Finding Text
Finding No. 2023-001: Restricted Cash (Material Weakness)
Statement of condition
Special Tests and Provisions
During the year ended June 30, 2023, management did not segregate the residual receipts deposits into a segregated, restricted cash account.
For two months of the fiscal year, the monthly replacement reserve deposit was funded in the subsequent month.
The replacement reserve was underfunded by one month's deposit at June 30, 2023.
Criteria
In accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs, HUD projects are required to establish and maintain at all times fully funded, separate bank accounts in the name of the entity for all security deposits collected and for residual receipts deposits. The Regulatory Agreement requires a monthly deposit of $235 in the replacement reserve.
Cause
The residual receipts deposits were deposited into the replacement reserve account and were not transferred into segregated accounts as of June 30, 2023. The monthly replacement reserve transfer was delayed by several days into the subsequent month due to it being on a set interval of time rather than on a monthly date. This late funding resulted in only 11 deposits being made during the year ended June 30, 2023.
Effect
Management commingled the residual receipts deposits with its replacement reserve, resulting in the potential use of residual receipts deposits to fund repairs or replacements without obtaining the required prior approval of HUD. Late deposits to the replacement reserve could result in insufficient funds for repairs and replacements.
Recommendation
Management should review and enhance its policies, procedures and internal controls to ensure that residual receipts deposits are segregated into a separate, restricted cash account. Management should review and enhance policies, procedures and internal controls to ensure that the replacement reserve deposits are made timely.
Identification of repeat finding
The finding is a repeat of Finding No. 2022-001.
Auditor non-compliance code
D - Commingling funds
Questioned costs
None
Finding resolution status
In process