Finding Text
Federal Agency: U.S. Department of Housing and Urban Development Federal Program Title: Section 8 Project Based Cluster Assistance Listing Number: 14.195 & 14.856 Award Period: 1/1/2021-12/31/2021 Type of Finding: Significant Deficiency in Internal Control Over Compliance, Other Matters Criteria or Specific Requirement: An amount as required by HUD or the state agency for 24 CFR Part 883 projects, as applicable, shall be deposited monthly in the replacement reserve fund in accordance with the Regulatory Agreement or HAP contract (24 CFR sections 880.601, 880.602, 881.601 and 883.701). Condition: During our testing, we noted instances where the Authority did not make the required deposits to their replacement reserve accounts. Questioned Costs: $2,593 Content: During our review of four replacement reserve accounts, we noted that two of the Projects did not make correct required deposit amounts to their replacement reserve accounts. Cause: The incorrect replacement reserve deposits occurred during a period in which the Authority was transitioning to a new software system and adjusting financial workflows affected by the COVID-19 pandemic. Certain reserve deposit schedules and automated payment settings did not migrate fully or accurately during the system conversion. At the same time, staffing turnover within the finance and asset management departments required new staff to assume responsibilities for which training and historical context were still in progress. These combined circumstances resulted in two properties temporarily depositing incorrect monthly replacement reserve amounts. Effect: The Authority is not in compliance with the replacement reserve requirements. Repeat Finding: No Recommendation: We recommend that management review their procedures for reviewing and monitoring the required deposit amounts to ensure that each Project deposits the correct amount each month. Views of Responsible Officials: The Authority concurs with this finding. During the audit period, the Authority was implementing a new financial and housing management software system while also responding to the operational impacts of the COVID-19 pandemic, including remote work conditions and staffing transitions. As automated workflows and financial schedules were being re-established in the new system, replacement reserve contribution amounts for two properties were not initially updated to reflect the correct required monthly deposits. Once identified, the Authority adjusted the monthly reserves to the correct levels and verified that all properties are now in compliance with the required reserve schedules. No issues were found with the remaining reserve accounts reviewed.