Finding Text
Criteria: The mortgagor (Company) is required to establish and maintain a replacement reserve to aid in funding extraordinary maintenance and repair and replacement of capital items. The replacement reserve funds must be deposited in a federally insured depository in an interest-bearing account. An amount as required by HUD ($13,512 annually) will be deposited monthly in the reserve fund. Condition: During our testing, we noted that the Company made only six of the twelve required monthly deposits to the replacement reserve account during the audit period. As a result, the replacement reserve was not funded in accordance with HUD requirements. Cause: The Company changed management agents during the fiscal year, and the new management agent did not make the required monthly replacement reserve deposits. Effect: The Company did not meet the replacement reserve funding requirement under the Capital Advance Program Regulatory Agreement requiring monthly deposits.