Finding Text
SECTION II - FINANCIAL STATEMENT FINDINGS
Finding 2024-1 Insufficient Internal Controls Over Monthly Replacement Reserve Funding
Finding Resolution Status: Resolved
Information on Universal Population Size: One Instance Sample Size: 12
Identification of Repeat Finding and Finding Reference Number: Not Applicable
Questioned Costs: $0
Criteria: Monthly deposits to the Replacement Reserve account must be made monthly in accordance with HUD required amounts and all withdrawals must be approved by HUD.
Condition: In accordance with the HUD requirements, the Project was required to make monthly deposits to the Replacement Reserve account in the amount of $1,200 for the year ended June 30, 2024. In July 2023, a deposit in the amount of $1,200 was made to the Replacement Reserve and immediately withdrawn without HUD approval. The internal controls in place for the Replacement Reserve account were not sufficient enough to prevent the funds from being deposited and subsequently withdrawn due to insufficient funds.
Cause: Unknown
Effect: The Project is not in compliance with HUD’s regulations. If a significant replacement need were to arise, there may not be adequate funds in Replacement Reserve to cover the cost.
Auditors’ Recommendation: Management should implement internal controls suitable to detect and prevent withdrawals without HUD approval and to ensure that the Management makes all required monthly deposits to the Replacement Reserve account. Management should also verify that sufficient funds exist prior to transferring deposits to the Replacement Reserve account. In addition, Management should establish internal control procedures to reconcile, on a monthly basis, the Replacement Reserve account balance and the Replacement Reserve general ledger to the total amount of the Replacement Reserve required by HUD.
Auditor Non-Compliance Code: N – Reserve for Replacement Requirements
FHA/Contract Number: 064-EE137
Auditor’s Summary of the Auditee’s Comments on the Findings and Recommendations: We have noted that the appearance of an unapproved withdrawal was due to insufficient funds and the monthly deposit was unable to be completed. We have also noted that the deposit was made in a subsequent month.
Reporting Views of Responsible Officials: Deposits to the replacement reserve accounts are set up to automatically debit the operating account and credit the replacement reserve account. In July, 2023, this transfer was completed in the amount of $1,200.00. However, due to a system glitch, South Pointe II did not receive their July HAP payment from HUD. This resulted in funds not being sufficient for the replacement reserve transfer and the bank reversed the transfer making it appear that we withdrew money. We did not authorize a withdrawal of funds from the replacement reserve account.
Response Indicator: Agree
Completion Date: 06/01/2024
Response: Deposits to the replacement reserve accounts are set up to automatically debit the operating account and credit the replacement reserve account. In July, 2023, this transfer was completed in the amount of $1,200.00. However, due to a system glitch, South Pointe II did not receive their July HAP payment from HUD. This resulted in funds not being sufficient for the replacement reserve transfer and the bank reversed the transfer making it appear that we withdrew money. We did not authorize a withdrawal of funds from the replacement reserve account.
Contact Person: Janet Sanderford
SECTION III - FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Supportive Housing for the Elderly – Section 202
Assistance Listing Number 14.157
See Finding 2024-1 under Section II – Financial Statement Findings.