Finding Text
Criteria: The Project is required to make monthly deposits to the replacement reserve in the amount specified by HUD. These deposits must be made timely and consistently to ensure funds are available for future capital needs and to remain in compliance with the Project’s regulatory agreement and other applicable HUD program requirements.
Condition: During the year, only nine of the twelve required monthly deposits to the replacement reserve were made. As a result, the reserve was underfunded in the amount of $663.
Effect: Failure to make the required deposits constitutes noncompliance with HUD requirements. Additionally, in the absence of effective internal controls to monitor and confirm compliance on an ongoing basis, similar issues may go undetected in the future.
Cause: The missed deposits appear to have resulted from a lack of monitoring and formal oversight, consistent with the internal control deficiency described in Finding 2025-001.
Recommendations: We recommend that management implement a monthly compliance checklist to monitor HUD requirements, including replacement reserve deposits. Responsibility for verifying and documenting compliance should be clearly assigned. Periodic supervisory reviews should be conducted, documented, and retained to ensure programmatic requirements are consistently met.
Management Comments: We concur with this finding. The missed deposits were an oversight in part due to employee turnover, and we have since reimbursed the replacement reserve. Moving forward, we will adopt a monthly compliance checklist and assign staff to verify that all regulatory requirements, including reserve deposits, are completed timely and documented.