Finding 1098919 (2024-002)

FINDINGS – MAJOR FEDERAL AWARD PROGRAMS AUDIT S3800-010 Finding Reference Number: 2024-002 S3800-011 Title and Assistance Number of Federal Program: 14.157 Supportive Housing for the Elderly S3800-015 Type of Finding: Federal Program Finding (FP) S3800-016 Finding Resolution Status: IN PROCESS S3800-017 Information on Universe Population Size: N/A - Not detected as a result of sampling procedures and testing. S3800-018 Sample Size Information: N/A - Not detected as a result of sampling procedures and testing. S3800-019 Identification of Repeat Finding and Finding Reference Number: 2023-002 S3800-020 Criteria: The HUD regulatory agreement requires monthly deposits to the replacement reserve account of $1,351. S3800-030 Statement of Condition: Management only made nine (9) of the twelve (12) monthly required reserve deposits, leaving the account underfunded by $4,053 at June 30, 2022; for the year ended June 30, 2023, only $2,702 of the required $16,212 in deposits were made, leaving the account behind schedule by another $13,510, for a total deficiency of $17,563; for the year ended June 30, 2024, only $5,404 of the required $16,212 in deposits were made, leaving the account behind schedule by another $10,808, for a total cumulative deficiency of $28,371. S3800-032 Cause: Management has properly designed controls to ensure all monthly deposits are made; however, the control is not functioning as intended, and the project has recently been experiencing liquidity problems. S3800-033 Effect or Potential Effect: The replacement reserve account is underfunded by $28,371. S3800-035 Auditor Non-Compliance Code: N – Reserve for Replacements Deposits S3800-040 Questioned Costs: $28,371 Details – Questioned Costs by Property S3800-037 FHA/Contract Number: 127-EE017 S3800-038 Questioned Costs: $28,371 S3800-045 Reporting Views of Responsible Officials: As a result of the discovered unpaid invoices discussed in Finding 2024-001, property management will be unable to make the required reserve deposits and pay all vendors without a rent increase from HUD. Management plans to contact the HUD Project Manager to develop a plan pay all vendors for amounts owed and fund the reserve account. A rent increase may be necessary. S3800-050 Context: See statement of condition. S3800-080 Recommendation: Management should institute a monitoring process to ensure all required monthly deposits to the replacement reserve are made. Such processes could include initiating automatic recurring monthly transfers with the financial institution that maintains the replacement reserve account. We also recommend contacting the HUD project manager to develop a plan to pay all outstanding liabilities and fund the reserve account. S3800-090 Auditor’s Summary of the Auditee’s Comments on the Findings and Recommendations: As a result of the discovered unpaid invoices discussed in Finding 2024-001, property management will be unable to make the required reserve deposits and pay all vendors without a rent increase from HUD. Management plans to contact the HUD Project Manager to develop a plan to get current with vendors and fund the reserve account. A rent increase may be necessary. S3800-0130 Response Indicator: Agree (A) S3800-0140 Completion Date: February 3, 2025 S3800-0150 Response: As a result of the discovered unpaid invoices discussed in Finding 2024-001, property management will be unable to make the required reserve deposits and pay all vendors without a rent increase from HUD. Management plans to contact the HUD Project Manager to develop a plan pay all vendors for amounts owed and fund the reserve account. A rent increase may be necessary.