdrawal of $163,679 from the Project’s residual receipts account during the fiscal year ended September 30, 2024.
This withdrawal was related to surplus cash from fiscal year 2023 that had been deposited into the residual receipts account. Due to miscommunication and misunderstanding during the transition between management companies, the withdrawal was made without obtaining prior written approval from HUD, as required under HUD Handbook 4370.2 Revision 1.
Corrective Actions:
1. Repayment Agreement with HUD
Carrasquillo Management LLC has been in direct communication with the Project’s HUD Account Executive, Nyal McDonough, of the Northeast Region Asset Management Division. HUD has agreed to allow the Project to repay the full $163,679 through monthly installments as part of an interest-free repayment plan until the balance is fully restored to the residual receipts account. This agreement is currently being implemented and tracked in coordination with HUD.
2. Internal Compliance Controls
To ensure full compliance going forward, Carrasquillo Management LLC has updated internal policies and procedures to strictly prohibit any withdrawals from the residual receipts account without explicit written authorization from HUD. All future requests for residual receipts will be submitted through HUD’s formal request channels, and no funds will be accessed without prior written approval.
3. Staff Training
Relevant personnel have received training on HUD Handbook 4370.2 and HUD financial controls regarding restricted accounts. Additional safeguards are in place to ensure management and accounting teams confirm HUD approval documentation before any restricted account disbursement.
4. Monthly Monitoring and Reporting
Carrasquillo Management LLC will include the residual receipts repayment schedule in its monthly financial reporting to ownership and will maintain communication with HUD to ensure full transparency throughout the repayment period.
Carrasquillo Management LLC is committed to full regulatory compliance and to restoring the integrity of all project accounts in collaboration with HUD.