Finding Text
Finding 2025-001- Considered to be immaterial noncompliance. Condition: The Organization’s tenant security deposit account was underfunded at December 31, 2025. The balance maintained in the restricted security deposit account was less than the total tenant security deposit liability recorded in the general ledger. As a result, tenant security deposits were not fully funded in a separate account as required by HUD regulations. Criteria: Per the Regulatory Agreement and HUD Handbook 4370.2 REV-1, Chapter 2, and HUD Handbook 4350.3, tenant security deposits collected must be maintained in a separate, restricted account and the balance of the account must at all times equal or exceed the total liability for tenant security deposits. Effect: The underfunding of the tenant security deposit account resulted in noncompliance with HUD requirements related to the safeguarding of tenant funds. Organization cash was effectively used for purposes other than maintaining required tenant security deposit reserves. As a result, tenant security deposits were underfunded by $12,874. Cause: The underfunded balance occurred because management did not reconcile the tenant security deposit liability to the restricted security deposit account on a periodic basis to ensure the account remained fully funded. Recommendation: We recommend that management implement procedures to reconcile the tenant security deposit liability to the restricted security deposit account on a regular basis and ensure that sufficient funds are maintained in the account at all times in accordance with HUD requirements. Management Comments: We agree with the facts and circumstances described above. Subsequent to year end, the Organization will be opening a separate security deposit account to hold the cash. Auditor Noncompliance Code: M - Security Deposits.