Finding Text
Finding 2025-002 Federal assistance listing number and name: 10.415 Rural Rent Housing Loans Awards numbers and years: 2025 Federal agency: United States Department of Agriculture Compliance Requirement: Special Tests and Provisions Criteria: The Project is required to establish and maintain separate reserve accounts for taxes and insurance. Regular monthly deposits must be made based on projected annual costs. Condition and Context: The management did not establish or maintain required tax and insurance reserve accounts during the fiscal year. These reserves are required under loan and regulatory agreements to ensure funds are available to meet property tax and insurance obligations when due. Cause: The Project did not implement a process for calculating, funding, and tracking reserve contributions throughout the year. Effect: Failure to establish fund tax and insurance reserves increases the risk that sufficient funds will not be available when these obligations become due, potentially leading to delinquent payments, lapses in insurance coverage, or non-compliance with loan covenants. Recommendation: The management should implement procedures to establish reserve accounts for taxes and insurance, make consistent monthly deposits to these reserve accounts and periodically review account balances and adjust contributions as needed to ensure adequate funding.