Finding Text
Criteria: Per 24 CFR Section 891.605(d), replacement reserve funds must be deposited with HUD or in a Federally-insured depository whose balances are fully insured at all times. Condition: At June 30, 2025, the Project’s replacement reserve balance totaled $544,946 and was held in a single account at one financial institution. Accordingly, $294,946 exceeded the applicable $250,000 federal deposit insurance limit and was not fully insured. Cause: Project management did not have procedures in place to monitor the replacement reserve balance and ensure the amounts held at a single financial institution remained within federal deposit insurance limits. Effect: The Project did not comply with the replacement reserve requirements of 24 CFR Section 891.605(d). In addition, the uninsured balance of $294,946 was exposed to potential loss in the event the financial institution was to fail. Identification as a Repeat Finding, if applicable: Not applicable. Recommendation: Project management should implement procedures to periodically monitor the replacement reserve balance to ensure funds remain fully insured at all times. This may include maintaining the funds in accounts at multiple federal insured financial institutions or using another HUD-approved arrangement that provides full insurance coverage.