Finding Text
Significant Deficiency and Noncompliance – Required Payments to General Operating Reserve
Department of Housing and Urban Development - Assistance Listing Number 14.126 –Mortgage Insurance - Cooperative Projects
Significant Deficiency and Noncompliance
Category of Finding – Special Tests and Provisions
Criteria - The Cooperative’s regulatory agreement with HUD requires monthly payments to a General Operating Reserve. Deposits are 3% of member carrying charges until the balance of the reserve exceeds 15% of current annual member carrying charges. The required deposit is then reduced to 2% of monthly charges until the balance of the reserve exceeds 25% of annual carrying charges.
Condition - Deposits to the segregated account for the General Operating Reserve during the period ended September 30, 2023 were $5,370 less than the required amount for the year.
Cause - The Cooperative inadvertently omitted making $5,370 of monthly deposits to the General Operating Reserve in 2023. The control in place to assure the required monthly deposits were made failed to work; however, a monitoring control identified the error and corrected the deficiency prior to the conclusion of the audit.
Effect - The Cooperative was out of compliance with their HUD regulatory agreement at September 30, 2023, because the General Operating Reserve was underfunded.
Recommendation - We recommend that the Cooperative implement a control process to ensure adherence to the regulatory agreement and make the required monthly deposits to the General Operating Reserve.
Auditee’s comment - On December 29, 2023, prior to the conclusion of the audit, the Cooperative made a deposit of $5,370 to the General Operating Reserve to fund the reserve to its proper balance. The President of the management agent will implement a process to ensure deposits are made as required by the regulatory agreement.
Status - Resolved
Responsible party for corrective action - Alexis Anderson, President of Anderson Asset Property Group, LLC (Management Agent)