At June 30, 2023, the tenants' security deposit account was underfunded by $1,735.
Criteria. The "Consolidated Audit Guide for Audits of HUD Programs" states that "The balance in the account must at all times be at least equal to all outstanding obligations under the account for security deposits."
Cause. Management has not made the necessary transfer to fund the tenant security deposit account.
Effect. The complex is in violation of HUD requirements.
Recommendation. We recommend that funds be transferred to the tenants' security deposit account to adequately fund the liability to tenants as soon as possible.
Management Response. Management made the needed transfer on August 23, 2023, to reflect this adjustment. Necessary transfers will be made on a timelier basis in the future.
Funds were withdrawn from the reserve for replacements account; however, these funds were intended to be withdrawn from the residual receipts account to repay HUD for excess funds in the residual receipts account.
Criteria. Excess residual receipts funds, should be withdrawn from the residual receipts account, not the reserve for replacements account.
Cause. Management intended to request excess funds to be withdrawn from the residual receipts account to repay HUD; however, they incorrectly requested that these funds be withdrawn from the reserve for replacements account.
Effect. The withdrawal of $45,458 from the reserve for replacements account was deposited into the corporation's operating checking account.
Recommendation. We recommend that $45,458 be deposited into the reserve for replacements account.
Management Response. Management will request the necessary transfer be made from the operating account to the reserve for replacements account to correct errors in the fund requesting process. Checks will be put in place to ensure that fund requests are filled out appropriately going forward.
One of the residual receipts bank accounts maintained by the corporation was closed and the balance of $524 was deposited into the operating checking account. Closure of this account was not authorized by HUD.
Criteria. Paragraph 2c of the regulatory agreement states in part, "Residual receipts shall be under the control of the Secretary, and shall be disbursed only on the direction of the Secretary."
Cause. Unknown.
Effect. The residual receipts transfer of funds to the operating account is a violation of the regulatory agreement.
Recommendation. We recommend that $524 be transferred to the residual receipts account that is maintained at the mortgage company and that only withdrawals from this account be made with the approval of HUD.
Management Response. Management will request the $524 transfer be made from the operating account to the residual receipts account. Due diligence will be performed in the future to ensure improper account closures as well as improper transfers of monies are not made.
The prior year surplus cash balance of $11,221 was not deposited into the residual receipts account.
Criteria. Paragraph 13(L) of the regulatory agreement defines residual receipts as, "Any cash remaining at the end of a semiannual or annual fiscal period after deducting from surplus cash the amount of all distributions as that term is defined herein and as limited by paragraph 6(e) hereof".
Cause. Unknown.
Effect. The corporation is in violation of the regulatory agreement.
Recommendation. We recommend that $11,221 be transferred from the operating account to the residual receipt account for the 2022 surplus cash.
Management Response. Management will request the necessary transfer be made from the operating account to the residual receipts account to correct this finding. Surplus cash deposits will be made in a timely manner going forward.
Monthly deposits to the reserve for replacements account was not increased in August 2022 as was required.
Criteria. In accordance with the OCAF rent increase that was effective August 1, 2022, the corporation was required to increase their monthly deposit to the reserve for replacements account.
Cause. Management was not aware that they were required to increase their monthly deposit amount.
Effect. The reserve for replacements account is underfunded $672 as of June 30, 2023.
Recommendation. We recommend that the reserve for replacements account be properly funded by making a transfer of $61.05 per month for August 1, 2022 through the month of funding. Care should be taken to ensure that the increase in the required deposit effective August 1, 2023 is also included in the transfer and that the monthly deposits thereafter be made in accordance with the new requirements.
Management Response. Management was not aware of its requirement to increase the monthly deposit to the reserve for replacements account. Management will fund the necessary monies to compensate for the lack of increase during fiscal year 2023. Management will also ensure the required increase beginning August 1, 2023, will be included in monthly deposits for fiscal year 2024.
