Finding Text
Federal agency: U.S. Department of Housing and Urban Development
Federal program title: Mortgage Insurance Nursing Homes, Intermediate Care Facilities, Board and Care Homes, and Assisted Living Facilities
Assistance Listing Number: 14.129
Type of Finding: Significant Deficiency in Internal Control over Compliance
Criteria or specific requirement: Per the regulatory agreement, within 90 days after the end of the fiscal period for which surplus cash is calculated, borrower shall deposit into the residual receipts account an amount equal to the excess, if any, of surplus cash as of the end of the fiscal period over the amount of any permitted distributions therefrom.
Condition: Surplus cash was not deposited into the residual receipts account within 90 days after the end of the August 31, 2024 fiscal year.
Questioned Costs: None
Context: The Foundation had calculated surplus cash of $423,902 for the fiscal year ended August 31, 2024. The Foundation utilizes a third-party servicer of their HUD loan, whom they utilize for HUD requests and approvals. During our audit, we noted that the Foundation did not deposit the surplus cash into the residual receipts account within 90 days after the fiscal year ended August 31, 2024.
Cause: There was miscommunication with Lument, the HUD loan lender, and a misunderstanding of the regulatory agreement. Since the Foundation goes through Lument for HUD requests and approvals, management thought the communication they received from Lument was approved by HUD. As a result, management was under the impression that the residual receipts account was fully funded, and the deposit of surplus cash was not required.
Effect: Failure to deposit surplus cash in a timely manner can lead to noncompliance with HUD regulations, which may result in penalties or other legal consequences.
Recommendation: CLA recommends that management ensures the regulatory agreement is being followed by all parties involved, unless otherwise instructed by a HUD representative. Any communication regarding changes to the regulatory agreement should come directly from HUD.
Views of responsible officials: Management is in agreement with the finding. They received miscommunication from Lument which resulted in a misunderstanding of the regulatory agreement. Management will follow the regulatory agreement moving forward and ensure any third-party administrators also follow the regulatory agreement, unless otherwise instructed by a HUD representative. The Foundation received approval from HUD on July 21, 2025 for a suspension of deposits to the residual receipts account as long as a balance of $640,857 is maintained.