Finding Text
2023-001 SPECIAL TESTS AND PROVISIONS – REPLACEMENT RESERVE
Grantor: U. S. Department of Housing and Urban Development – HUD
Federal Program Name: Supportive Housing for Persons with Disabilities (Section 811)
FALN Number: 14.181
Pass-through Entities: N/A
HUD Project Number: 017-HD015
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 section 891.405).
Condition: The required deposits were not made timely during the year and, as of year-end, deposits for seven months, totaling $7,927, had not yet been made to the reserve account.
Questioned Costs: None.
Effect: Certain necessary purchases for capital improvements and major repairs could be delayed or foregone because the funds were not deposited in the reserve as required.
Cause: The property manager appears to have had some cash flow issues during the year as a result of delayed invoicing to HUD that was in part due to the use of a third-party vendor in the billing process. This, in turn, resulted in a longer wait for receipt of the related HUD subsidy funds that constitute the bulk of the rental income generated by the property.
Recommendation: Improvements to the HUD invoicing process should be considered to ensure that adequate cash flow is maintained. Additional training of relevant staff regarding the timely deposit requirements should also be considered.
Views of Responsible Officials: A new in-house billing process that does not rely on a third party has been implemented since year-end, which should correct the cash flow issue. Additionally, all delinquent deposits that were due at December 31, 2023, were deposited in March 2024.