Finding Text
Criteria: The HUD Handbook 4350.1, Chapter 4 specifies requirements for maintaining adequate reserve for replacement reserve accounts; Condition: The Corporation failed to adequately fund the replacement reserve from the effective date of increase in monthly deposits, resulting in replacement reserves being underfunded by $9,402 and a repeat finding. Effect: Failure to adequately fund the Replacement Reserve account may jeopardize the project’s ability to pay for future capital repairs and may place the project out of compliance with HUD requirements, potentially risking enforcement actions or funding limitations; Cause: The increased deposits were not initiated until two months after the effective date due to the timing of when the increase was approved and when the Corporation began receiving the corresponding funds. Recommendation: Management should continue paying the required monthly deposits to the Replacement Reserve account and develop a plan, subject to HUD approval, to restore the reserve to the required balance. Additionally, management should implement internal controls to ensure timely deposits going forward. Response: The prior year’s underfunded cash balance was not supplemented with additional deposits due to excessive operating costs. Management indicated that recovery efforts will be pursued in the current year.