S.D.S.I. Housing Corporation, Inc.Non-Profit

Federal Program Section 223 Mortgage Insurance, Assistance Listing Number 14.157 Population, sample size, and instances of non-compliance The population consists of two reserve for replacements reimbursement requests. Both of the reimbursement requests were tested, and one instance of non-compliance was noted. Condition The Project received reimbursement from the reserve for replacements of $135,824 for roof repairs that were previously funded with insurance proceeds. Criteria Under HUD Occupancy Handbook 4350.3 REV-1, the reserve for replacements is generally used to help defray the costs of replacing a project's capital items. Effect The reserve for replacements is under funded by $135,824 due to the reimbursement of ineligible items. Cause A reimbursement request was submitted for major roof repairs which are traditionally contemplated as eligible for draws under HUD Occupancy Handbook 4350.3 REV-1. However, management did not consider the fact that such repairs had already been funded by insurance proceeds, so the major roof repairs resulted in no cost to the Project. Recommendation Management should return $135,824 to the reserve for replacements for the ineligible withdrawal. Reporting views of management Management agrees with the finding. Management will negotiate a payment plan with HUD to return the ineligible funds withdrawn from the reserve for replacements. Auditor Non-Compliance Code A - Unauthorized withdrawals from replacement reserve account