Project Support Housing IINon-Profit

Condition: During our audit of Project Support Housing II for the year ended December 31, 2024, we noted that management made withdrawals totaling $4,700 from the property’s Residual Receipts Account without obtaining the required prior written approval from the U.S. Department of Housing and Urban Development (HUD). The withdrawn funds were used for maintenance expenses. Criteria: HUD regulatory agreements and program requirements stipulate that withdrawals from the Residual Receipts Account must be approved in writing by HUD prior to disbursement. Specifically, the Regulatory Agreement requires that reserve funds “shall be withdrawn only with the written consent of HUD” and must be used solely for the replacement of capital items approved by HUD. Cause: The noncompliance occurred because management did not follow HUD approval procedures prior to withdrawing funds. This appears to have resulted from a misunderstanding of HUD requirements and lack of review procedures. Effect: By withdrawing funds from the Residual Receipts Account without HUD approval, the Organization was not in compliance with its Regulatory Agreement. This action could result in HUD sanctions, require repayment of the withdrawn funds, or otherwise affect the Organization’s future eligibility for HUD programs. The misuse of restricted funds also weakens the Organization’s ability to maintain the property in accordance with HUD standards. Recommendation: We recommend that management: • Submit proper documentation to HUD to request retroactive approval. • Implement internal controls to ensure that all future withdrawals from restricted accounts receive required HUD authorization prior to disbursement. • Provide staff training on HUD regulatory requirements related to restricted accounts. Views of Responsible Officials: Management concurs with the finding. The Organization will initiate corrective action by submitting proper documentation to HUD to request retroactive approval and establishing procedures requiring HUD approval prior to any future withdrawals.

Condition: The Organization failed to bring the reserve account to a fully funded position during the period ended December 31, 2022. Deposits and interest were added during the current period in the amount of $9,256. This leaves the period underfunded and the total deficit at $2,254. Criteria: The Regulatory Agreement with HUD states, “Mortgagor will establish and maintain a reserve fund for replacements in a separate account in a bank which is insured by the Federal Deposit Insurance Corporation…. Concurrently with the effective commencement of rental assistance payments under the Project Assistance Contract, the Mortgagor will deposit an amount equal to $764.33 per month unless a different date or amount is approved in writing by HUD.” During the prior year, the replacement reserve was underfunded by $2,338. During the current year, the Organization needed to make twelve payments of $764.33 plus an additional $2,338 for the prior year underfunding for total required deposits of $11,510. $9,256 was deposited in the replacement reserve account during 2022. Current reserve balance is $116,203, and the required reserve balance is $118,457. Effect: The reserve account is underfunded by $2,254 as of December 31, 2022. Cause: Management failed to deposit the funds as required since the Organization’s financial position made it difficult to do so. Recommendation: We recommend the Organization bring the reserve account to a fully funded position. Auditee's Response: The Organization will work towards bringing the reserve account into compliance.

Condition: The Organization failed to deposit surplus cash from 2021 of $15,814 into residual receipts within 60 days of the fiscal period end. Criteria: HUD-93486-ORCF states that any surplus cash non-profit projects have at the end of the fiscal year "must be deposited with Mortgagee within 60 days after Fiscal Period ends." During the prior year, the Project had surplus cash in the amount of $15,814. Effect: The residual receipts account is underfunded by $15,814 as of December 31, 2022. Cause: Management failed to deposit the surplus cash in time due to the December 31, 2021, audit being completed later in the year on September 27, 2022. Recommendation: We recommend the Organization deposit the funds into residual receipts as soon as possible. Auditee's Response: The Organization will deposit $15,814 of surplus cash into residual receipts as soon as possible.

