Finding 967582 (2023-001)

Criteria: Project funds must be used for the operation of the project, including required insurance coverage, and to make required deposits to replacement reserve and residual receipts accounts (24 CFR section 891.400(e)). Condition: During fiscal year 2023, the management company used operating funds in the amount of $477,645 for purposes unrelated to the Project. The management company returned $190,000 on January 31, 2023; $180,000 on December 19, 2023 to the operating cash account and $99,000 on December 20,2023 to the service coordinator cash account. Remaining $8,640 is included in prepaid expenses as of October 31, 2023. Questioned Costs: $477,645 Cause: Management company’s oversight of Project funds did not ensure compliance with requirements related to the use of Project funds. Effect: The unauthorized use of Project funds by the management company resulted in the Project not to be in full compliance with its Regulatory Agreement regarding use of project funds. Recommendation: Management should enhance its internal controls to ensure Project funds are only used for Project activities and expenses necessary for the ongoing operation and maintenance of the Project. Management Response: See Management’s Corrective Action Plan on page 35.