Finding Text
2024-001 Replacement Reserve Deposits
Federal Agency: U.S. Department of Housing and Urban Development (HUD)
Federal Program: 14.571 Supportive Housing for the Elderly
Condition:
Required monthly deposits to the replacement reserve account were not made for four out of twelve
months and the required deposit was not made timely for one month.
Criteria:
An amount, as required by HUD, will be deposited monthly in the replacement reserve account.
Cause:
The Organization did not have sufficient cash flow in order to make the required deposits into the
replacement reserve account and meet the Organization’s other obligations as they became due.
Effect:
Monthly required deposits to the replacement reserve account were not made.
Context:
A sample of twelve months were selected for the replacement reserve account to determine if the
monthly required deposits were deposited in accordance with HUD requirements. Our test found
that for four months, the monthly required deposit was not made and for one month, the deposit was
not made timely. Our sample was not a statistically valid sample. This was a repeat finding from a
prior period, finding number 2023-001.
Questioned Costs:
None
Recommendations:
Management should ensure that the required deposits to the replacement reserve account are
made in accordance with the agreements.
Management Response:
The Organization’s unit rents are not at a level to fund the Organization’s operations and properly
maintain the Project’s maintenance which requires the Organization to prioritize paying its utility
bills and other required immediate operating costs during the year. In addition, management
requested an increase in rents from HUD which the Organization is waiting formal approval for. See
management’s attached corrective action plan for additional information.