Audit 383508

Criteria: The HUD regulatory agreement requires the Project to establish and maintain a reserve for replacements account and to make monthly deposits in amounts determined in the regulatory agreement or as later adjusted and authorized by HUD. Condition: During the fiscal year ended September 30, 2025, the Project determined that it did not make required monthly payments in the amounts required by various HUD forms 9250. There were several adjustments made to the deposit requirements over the past several years that the Organization and HUD agreed to, however, the Organization did not adjust its deposit payments accordingly. Cause: Management of the Project lacked sufficient internal controls over its change management procedures for approved and authorized changes to reserve for replacement deposit requirements to ensure deposits are made in accordance with the most current authorized requirements. Effect: Noncompliance with the HUD reserve for replacement requirements through execution of form HUD 9250 could result in (a) exposure to HUD administrative action (e.g., flags or sanctions) associated with reserve underfunding. In addition, the Project could lack the appropriate funds for which the reserves are meant to support Recommendation: We recommend that management communicate this deficiency to all parties involved in the reserve for replacement activities of the project. In addition, management should provide written policies and procedures updating the requirements of each party in the process to ensure that any such changes are properly communicated so that the reserve deposits are modified and updated accordingly. Further, management should work directly with the bank and with HUD to ensure the additional deposits made during the current fiscal year were sufficient to make up for the total deficiencies. This “true-up” process should receive HUD approval for closure. Views of Responsible Officials: Management concurs with the recommendations and will provide instruction and policy to all individuals in the reserve for replacement funding activities of the Project. Since it was discovered prior to September 30, 2025, management worked with the bank and made deposits into the reserve for replacement to make up the shortfall. Management will work with the Bank and HUD to ensure the accuracy of the “true-up” payments made.