Audit 410007

Criteria: The mortgagor (Company) is required to establish and maintain a replacement reserve to aid in funding extraordinary maintenance and repair and replacement of capital items. The replacement reserve funds must be deposited in a federally insured depository in an interest-bearing account. An amount as required by HUD ($13,512 annually) will be deposited monthly in the reserve fund. Condition: During our testing, we noted that the Company made only six of the twelve required monthly deposits to the replacement reserve account during the audit period. As a result, the replacement reserve was not funded in accordance with HUD requirements. Cause: The Company changed management agents during the fiscal year, and the new management agent did not make the required monthly replacement reserve deposits. Effect: The Company did not meet the replacement reserve funding requirement under the Capital Advance Program Regulatory Agreement requiring monthly deposits.

Criteria: Per 24 CFR Section 891.410(a), HUD requires the maintenance of a waiting list and the selection of applicants in chronological order of application date. Condition: During our review, management was unable to provide a waiting list or other records demonstrating that applicants were maintained and selected in chronological order as required by 24 CFR Section 891.410(a). Cause: The project changed property management agents during the fiscal year. The previous management company did not maintain adequate documentation of the tenant waiting list, resulting in the absence of records necessary to demonstrate compliance with HUD requirements. Effect: Without a documented tenant waiting list, there is no support to demonstrate that applicants were selected and admitted in accordance with the established order or applicable program requirements.