Finding Text
Finding 2024-002: Required Monthly Deposits to the Replacement Reserve - Significant Deficiency
Repeat of prior year finding: 2022-003, 2023-002
Assistance Listing Number: 14.181
Federal Agency: U.S. Department of Housing and Urban Development
Federal Award Number: Not applicable
Federal Award Year: July 1, 2023 - June 30, 2024
Pass-Through Entity: Not applicable
Criteria: The Corporation shall establish and maintain a replacement reserve to aid in funding extraordinary maintenance and 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 HUD will be deposited monthly in the reserve fund (Regulatory Agreement, item 5 (a)). All disbursements from the reserve must be approved by HUD (24 CFR Section 891.405).
Questioned Cost: $1,540 in missing deposits.
Condition/Context: There were two months where required deposits were missed. Our sample included all 12 months of required deposits and therefore, the entire population was subject to testing.
Effect: Deposits were missed to the reserve for replacement account.
Cause: Lack of management oversight due to turnover and delay in rental revenue.
Recommendation: The Corporation should have procedures in place to ensure all required monthly deposits are made.
Views of Responsible Officials and Planned Corrective Actions: The deposits will be made as cash flows permits. The collection of tenant receivables and subsidy payments will improve as new property management team stabilizes operations by reducing turnover and increasing use of new property management system once fully implemented.