Finding Text
Federal Agency: U.S. Department of Housing and Urban Development
Federal Program Name: Section 811 Project Rental Assistance Payments and Section 811 Capital Advances
Assistance Listing Number: 14.181
Award Period: July 1, 2023 – June 30, 2024
Type of Finding: Significant Deficiency in Internal Control over Compliance
Criteria or specific requirement: According to HUD regulations, Nonprofit Organizations are required to maintain a certain level of funding in their replacement reserve accounts to ensure the availability of funds for future repairs and replacements.
Condition: The replacement reserve account was underfunded by $4,000.
Context: The Project received a budget-based rent increase adjustment letter from HUD stating that the required replacement reserve deposit amount will be increasing from $1,350 to $1,850 effective November 10, 2023. The Project did not increase the reserve deposits to the new required amounts before year end. Therefore, the replacement reserve account was underfunded by $4,000 at year end.
Cause: The required replacement reserve deposits were not increased to $1,850 per month effective November 10, 2023. This left the replacement reserve account underfunded by $4,000.
Effect: Insufficient funds in the replacement reserve account could lead to the inability to cover necessary repairs and replacements, potentially affecting the quality and safety of the housing provided.
Recommendation: The Project should review its budgeting process to ensure compliance with
HUD funding requirements for the replacement reserve account. Additionally, they should implement regular monitoring to prevent future underfunding.
Views of responsible officials: In July 2024 management identified the increase in the monthly deposits and made a deposit in July 2024 to the replacement reserve cash account for the deficiency.