Finding Text
2025-001: Replacement Reserve Account Balance Below Target Threshold: Criteria: The HUD Handbook 4350.1, Chapter 4 specifies requirements for maintaining adequate reserve for replacement reserve accounts; Condition: The Corporation failed to adequately fund the replacement reserve from the effective date of increase in monthly deposits, resulting in replacement reserves being underfunded by $9,402. Effect: Failure to adequately fund the Replacement Reserve account may jeopardize the project’s ability to pay for future capital repairs and may place the project out of compliance with HUD requirements, potentially risking enforcement actions or funding limitations; Cause: The increased deposits were not initiated until two months after the effective date due to the timing of when the increase was approved and when the Corporation began receiving the corresponding funds. Recommendation: Management should continue paying the required monthly deposits to the Replacement Reserve account and develop a plan, subject to HUD approval, to restore the reserve to the required balance. Additionally, management should implement internal controls to ensure timely deposits going forward. Response: Management will ensure that the replacement reserve will be fully funded by the end of fiscal year 2026.