Finding Text
Department of Housing and Urban Development Finding 2024-003 Section 202 Supportive Housing for the Elderly, AL 14.157 Criteria The terms of the regulatory agreement and HUD handbook 4370.2 require repayments of related party loans to be limited to available surplus cash computed on a semi-annual or annual basis unless approved by HUD. As the Organization is a nonprofit and does not receive surplus cash, HUD approval for repayment was required. Condition During the year ended September 30, 2023, the Organization repaid affiliate advances totaling $23,000 made during the year ended September 30, 2022 without HUD approval. The advances were made as a result of delays in receipt of PRAC funds used for operations. Cause Delays in receiving the PRAC renewal funds resulted in the affiliate lending funds to the property to fund operations. Upon final receipt of PRAC funds, the affiliate was repaid a portion of the advances made. Procedures were not in place to ensure that repayment of related party advances were approved
by HUD. Effect or Potential Effect The repayment of $23,000 was technically an unauthorized distribution without HUD approval, and therefore considered to be a questioned cost. Questioned Costs $23,000 Context During the year ended September 30, 2023, the Organization repaid $23,000 in affiliate advances without obtaining required HUD approval. The advances were originally made to address delays in receiving PRAC funds for operational purposes. HUD approved repayment of $73,000 of the $96,000 advanced during fiscal year ended September 3, 2022. HUD has not indicated approval of the remaining $23,000. Identification as a Repeat Finding See prior year finding 2023-001 Recommendation Management should obtain HUD approval of repayment of these advances. In the future, management should request PRAC funding advances, if needed, from the replacement reserve or residual receipts reserve, or obtain HUD approval for repayment to Owner upon receipt of PRAC funds. Auditor Noncompliance Code: H - Unauthorized distribution of project assets Finding Resolution Status: In Process Reporting Views of Responsible Officials HUD approved the $75,000 repaid as a response to a 2022 finding. Management will seek evidence of HUD approval for the remaining $23,000 repaid.