Finding 1156461 (2024-001)

Condition: The Project did not make timely replacement reserve deposits for 12 of the 12 required monthly deposits for the calendar year ended December 2024, as required by the regulatory agreement. The Project did not make all 12 monthly deposits of $750 for an annual contribution of $9,000 to the replacement reserve account as required by the regulatory agreement. During 2024, one deposit of $750 was a catch-up deposit from 2023. Zero deposits were made for the year 2024. Replacement reserve deposits were short $9,000 for the calendar year ended December 31, 2024. Criteria: Per the regulatory agreement, HUD requires the Project to make equal monthly deposits of $750 for an annual total of $9,000. Effect: For the year ended December 31, 2024 the replacement reserve account is underfunded. A total of $0 was deposited into the replacement reserve account for the year 2024 leaving a shortage of $9,000. The Project was not compliant with the HUD regulatory agreement to deposit timely monthly required deposits into the replacement reserves account. Questioned Costs: $ -- Context: All activity for the replacement reserve account was traced and it was determined that the required monthly deposits were not timely deposited. It was determined that 12 out of the 12 monthly deposits were not timely deposited in accordance with the regulatory agreement. The project’s increase in necessary repairs and maintenance was substantial and created a cash flow shortage to fund the required monthly deposits. Cause: The Project has insufficient cash flow to fund the replacement reserve account in accordance with the regulatory agreement as a result of an increase in required repairs and maintenance expenses incurred during the year to maintain safe and livable conditions for tenants. Recommendation: The Project should fund the shortage as soon as possible and make the required timely monthly deposits in accordance with the regulatory agreement. View of Responsible Officials and Planned Corrective Actions: The Project agrees with this finding and will adhere to the corrective action plan on page 33 in this audit report. Response: As of the current date the delinquent deposits have not been brought up to date due to ongoing cash flow issues. The Project is negotiating for a rent increase and is in the process of renewing its contract with HUD. Once both the rent increase and contract renewal are approved the replacement reserve account will be funded as soon as the HUD assistance payments are received.