Finding Text
Statement of Condition: During the year ended May 31, 2026, the Project did not make all of the required monthly deposits to the replacement reserve, resulting in delinquent deposits of $34,321 as of May 31, 2026. Criteria: HUD requires monthly deposits to the replacement reserve in the approved amount. Questioned Cost: None. Cause: An administrative oversight led to management not making the required replacement reserve deposits. Effect: As a result of the underfunded replacement reserve, the property may not have sufficient funds available to cover the cost of major capital replacements as they become necessary, which could jeopardize the physical condition of the property and its ability to continue providing safe and decent housing. Continued underfunding increases the risk of deferred maintenance, unbudgeted special assessments, or the need for additional financing, and represents noncompliance, which could result in findings by HUD, required corrective action, or in severe cases, administrative sanctions. Recommendations: Management should make a deposit to the replacement reserve in the amount of $34,321, as well as any additional missed deposits after May 31, 2026, and institute procedures that ensure replacement reserve deposits will not be missed. Auditor Noncompliance Code: N – Reserve for replacements depositsView of Responsible Officials: Management agrees with the finding. Management will review internal control policies to ensure monthly replacement reserve deposits are made in accordance with HUD requirements.