Finding Text
Information on the Federal Program: U.S. Department of Housing and Urban Development (“HUD”) – 14.157 Supportive Housing for the Elderly (Section 202); FAIN #012-EH692; July 1, 2024 – June 30, 2025 Finding Type: Significant deficiency Criteria: The Organization as mortgagor, in accordance with the regulatory agreement, is required to maintain a reserve for replacements. The required minimum monthly deposit into this account is $13,053. For the year ended June 30, 2025, a total of $156,638 was to be deposited into the replacement reserve account, however, only deposits of $104,426 were made into the replacement reserve account. Condition and Context: During our compliance testing of replacement reserve for the Organization’s HUD Section 202 program for the year ended June 30, 2025, we noted that the Organization did not deposit cash into the replacement reserve for 4 months. This condition related to the project’s replacement reserve account maintained for the project during the period under audit.Cause: During the period of transition in finance/management personnel, responsibility for initiating the required replacement reserve deposit was not clearly reassigned or sufficiently reviewed, resulting in an oversight of the deposit requirement in a timely manner. Effect or Potential Effect: Project funds that should have been restricted in the replacement reserve account remained in operating accounts, increasing the risk that restricted amounts could be used for unapproved purposes and resulting in potential HUD compliance consequences. Questioned Costs: None Recommendation: We recommend that management establish written procedures and assign responsibility for ensuring timely deposits to the replacement reserve, including documented management review, particularly during periods of personnel transition. Management’s Response: Management is in the process of implementing formal procedures to strengthen oversight of HUD regulatory requirements, including the timely execution of replacement reserve deposits. These procedures will include clearly assigning responsibility, incorporating the requirement into a month-end compliance checklist, and documenting management review. Management expects these procedures to be implemented promptly and believes they will ensure compliance with HUD requirements going forward.