Finding Text
Federal Agency: U.S. Department of Housing and Urban Development
Federal Program Name: Section 202 Capital Advance
Assistance Listing Number: 14.157
Federal Award Identification Number and Year: WI39S971003-23Z-2023
Award Period: 10/1/2022-9/30/2023
Type of Finding: Material Weakness in Internal Control over Compliance
Criteria or specific requirement: HUD requires the Organization to make monthly deposits into the Reserve for Replacement.
Condition: The entity was required to make monthly deposits of $2,017 into the replacement reserve account for all 12 months of the fiscal year ending September 30, 2023. Deposits into the replacement reserve were not made for the months of February-September 2023. This resulted in a delinquent balance of $16,136 as of September 30, 2023.
Known Questioned costs: $16,136
Cause: The entity relied on monthly auto-transfers set up through the bank to make the deposits. These monthly auto-transfers stopped in February 2023 by an undetermined user or system error.
Effect: The Organization is in violation of HUD regulations, which could result in penalties or other enforcement actions. The Organization may not have sufficient funds to cover necessary repairs or replacements of building components, which could lead to deferred maintenance and decreased property values. The Organization may have to use operating funds to cover replacement reserve expenses, which could strain the entity's cash flow and limit its ability to make other necessary expenditures.
Recommendation: Accounting staff should reconcile the Replacement Reserve account on a periodic (monthly or quarterly) basis to ensure the monthly transfers are being made. Management should also make the deposit to fully fund the replacement reserve as soon as possible.
Views of responsible officials: Management is in agreement with the finding and has since corrected the issue.