At June 30, 2023, the tenants' security deposit account was underfunded by $1,735.
Criteria. The "Consolidated Audit Guide for Audits of HUD Programs" states that "The balance in the account must at all times be at least equal to all outstanding obligations under the account for security deposits."
Cause. Management has not made the necessary transfer to fund the tenant security deposit account.
Effect. The complex is in violation of HUD requirements.
Recommendation. We recommend that funds be transferred to the tenants' security deposit account to adequately fund the liability to tenants as soon as possible.
Management Response. Management made the needed transfer on August 23, 2023, to reflect this adjustment. Necessary transfers will be made on a timelier basis in the future.
Funds were withdrawn from the reserve for replacements account; however, these funds were intended to be withdrawn from the residual receipts account to repay HUD for excess funds in the residual receipts account.
Criteria. Excess residual receipts funds, should be withdrawn from the residual receipts account, not the reserve for replacements account.
Cause. Management intended to request excess funds to be withdrawn from the residual receipts account to repay HUD; however, they incorrectly requested that these funds be withdrawn from the reserve for replacements account.
Effect. The withdrawal of $45,458 from the reserve for replacements account was deposited into the corporation's operating checking account.
Recommendation. We recommend that $45,458 be deposited into the reserve for replacements account.
Management Response. Management will request the necessary transfer be made from the operating account to the reserve for replacements account to correct errors in the fund requesting process. Checks will be put in place to ensure that fund requests are filled out appropriately going forward.
One of the residual receipts bank accounts maintained by the corporation was closed and the balance of $524 was deposited into the operating checking account. Closure of this account was not authorized by HUD.
Criteria. Paragraph 2c of the regulatory agreement states in part, "Residual receipts shall be under the control of the Secretary, and shall be disbursed only on the direction of the Secretary."
Cause. Unknown.
Effect. The residual receipts transfer of funds to the operating account is a violation of the regulatory agreement.
Recommendation. We recommend that $524 be transferred to the residual receipts account that is maintained at the mortgage company and that only withdrawals from this account be made with the approval of HUD.
Management Response. Management will request the $524 transfer be made from the operating account to the residual receipts account. Due diligence will be performed in the future to ensure improper account closures as well as improper transfers of monies are not made.
The prior year surplus cash balance of $11,221 was not deposited into the residual receipts account.
Criteria. Paragraph 13(L) of the regulatory agreement defines residual receipts as, "Any cash remaining at the end of a semiannual or annual fiscal period after deducting from surplus cash the amount of all distributions as that term is defined herein and as limited by paragraph 6(e) hereof".
Cause. Unknown.
Effect. The corporation is in violation of the regulatory agreement.
Recommendation. We recommend that $11,221 be transferred from the operating account to the residual receipt account for the 2022 surplus cash.
Management Response. Management will request the necessary transfer be made from the operating account to the residual receipts account to correct this finding. Surplus cash deposits will be made in a timely manner going forward.
Monthly deposits to the reserve for replacements account was not increased in August 2022 as was required.
Criteria. In accordance with the OCAF rent increase that was effective August 1, 2022, the corporation was required to increase their monthly deposit to the reserve for replacements account.
Cause. Management was not aware that they were required to increase their monthly deposit amount.
Effect. The reserve for replacements account is underfunded $672 as of June 30, 2023.
Recommendation. We recommend that the reserve for replacements account be properly funded by making a transfer of $61.05 per month for August 1, 2022 through the month of funding. Care should be taken to ensure that the increase in the required deposit effective August 1, 2023 is also included in the transfer and that the monthly deposits thereafter be made in accordance with the new requirements.
Management Response. Management was not aware of its requirement to increase the monthly deposit to the reserve for replacements account. Management will fund the necessary monies to compensate for the lack of increase during fiscal year 2023. Management will also ensure the required increase beginning August 1, 2023, will be included in monthly deposits for fiscal year 2024.