Finding Text
• Immaterial noncompliance with major program requirements
• Significant deficiency in internal control over compliance
Title and Assistance Listing Humber of Federal Program - Supportive Housing for the Elderly - Project Rental Assistance Contract and Capital Advance (ALN #14.157)
Finding Resolution Status - In progress
Information on Universe and Population Size - 12 monthly deposits and 6 withdrawals from replacement reserve
Sample Size Information - 100 percent of deposits and 100 percent of for HUD approval and 10 percent or a minimum of two t reserve withdrawals to test for proper expenditure of requested funds
Identification of Repeat Finding and Finding Reference Number - N/A
Criteria - The Organization should have internal controls in place to reconcile
the replacement reserve accounts to ensure all deposits are made timley and
in the correct amounts and that withdrawals have HUD approval as required
by the Regulatory Agreement. The Organization should have made 10
deposits of $1,723.67 and 2 monthly deposits of $2,249.54 into the
for replacements account for the year ended June 30, 2023.
Statement of Condition - There was a lack of timely account reconciliations
by the Organization to ensure all withdrawals from the
reserve account had proper HUD approval and all required
deposits were made. During the year ended June 30, 2023,
withdrawals of $4,202 and $4,025 were made from the replacement reserve
without HUD authorization, and the Organization failed to increase the
monthly reserve from $1,723.67 to $2,249.54 for May and June 2023.
Cause - The Organization did not follow its own processes and failed to
perform timely reconciliations of the replacement reserve account.
Effect or Potential Effect - The lack of reconciliation procedures resulted in
an underfunded replacement reserve account balance at year end of $9,279
($8,227 related to unauthorized withdrawals and a total of $1,052 resulting
from underfunded monthly deposits).
Auditor Noncompliance Code - S - Internal control deficiency, A - Unauthorized withdrawals from replacement reserve account and N - Reserve for replacement deposits
Reporting Views of Responsible Officials - Management is aware of the requirement to receive approval for the replacement reserve account disbursements and the requirement to make monthly deposits and agrees there should be a timely reconciliation control implemented.
Context -The Organization should establish and maintain a replacement reserve. An amount as required by HUD should be deposited monthly in the reserve per the regulatory agreement and all withdrawals from the reserve must be approved by HUD ( 24 CFR Sections 891.405 and 891.605).
Recommendation - The Organization should implement internal controls to properly reconcile the replacement reserve account in a timely manner. The underfunded amount of S9,279 was deposited to the reserve for replacement account on July 28, 2023.
Auditor's Summary of the Auditee's Comments on the Findings and Recommendations - Management should obtain approval from HUD prior to withdrawing funds from the replacement reserve and should also ensure that increases to the required monthly deposit amount are made timely.
Response Indicator - Agree
Completion Date - July 28, 2023
Response - Management acknowledges the significant deficiency in internal control over compliance and is implementing measures to improve this internal control over compliance. The underfunded amount of S9,279 was deposited to the reserve for replacement account on July 28, 2023.