Finding Text
Finding 2025-001 Federal Assistance #14.157 Supportive Housing for the Elderly (Section 202) Information on Universe and Population Size: Noncompliance was not discovered as a result of a sampling procedure. Sample Size Information: Noncompliance was not discovered as a result of a sampling procedure. Identification of Repeat Finding: This is not a repeat finding. Criteria: In accordance with Paragraph 5(a) of the Regulatory Agreement, the Mortgagor establish and maintain a reserve fund for replacements, and will deposit an amount equal to $396.67 per month. Statement of condition: The Organization did not make any of the required deposits into the replacement reserve during 2025. Total deposits for 2025 were supposed to be $4,760. Perspective: The amount of deposits required to the replacement reserve are material to the financial statements as well as the federal program. While the Organization did not have sufficient funds at the end of the year to make such deposits, the Organization did have sufficient funds at the beginning of the year to make the required deposits. The Organization has now used those funds to pay operating costs and does not have funds available to comply with the deposit requirement. Cause: Management was not appropriately monitoring its compliance with the deposit requirement for the replacement reserve. When management did notice, there were not sufficient funds to make the deposit. Effect: The Organization was out of compliance with the Regulatory Agreement. Auditor Non-Compliance Code: N – Reserve for Replacements Deposits Amount of Questioned Costs: $0 Views of Responsible Officials: Management concurs with the finding. We will deposit the delinquent amount when there is sufficient funds to do so. Context: In 2025, the project had 2 of its 5 units turnover due to deaths. The units had significant repairs that needed to be done. This caused expenses to increase when revenue was decreasing. And then, HUD did not fund the subsidy for November and December. Recommendation: Upon HUD’s funding of subsidy for November and December 2025, if there are sufficient funds to do so, the Organization should deposit the delinquent deposits to the replacement reserve. The Organization may also consider submitting a request for reimbursement from the replacement reserve for eligible turnover costs (including the cost of installation for the carpet). Also, management should follow its processes as designed regarding deposits and draws for both the replacement reserve and the residual receipts accounts.