Finding Text
Item 2022-001 Material Weakness - Underfunding of Replacement Reserve Account
Condition: The Project is required by its regulatory agreement with HUD to make monthly deposits into the replacement reserves account. The reserve was underfunded by three required monthly deposits for the year ended December 31, 2022.
Criteria: Management of the Project is responsible for complying with laws and regulations. This responsibility includes compliance with HUD regulations requiring the Project to obtain approval for replacement reserve withdrawals and to make all required deposits timely.
Cause: The Project did not review the replacement reserve transactions timely to ensure the transactions were in accordance with HUD regulations.
Effect: The Project underfunded the required replacement reserve deposits for the year ended December 31, 2022, by $1,310, which was not in accordance with the regulatory agreement approved by HUD.
Recommendation: We recommend that management take the necessary steps to ensure that future deposits are made in accordance with HUD regulations. Payments should be made monthly into the replacement reserve.
Auditee Response
and Action Plan: Management of the Project underfunded the replacement reserve account due to a personnel error. We will deposit the funds to the reserve account immediately.