Finding Text
Finding 2024-002 - Material Weakness - Special Tests and Provisions Delinquent deposits to the replacement reserve Name of Federal Agency: U.S. Department of Housing and Urban Development Federal Program Name: Section 8 Housing Choice Vouchers Assistance Listing Number: 14.871 Criteria In accordance with the HUD regulatory agreements, the Projects are required to make monthly deposits to its replacement reserves. Condition During the year ended June 30, 2024, the Projects did not make the required monthly deposits to the replacement reserves in the amount of $96,360. The Projects were required to make monthly deposits to the reserves in the amount of $144,539 and only $48,179 was deposited during the year ended June 30, 2024. Cause Management's internal controls over monitoring of the replacement reserves did not function consistently throughout the year ended June 30, 2024. Effect or Potential Effect Failure to make monthly payments resulted in an underfunding of the replacement reserve and a violation of the regulatory agreements. Questioned Costs Not applicable. Context Of the 12 monthly deposits that are required, management provided support for 3 monthly deposits. Identification as a Repeat Finding This is not a repeat finding from 2023. Recommendation Management should establish or undertake a review of internal controls over monitoring of the replacement reserve requirements to ensure deposits are made as required. Views of Responsible Officials Management acknowledges that certain internal controls did not operate effectively during the year ended June 30, 2024. This is attributed to an unusually high level of staff turnover within the finance team during the year. We have since supplemented our team with new senior leadership and experienced resources to ensure the replacement reserve is properly funded. The replacement reserve underfunded balances have been deposited subsequent to year end.