Finding Text
1. Criteria: The Project shall establish and maintain a replacement reserve to aid in funding extraordinary maintenance and repair and replacement of capital items. An amount as required by HUD, as applicable, shall be deposited on a monthly basis in the reserve fund in accordance with the Regulatory Agreement or HAP contract. 2. Condition: During the review of the required Replacement and Reserve (R&R) deposit, it was noted that the Project did not make the deposit in the correct increased amount after the new required rate became effective. 3. Cause: The shortfall in the required deposit is attributed to the lack of timely communication and authorization for the increase to PGIM Real Estate Loan Services (PGIM) (presumably, the entity responsible for administering or making the deposits). Historically, HUD provided form HUD-9250 (Approval of Operating Budget) to formally approve the increased required deposit directly to PGIM. Beginning in Fiscal Year (FY) 2019, this direct approval process by HUD was discontinued, leaving PGIM without clear formal notification for the required increase. Consequently, PGIM did not increase the deposit amount and continued to remit funds at the old, lower rate. 4. Effect: As a result of the deposits being made at the insufficient rate, the Project’s Replacement and Reserve fund had a shortfall of $2,380 as of year end. 5. Recommendations: We recommend management implement internal controls surrounding Replacement and Reserve deposits to ensure annual HUD increases in the required R&R deposit amounts are promptly identified and communicated to PGIM, so the deposit rate is updated in a timely manner. 6. Views of Responsible Officials: Management agrees with the recommendations and will review and implement a procedure to ensure the HUD increases are communicated to PGIM on a timely basis. Furthermore, management deposited the delinquent amount of $2,380 into the Replacement Reserve subsequent to year end.