Finding Text
Finding No. 2024-003 – Special Tests and Provisions U.S. Department of Housing and Urban Development Federal Program Name: Section 202 Supportive Housing for the Elderly Assistance Listing Number: 14.157 Criteria: The Section 202 Project Rental Assistance Contract (PRAC contract) requires that the project make monthly deposits to its replacement reserve. Condition: During the year ended September 30, 2024, the project did not make the required monthly deposits to the replacement reserve in the amount of $74,376. The project is required to make monthly deposits to the reserve in the amount of $6,198 per month, or $74,376 for the year. Cause: The project does not generate sufficient cash flow to make the required monthly deposits, due to significant delays in receipt of PRAC funds for over a year. Effect or Potential Effect: Failure to make monthly payments resulted in an underfunding the replacement reserve and a violation of the PRAC subsidy contract. Questioned Costs: Twelve months of missing replacement reserve deposits of $6,198 per month - $74,376 Context: Due to significant delays in receipt of PRAC funds for over a year, management suspended making the deposits to the reserve until PRAC funding was replenished. Management also borrowed funds from the replacement reserve which funds were repaid during the year ended September 30, 2024 once past-due PRAC funds were received. Identification as a Repeat Finding: No Recommendation: Management should review the project budget to determine if nonessential costs can be cut (or request a loan from the owner) to ensure that the replacement reserve is funded in accordance with the terms of the regulatory agreement. Management should obtain from HUD a waiver for the missing replacement reserve deposits if possible. If not granted, management should fund the missing deposits. Auditor Noncompliance Code: N – Replacement reserve deposits Finding Resolution Status: In process Views of Responsible Officials: Due to significant delays in receipt of PRAC funds for over a year, management suspended making the deposits to the reserve until PRAC funding was replenished. Management also borrowed funds from the replacement reserve which funds were repaid during the year ended September 30, 2024 once past-due PRAC funds were received.