2021-001 Under Funding of Replacement Reserves Condition: The Organization failed to bring the reserve account to a fully funded position during the period ended December 31, 2021. Deposits and interest were added during the current period in the amount of $9,138. This leaves the period underfunded and the total deficit at $2,338. Criteria: The Regulatory Agreement with HUD states, ?Mortgagor will establish and maintain a reserve fund for replacements in a separate account in a bank which is insured by the Federal Deposit Insurance Corporation?.Concurrently with the effective commencement of rental assistance payments under the Project Assistance Contract, the Mortgagor will deposit an amount equal to $764.33 per month unless a different date or amount is approved in writing by HUD.? During the prior year, the replacement reserve was underfunded by $2,349. During the current year, the Organization needed to make twelve payments of $764.33 plus an additional $2,349 for the prior year underfunding for total required deposits of $11,521. $9,138 was deposited in the replacement reserve account during 2021. Current reserve balance is $116,897, and the required reserve balance is $117,028. Effect: The reserve account is underfunded by $2,338 as of December 31, 2021. Cause: Management failed to deposit the funds as required since the Organization?s financial position made it difficult to do so. Recommendation: We recommend the Organization bring the reserve account to a fully funded position. Auditee's Response: The Organization will work towards bringing the reserve account into compliance.

2021-002 Failure to deposit surplus cash into residual receipts within 60 days Condition: The Organization failed to deposit surplus cash from 2020 of $1,437 into residual receipts within 60 days of the fiscal period end. Criteria: HUD-93486-ORCF states that any surplus cash non-profit projects have at the end of the fiscal year "must be deposited with Mortgagee within 60 days after Fiscal Period ends." During the prior year, the Project had surplus cash in the amount of $1,437. Effect: The residual receipts account is underfunded by $1,437 as of December 31, 2021. Cause: Management failed to deposit the surplus cash in time due to the December 31, 2020 audit being completed late, on January 25, 2022. Recommendation: We recommend the Organization deposit the funds into residual receipts as soon as possible. Auditee's Response: The Organization will deposit $1,437 of surplus cash into residual receipts as soon as possible.

2020-001 Under Funding of Replacement Reserves Condition: The Organization failed to bring the reserve account to a fully funded position during the period ended December 31, 2020. Deposits and interest were added during the current period in the amount of $20,231. This leaves the period underfunded and the total deficit at $2,349. Criteria: The Regulatory Agreement with HUD states, ?Mortgagor will establish and maintain a reserve fund for replacements in a separate account in a bank which is insured by the Federal Deposit Insurance Corporation?. Concurrently with the effective commencement of rental assistance payments under the Project Assistance Contract, the Mortgagor will deposit an amount equal to $764.33 per month unless a different date or amount is approved in writing by HUD.? During the prior year, the replacement reserve was underfunded by $5,871. During the current year, the Organization needed to make twelve payments of $764.33 plus an additional $5,871 for the prior year underfunding for total required deposits of $22,580. $20,231 was deposited in the replacement reserve account during 2020. Current reserve balance is $107,714, and the required reserve balance is $110,063. Effect: The reserve account is underfunded by $2,349 as of December 31, 2020. Cause: Management failed to deposit the funds as required since the Organization?s financial position made it difficult to do so. Recommendation: We recommend the Organization bring the reserve account to a fully funded position. Auditee's Response: The Organization will work towards bringing the reserve account into compliance.

2020-002 Failure to deposit surplus cash into residual receipts within 60 days Condition: The Organization failed to deposit surplus cash from 2019 of $7,550 into residual receipts within 60 days of the fiscal period end. Criteria: HUD-93486-ORCF states that any surplus cash non-profit projects have at the end of the fiscal year "must be deposited with Mortgagee within 60 days after Fiscal Period ends." During the prior year, the Project had surplus cash in the amount of $7,550. Effect: The residual receipts account is underfunded by $7,550 as of December 31, 2020. Cause: Management failed to deposit the surplus cash in time due to the December 31, 2019 audit being completed late, on September 13, 2020. Recommendation: We recommend the Organization deposit the funds into residual receipts as soon as possible. Auditee's Response: The Organization deposited $7,550 of surplus cash into residual receipts on June 1, 2021.

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