Finding Text
Federal Agency: U.S. Department of Agriculture
Federal Program Titles: Rural Rental Housing Loans
Federal Assistance Listing Numbers: 10.415
Noncompliance - Replacement Reserve
Non Compliance Material to the Financial Statements: No
Significant Deficiency in Internal Controls over Compliance
Criteria: Replacement Reserve. The Authority is required to establish and maintain a replacement reserve
to aid in funding the repair and replacement of capital items. The replacement reserve funds must be
deposited in a federally insured depository in an interest-bearing account. All earnings including interest
on the reserve must be added to the reserve. An amount as required by the USDA will be deposited
annually in the reserve fund. These deposits are required to be made based on the RRHL Loan
Agreement.
Condition: Based upon inspection of the Authority's replacement reserve bank statements and on
discussions with management, the replacement reserve account was not funded as required during the
audit period.
Context: During the audit period, the Authority did not make annual payments of $8,400 to the
Sunnyview Apartments' replacement reserve account as required by the RRHL Loan Agreement. This had
resulted in the replacement reserve account being underfunded.
Known Questioned Costs: $528
Cause: There is a significant deficiency in internal controls over the compliance related to the
maintenance of the replacement reserve account.
Effect: The Rural Rental Housing Loan program is in non-compliance with the required deposits to the
replacement reserve account.
Recommendation: We recommend the Authority design and implement internal control procedures that
will reasonably assure compliance with the Uniform Guidance and U.S. Department of Agriculture Loan
agreement, to make the required annual deposits to the replacement reserve account.
Views of responsible officials and planned corrective action plan: Management agrees with the finding
and will implement the aforementioned recommendations.