Finding Text
US Department of Housing and Urban Development
Federal Financial Assistance Listing #14.181
Supportive Housing for Persons with Disabilities
Special Tests and Provisions – Reserve for Replacements
Criteria: In accordance with the Regulatory Agreement from HUD, management will maintain a reserve for replacement account. The reserve for replacement account shall at all times be subject to the control of HUD. Monthly deposits are required into the reserve for replacement as required by HUD.
Condition: The project did not make the required monthly deposits into the reserve account for the year.
Cause: This occurred due to the renewal of the Project Rental Assistance Contract effective May 1, 2024 not being approved until July 2024 resulting in rental subsidies for May and June 2024 not being received until after year end. Management did not make the required monthly deposits until the rental subsidies for May and June were received.
Effect: This resulted in an underfunded reserve for replacement account at June 30, 2024 in the amount of two monthly deposits totaling $2,126.
Context: The Regulatory Agreement with HUD requires monthly deposits to the reserve for replacement account. The current required monthly deposit is $1,063. Only ten required monthly deposits were made during the year.
Recommendation: We recommend that additional deposits be made to the reserve for replacement account for the underfunded amount. We also recommend processes and controls are established to monitor the activities of the reserve for replacement account to ensure compliance with HUD requirements.
Views of Responsible Officials: Management concurs that the required monthly deposits were not made for the year. Management subsequently made the deposits into the reserve for replacement account on August 7, 2024 upon receipt of the May and June 2024 rental subsidies. Management will implement procedures to ensure future rental contract renewals will be more timely to ensure sufficient operating cash to make the required deposit into the reserve for replacement account as required by HUD.