Finding 1073129 (2023-002)

Compliance requirement Special Test and Provisions Statement of Condition The entity has a delinquent deposit to the replacement reserve. Context In order to ascertain whether the Project complied with the proper use of the reserve account, we verified that monthly deposits were transferred from the operating account to the reserve account for the authorized amount. We noted that the entity misses ten payments. Criteria 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 (24CFR sections 880.601, 880.602, 881.601 and 883.701). Known questioned cost None. Underlying cause Lack of personnel in the accounting department. Only one employee is in-charge of performing the accounting and the closing procedures. Effect Project may be subject to HUD findings and therefore, may be subject to penalties. Recommendation We recommend the Project’s management to evaluate the need of contracting additional personnel to minimize the accounting closing time. We recommend also, establishing monitoring procedures to ensure the compliance of such requirement. Management Response See Corrective Action Plan on page 37.