Finding Text
Criteria - Owners shall establish and maintain a replacement reserve to aid in funding extraordinary maintenance and repair and replacement of capital items. All disbursements from the reserve must be approved by HUD (24 CFR sections 891.405 and 891.605). Condition - During the year, withdrawals amounting to $204,694 were made from the replacement reserve account for an emergency roof project without prior HUD approval. Cause The managing agent was not provided a copy of the regulatory agreement. The project owner was not aware of the HUD requirement that all withdrawals from the replacement reserve account should be approved and determined as qualified withdrawals by HUD. Effect - Required approval by HUD for replacement reserve withdrawals was not obtained before withdrawal. Questioned cost - None. Context - Withdrawals made from the replacement reserve account during the year without proper HUD approval. Recommendation - We recommend that the Project monitor the disbursements being made in relation to the withdrawal from the replacement reserve account to ensure that the said disbursements are within the HUD guidelines. Also, to ensure compliance with the requirements of 24 CFR sections 891.405 and 891.605, all withdrawals from the replacement reserve account should be reviewed and approved by HUD. View of Responsible Official and Planned Corrective Action - Managing agent subsequently obtained approval from HUD for the questioned replacement reserve withdrawal. All replacement reserve withdrawals will obtain prior approval from HUD.