Finding Text
FINDING #2023-002 RESERVE FOR REPLACEMENT
Type of Finding: Compliance: Special Tests
Program: The Home Investment Partnership Program (Assistance Listing 14.239)
Condition: The Reserve for Replacement account balance for Park Ridge Apartments, Phase 4 underfunded in the amount of $750.
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 (Rental assistance contract item 2.6C Financial Requirements). All disbursements from the reserve must be approved by HUD (24 CFR Section 891.405). Annual deposits must be sufficient to rectify any previous account deficiencies.
Effect: Failure on the part of the Entity to make required deposits to cure account deficiencies in a timely fashion is deemed to be a violation of the regulatory agreement between the Entity and HUD.
Context: The required balance in the Reserve for Replacement account is calculated by adjusting the opening balance at the beginning of the fiscal year by the annual required monthly deposits; other required deposits; interest earned; and approved withdrawals.
Cause: This was an oversight by the Entity’s management agent.
Recommendation: The management agent should ensure that all required deposits are made to the Reserve for Replacement account and that the balance in that account meets the minimum required balance in accordance with the regulatory agreement between the Entity and HUD.
View of Responsible Officials and Planned Corrective Action: The management agent agrees with the finding and the auditor’s recommendations have been adopted.