Finding Text
FINDINGS - MAJOR FEDERAL AWARD PROGRAM AUDIT (CONTINUED)
Department of Housing and Urban Development Finding, 2023-003: Major Program: Supportive Housing for the Elderly (Section 202 Capital Advance - Accumulated Balance), Federal Assistance Listing Number 14.157
STATEMENT OF CONDITION
All required deposits were not made to the Reserve for Replacement account for the years ended December 31, 2023 and 2022, totaling $5,727 and $24,287 outstanding as of December 31, 2023.
CRITERIA
HUD Handbook 4350.1 Revision 1 for HUD Subsidized Multifamily Housing Programs requires owners to make monthly deposits to the Reserve for Replacement account based on the Project’s monthly deposit authorized by HUD.
EFFECT OF CONDITION
Management did not make all required deposits to the Reserve for Replacement account in 2023.
CONTEXT
During audit fieldwork, the Reserve for Replacement accounts were tested for compliance with required monthly deposits. Insufficient monthly deposits were noted on the bank statements.
CAUSE OF CONDITION
Management did not make all monthly deposits to the Reserve for Replacement account due to cash flow issues during 2023.
RECOMMENDATION
The auditor recommends the Reserve for Replacement be properly funded on a monthly basis.
VIEWS OF RESPONSIBLE OFFICIALS AND PLANNED CORRECTIVE ACTIONS
The Project has suffered dramatically from the results of COVID-19. During all years prior to 2022, the Reserve for Replacement has been in compliance. Although HUD did help with small COVID-19 grants, it was not sufficient to overcome the costs.
Properties of 50-units and less suffered far more during COVID-19 than the larger developments due to the economies of scale. It should be noted that in addition to the Reserve for Replacement that was not funded in 2023, the property management firm was also not paid $24,523.
Management received a substantial rent increase in June 2023 and plans to make all required deposits in 2024 when they will begin to see the effects of this increase.