Finding Text
2023-001 Reserve for Replacement
Assistance Listing #14.157 Supportive Housing for the Elderly - Section 202
Criteria
Owners 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 a federally insured depository in an interest-bearing account. All earnings
including interest on the reserve must be added to the reserve. An amount as required by HUD
will be deposited monthly in the reserve fund (Regulatory Agreement, item 5 A). All
disbursements from the reserve must be approved by HUD (24 CFR sections 891.405 and
891.605).
Condition
As of December 31, 2023, required deposits for 21 months amounting to $93,156 were not
deposited to the replacement reserve account.
Cause
The Project’s cash flow deficiencies resulted in noncompliance with the reserve requirement.
Effect
Required replacement reserve was not complied with during fiscal year 2023.
Questioned Cost
None.
Context
A cumulative 21 months of monthly deposits were not made during the year.
Recommendation
We recommend that the Project regularly monitors deposits in the reserve for replacement to
ensure that it complies with the requirements of 24 CFR sections 891.405 and 891.605 or
request waiver due to cash flow issues.
View of Responsible Official and Planned Corrective Action
Subsequently, on August 2024, the shortfall in the reserve for replacement was funded.