Finding 1171943 (2025-001)

Finding Number 2025-001: Significant Deficiency in Internal Control over Major Federal Program and Program Noncompliance: Special Tests and Provisions: Replacement Reserve Requirements Federal Program: U.S. Department of Housing and Urban Development ALN 14.195 – Project Based Rental Assistance Condition: The Project did not make the required replacement reserve deposits in the amount of $429 for the year ended June 30, 2025. Criteria: Project management is responsible for depositing funds into the replacement reserve account in the monthly amount determined by HUD. Effect: The proper cash amount was not deposited, therefore the replacement reserve was not properly funded. Cause: Procedures to deposit funds into the replacement reserve were not followed. HUD increased the deposit requirement effective April 1, 2025. The escrow agent was not notified of this increase, and therefore did not pull the updated monthly requirement accordingly. Recommendation: The Project should deposit $429 into the replacement reserve account. Additionally, procedures should be followed to ensure management identifies the need for required deposits. Auditor noncompliance code: N – Reserve for replacements deposits.