Finding 539634 (2024-003)

III. FINDINGS – FEDERAL AWARDS PROGRAMS AUDITS (Continued) UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (Continued) S3800-010: Finding Reference Number 2024-003 S3800-011: Title and Assistance Listing Number of Federal Program: 14.134 Mortgage Insurance – Rental Housing (Section 207(a)/223(f) S3800-015: Type of Finding: Federal Award Finding S3800-016: Finding Resolution Status: In Process S3800-017: Information on Universe Population Size - Not Applicable S3800-018: Sample Size Information - Not Applicable S3800-019: Identification of Repeat Finding and Finding Reference Number - Not Applicable S3800-020 Criteria: The HUD Regulatory Agreement includes a contract provision requiring establishment and maintenance of a replacement reserve account, which stipulates monthly deposits. That deposit requirement was increased on December 1, of each year through the issuance of a HUD Form 9250. S3800-030 Statement of Condition: Management did not make all of the required deposits to the replacement reserve at June 30, 2024. The mortgage company billed $2,398 per month with the monthly mortgage statement which was the required deposit that went into effect on December 1, 2019. That deposit was increased by HUD each year thereafter effective each December 1; however, management believes that they were not notified of the increases in deposit requirements, and maintain that they did not receive copies of the revised HUD 9250 forms establishing the effective dates and amounts of deposit requirements changes for the years ended December 31, 2020 through December 31, 2022. The total amount of the replacement reserve deposit shortage was calculated to be $13,302. S3800-030 Cause: Management asserts that they did not receive copies of the HUD 9250 from December 1, 2020 through December 1, 2022 that increased the deposit requirements; the first HUD 9250 they have on file was effective December 1, 2023, which increased the deposit requirement from $2,666 to $2,672. In addition, the lender did not adjust the required deposit to include the increase in deposits in their monthly escrow billing with the monthly mortgage statement and is still billing $2,398 per month; however, management is ultimately responsible for making all required deposits. S3800-033 Effect or Potential Effect: Management is not making the full replacement reserve deposit stipulated by HUD which is required under the terms of the Regulatory Agreement. S3800-035 Auditor Non-Compliance Code - (N) Replacement Reserve Deposits S3800-040 Questioned Costs - $13,302 S3800-045 Reporting Views of Responsible Officials: Management will follow up with the lender about the new deposit requirement and deposit the funding shortage of $13,302 in the replacement reserve escrow account held by the lender. They will also request all missing copies of the HUD 9250 forms for the effective dates of December 1, 2020 through December 1, 2022. Property(s) and associated questioned costs this finding applies to: S3800-037 FHA/Contract Number - 127-HD025 S3800-038 Questioned Costs - $13,302 S3800-050 Context: The mortgage company bills the Project for the monthly replacement reserve deposit with the monthly mortgage billing, and deposits the fund into a segregated escrow account. The mortgage company adjusts that monthly deposit amount based upon HUD’s stipulation to increase or decrease that monthly deposit documented with a HUD approved form 9250. Management received a HUD form 9250 which established the required deposit amount of $2,398 effective December 1, 2019. Thereafter management received a new HUD form 9250 increasing the monthly deposit from $2,666 to $2,672 effective December 1, 2023, but never received the intervening HUD forms 9250 that increased the monthly deposit from $2,398 to $2,666; further, the increase of $2,672 was not implemented as the mortgage company billed $2,398 for the entire fiscal year. S3800-080 Recommendation: Management should review policies and procedures to ensure all required deposits to the reserve account are properly billed and deposited into the escrow account with the lender. Management should also deposit the shortage of $13,302 in the replacement reserve account held by the lender. S3800-090 Auditor's Summary of the Auditee's Comments on the Findings and Recommendations: Management will follow up with the lender about the new deposit requirement and deposit the funding shortage of $13,302 in the replacement reserve escrow account held by the lender. They will also request all missing copies of the HUD 9250 forms for the effective dates of December 1, 2020 through December 1, 2022. S3800-130 Response Indicator – Agree S3800-140 Completion Date – March 27, 2025 S3800-150 Response: Management concurs with the auditor’s recommendation, and will take corrective action. Management will follow up with the lender about the new deposit requirement and deposit the funding shortage of $13,302 in the replacement reserve escrow account held by the lender.