Finding 1062175 (2023-002)

Federal Agency: U.S. Department of Housing and Urban Development Federal Program Name: Section 8 Project-Based Cluster Assistance Listing Number: 14.182 Federal Award Identification Number and Year: Multiple, 2023 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Period: January 1, 2023 – December 31, 2023 Type of Finding: • Significant Deficiency in Internal Control Over Compliance, Other Matters Criteria or specific requirement: The owner shall 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 an interest-bearing account. All earnings including interest on the reserve must be added to the reserve. All disbursements from the reserve must be as approved or directed by HUD or the state agency for 24 CFR Part 883 projects, as applicable. An amount as required by HUD or the state agency for 24 CFR Part 883 projects, as applicable, shall be deposited monthly in the reserve fund in accordance with the Regulatory Agreement or HAP contract (24 CFR sections 880.601, 880.602, 881.601 and 883.701. Condition: During testing, the Agency did not have adequate internal controls designed to ensure that the replacement reserve requirements for each project were reviewed and adhered to. Questioned costs: None Context: 25 files were selected from a population of over 250 developments for which the Agency is responsible for the replacements reserve deposits and withdrawals. Exceptions noted in 6 out of 25 instances. - 2 cases in which the project deposited less than the required amount - 1 case in which the 2023 budget was provided by the project but was never reviewed by the Agency and the escrow memo was not provided. - 3 cases in which the 2023 budget was never received by the Agency and the escrow memo was not provided. Cause: Controls were not implemented to ensure that the replacement reserve requirements for each project was reviewed and adhered to. Effect: The Agency is not in compliance with replacement reserve requirements. Recommendation: We recommend that the Agency implements controls to ensure that they are receiving and reviewing the budget for each project. We also recommend that the authority implements controls to ensure that the projects are making their required monthly deposits.