Finding Text
2025-001 Replacement Reserve Deposits Federal Agency: U.S. Department of Housing and Urban Development (HUD) Federal Program: 14.571 Supportive Housing for the Elderly Condition: The replacement reserve deposits were underfunded for eight of the twelve months in fiscal year 2025. Criteria: An amount, as required by HUD, will be deposited monthly in the replacement reserve account. Cause: The Corporation did not receive notification from HUD of a replacement reserve increase until July 24, 2025, included in that notification was that the replacement reserve increase was retroactive to February 1, 2025. The Corporation also did not receive notification of a rent increase until July 24, 2025, included in that notification was that the rent increase was retroactive to February 1, 2025. Funding for the rent increase was not released from HUD to the Corporation until November 2025. Funding from the rent increase was necessary to enable the Corporation to fund the increased replacement reserve requirement. Effect: The deposits to the replacement reserve account were under funded by $94,640 for fiscal year 2025. Context: A sample of twelve months were selected for the replacement reserve account to determine if the monthly required deposits were deposited in accordance with HUD requirements. Our test found that for eight months, the deposit was underfunded. Our sample was not a statistically valid sample. Questioned Costs: None Recommendations: Management should ensure that the required deposits to the replacement reserve account are made in accordance with the agreements.Management Response: Funding for the increased replacement reserve deposits was not available until the rent increase was funded in November 2025; therefor it was not possible for the replacement reserve to be fully funded for the Corporation’s year ended September 30, 2025. The replacement reserve was fully funded in December 2025.