Finding Text
Findings reference number: 2025-001 - Title and AL Number of Federal Program: Section 8 Housing Assistance (AL 14.195) - Type of finding: Federal Award. - Resolution Status: Resolved - Population size: N/A - Sample size: N/A - Repeat finding: No. - Criteria: Controls should be in place so that the monthly deposit to the reserve for replacement account stipulated by HUD is made for the correct amount. - Statement of Condition: During our testing of reserve for replacement account transactions, it was discovered that the Project had made deposits of an insufficient amount each month for 22 months through September 2024. - Cause: This happened due to an oversight by the lender. The communications from HUD stipulating the increases to the monthly deposits to the reserve for replacement account effective December 1, 2022 and December 1, 2023 were not implemented and the Project continued to make monthly deposits to the reserve for replacement account of the previously stipulated amount. - Effect: There was a shortfall of deposits to the reserve for replacement account, which was corrected in October 2024. - Noncompliance code: N - Questioned costs: None. - Reporting views of officials: Management agrees with the finding. - Contract number: 114-11440. - Context: A large lumpsum deposit made in October 2024 was noticed while performing the audit. - Recommendation: Although the reserve for replacement account is controlled by the lender and Management cannot change the amount of the required monthly deposit, Management should as a courtesy, inform the lender about changes to the required monthly deposits when notice of such change is received from HUD. - Auditors' summary of auditee's comments: They are in agreement, have expressed their inability to update the amount of required monthly deposits to the reserve for replacement account and have pointed out that the lender is notified of changes to the required monthly deposits directly from HUD. Management will try to alert the lender about increases to the monthly required deposit to the reserve for replacement in the future. - Completion date: 5/31/2026. - Response: Per Management, the reserve for replacement account is controlled by the lender and when the lender discovered the deficiency during the year ended May 31, 2025 a lumpsum amount was drafted from the Project's monthly payment to cover the shortfall. In future, Management will inform the lender of changes to the monthly required deposit to the reserve for replacement account made by HUD.