Audit 397143

Department of Housing and Urban Development 2025-001 Project Based Rental Assistance Criteria: HUD regulations require that funds held in a project’s replacement reserve account be used only for eligible capital repair and replacement costs and only after obtaining prior written approval from HUD. Unauthorized use of replacement reserve funds is not permitted and may result in noncompliance with program requirements. Condition: During the audit period, the Organization used funds from the replacement reserve account without obtaining the required prior written authorization from HUD. Cause: The Organization did not have adequate internal controls in place to ensure that HUD approval was obtained and documented before disbursements were made from the replacement reserve account. Effect: The Organization expended replacement reserve funds without proper authorization, resulting in noncompliance with HUD program requirements. Auditor’s Recommendation: We recommend that management implement and enforce procedures requiring documented HUD approval prior to any use of replacement reserve funds, including review and approval by appropriate management personnel, to ensure compliance with HUD requirements. Management response: We were not aware that the use of these funds required HUD approval. We are creating a policy to prevent any use of the HUD reserve account funds, without prior approval from HUD. We have subsequently returned all funds that were borrowed without prior HUD authorization, and will not access them in future, without proper approval from HUD.

Department of Housing and Urban Development 2025-002 Project Based Rental Assistance Criteria: HUD regulations require project owners to make required deposits to the Replacement Reserve account in the amounts and at the frequency prescribed by HUD. These funds are restricted for the future repair and replacement of project assets and must be deposited timely in accordance with HUD requirements. Condition: During the audit period, the Organization did not make the required deposits to the Replacement Reserve account in accordance with HUD requirements. Cause: The Organization did not have adequate internal controls in place to ensure required Replacement Reserve deposits were calculated, reviewed, and made timely in accordance with HUD requirements. Effect: The Replacement Reserve account was underfunded during the audit period, resulting in noncompliance with HUD program requirements and increasing the risk that sufficient funds may not be available for future capital repairs and replacements. Auditor’s Recommendation: We recommend that management implement and enforce procedures to ensure Replacement Reserve deposits are made in the required amounts and at the required frequency, including periodic review by management to ensure ongoing compliance with HUD requirements. Management response: We will create a procedure for the Finance team to make the required deposits to the HUD replacement reserve accounts in the future. They will be added to the monthly reconciliations. We have caught up and made necessary deposits to date, and are current.