Finding 58531 (2022-001)

Material Weakness

Requirement

Questioned Costs

Year

2022

Accepted

2023-02-27

Audit: 55320

Organization: Catherine Booth Friendship House Residence Inc., A Texas Corporation (TX)

Auditor: Cohnreznick LLP

AI Summary

Core Issue: The Organization repaid $73,000 in affiliate advances without required HUD approval, which is considered an unauthorized distribution.
Impacted Requirements: Repayments of related party loans must be approved by HUD unless there is surplus cash, which the nonprofit does not have.
Recommended Follow-Up: Management should secure HUD approval for all repayments and consider alternative funding sources for future needs.

Finding Text

Department of Housing and Urban Development Finding 2022-001 Section 202 Supportive Housing for the Elderly, AL 14.157 Statement of Condition During the year ended September 30, 2022, the Organization repaid affiliate advances totaling $73,000 without HUD approval. The advances were made as a result of delays in receipt of PRAC funds used for operations. Criteria The terms of the HAP contract 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. 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 $73,000 was technically an unauthorized distribution without HUD approval, and therefore considered to be a questioned cost. Questioned Costs $73,000 Recommendation Management should obtain HUD approval of repayment of these advances as well as repayment of the remaining $23,000 advances outstanding. 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 (REAC); N - Special Tests and Provisions (UG). Finding Resolution Status: In process. The remaining $23,000 advance was repaid to the affiliate North Texas Area Command on October 7, 2022. Approval on all $96,000 of the unauthorized transfers is outstanding as of January 3, 2023. Management is planning to reach out to HUD for approval in the near future. Reporting Views of Responsible Officials The funds were a short-term advance to the property by the affiliate to fund operations, to enable management to continue to provide services to our elderly tenants and pay our staff while the property waited for the PRAC funds from HUD. These funds were not distributed to the officers or owners and the advances were not collateralized. In the future we will obtain HUD approval first, or we will request withdrawal from replacement reserves or residual receipts reserve.

Corrective Action Plan

Project Legal Name: Catherine Booth Friendship House Fort Worth, TX (A Project of Catherine Booth Friendship House Residence, Inc., A Texas Corporation) HUD Project No.: 113-EE021 Audit Firm: CohnReznick LLP Period covered by the audit: 10/1/2021-9/30/2022 Corrective Action Plan prepared by: Name: Sriparna Mitra Position: HUD Specialist, THQ (Legal) Telephone Number: 404-728-6700 The following is a recommended format to be followed by the auditee for preparing a corrective action plan: A. Current Findings on the Schedule of Findings, Questioned Costs and Recommendations 1. Finding 2022-001 a. Comments on the Finding and Each Recommendation The auditee agrees with the finding. The auditee agrees with the recommendation that management should obtain HUD approval of repayment of advances outstanding in the amount of $23,000 to cover PRAC shortfalls. In the future, management will request PRAC shortfall funding advances, if needed, from the replacement reserve or residual receipts reserve, or obtain HUD approval for repayment to Owner from operations upon receipt of PRAC funds. b. Action(s) Taken or Planned on the Finding In the future we will obtain HUD approval prior to repayment for advances to cover PRAC shortfall -funding, or we will request withdrawal from replacement reserves or residual receipts reserve. B. Status of Corrective Actions on Findings Reported in the Schedule of the Status of Prior Year Findings, Questioned Costs and Recommendations Finding 2021-001 Cleared. Finding 2022-001 Cleared.

Other Findings in this Audit

58532 2022-001

Material Weakness
634973 2022-001

Material Weakness
634974 2022-001

Material Weakness

Programs in Audit

ALN	Program Name	Expenditures
14.157	Supportive Housing for the Elderly	$6.20M