Finding Text
HUD requires properties to fund the Replacement Reserve in accordance with the HUD-approved monthly deposit schedule. Effective July 1, 2025, the required monthly deposit increased from $2,941 to $3,217. The Property continued depositing $2,941 per month after July 1, 2025, rather than the HUD-required amount of $3,217, resulting in the Replacement Reserve being underfunded during the fiscal year. Management became aware of the issue during the audit and plans to make catch-up deposits after year end. Although management sent the HUD increase notice to the bank responsible for automatic deposits, the bank did not update the deposit amount. Management also did not detect the error during the year. The Property was not in compliance with HUD reserve funding requirements during the year under audit. We recommend that management verify monthly that reserve deposits agree to the HUD-approved schedule and obtain confirmation from the bank when deposit amounts are changed. Management should also complete the catch-up deposit and retain documentation.