Finding Text
Finding 2026-003: Noncompliance with Replacement Reserve Deposit Requirements Federal Program: Supportive Housing for Persons with Disabilities (Section 811), Assistance Listing 14.181, U.S. Department of Housing and Urban Development; Capital Advance No. 032-HD004 and PRAC No. DE26Q931001; year ended March 31, 2026 Compliance Requirement: Special Tests and Provisions Type of Finding: Noncompliance Repeat Finding: No Criteria: The Project’s regulatory and other agreements with HUD require the Project to make monthly deposits of $300 to the reserve for replacements account. Withdrawals from the reserve require prior HUD approval. Condition: During our compliance testing, we found that management did not make 10 of the 12 required monthly deposits of $300 to the replacement reserve during the year ended March 31, 2026. Required deposits for the year totaled $3,600, of which $600 was deposited, leaving a shortfall of $3,000 as of year-end. Context: We tested all 12 required monthly deposits for the year. Cause: The Project lacks a formal process for tracking and monitoring required monthly deposits to the replacement reserve. This condition is related to the material weakness described in Finding 2026-001. Effect: The Project is not in compliance with its regulatory and other agreements with HUD, and the replacement reserve is underfunded by $3,000. This reduces the funds available for future major repairs and replacements. Questioned Costs: None Recommendations: Management should deposit the $3,000 shortfall into the replacement reserve as soon as practicable. Management should also put in place a formal process to track required reserve deposits, such as a monthly deposit schedule reconciled to its bank statements and reviewed by someone other than the preparer. Views of Responsible Officials: We concur with this finding. Due to current cash flow constraints resulting from the suspension of rental assistance payments, we will deposit the $3,000 shortfall into the replacement reserve as cash flow allows and will implement procedures to ensure that required monthly deposits are tracked and made timely going forward. Note: Finding 2026-001 is also a material weakness in internal control over compliance required to be reported under the Uniform Guidance and is presented in Section II.