Finding 555084 (2024-001)

Significant Deficiency

Requirement

Questioned Costs

Year

2024

Accepted

2025-04-14

Audit: 353626

Organization: Old Middleton Road Apartments, Inc. 075-Hd082-Cmi (WI)

Auditor: Wipfli LLP

AI Summary

Core Issue: The Project did not make the required monthly deposits into the replacement reserve and withdrew funds without HUD approval.
Impacted Requirements: Compliance with HUD's regulations for maintaining a replacement reserve, including proper oversight and approval for disbursements.
Recommended Follow-Up: The Project should regularly review replacement reserve activities to ensure adherence to HUD requirements and improve management oversight.

Finding Text

2024-001 - Special Tests and Provisions - Replacement Reserve Funding Agency: United States Department of Housing and Urban Development Title: Supportive Housing for Persons with Disabilities Assistance Listing Number: 14.181 Questioned Costs: None How Questioned Costs Were Computed: N/A Criteria or Specific Requirement: Old Middleton Road Apartments, Inc. (the "Project") was required to 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. An amount as required by the Department of Housing and Urban Development (HUD) will be deposited monthly in the reserve fund. All disbursements from the reserve must be approved by HUD. Condition: During our audit procedures we noted that the Project’s monthly deposits for 2024 were less than the amount required by HUD. Additionally, there was a withdrawal from the replacement reserve for which the Project was not able to provide HUD approval support. Context: The Project had turnover in their residential department during 2024, which resulted in reorganization of job responsibilities. Cause: Due to the turnover, the Project failed to properly oversee and manage the activity of the replacement reserve account. Effect: Without proper oversight and management of the replacement reserve account, the Project did not ensure it was complying with requirements of the program.. Auditor's Recommendation: Wipfli recommends that the Project closely reviews the replacement reserve activity in comparison to HUD requirements to ensure that they are in compliance with the requirements. View of Responsible Official: We agree with the finding and are committed to a corrective action.

Corrective Action Plan

Corrective Action Plan 1. Identify the Root Cause • Monthly Deposits: Continue to investigate why the monthly deposits were less than the required amount. This involves reviewing financial records, deposit schedules, and communication with the finance team and the team from CLA. • Replacement Reserve Withdrawal: Determine why and how the withdrawal was made without HUD approval. Review the documentation and approval process to identify any gaps or misunderstandings. 2. Immediate Actions • Reconcile Deposits: Calculate the total shortfall in monthly deposits for 2024 and make the necessary deposits to meet HUD requirements. • Replacement Reserve Documentation: Gather all relevant documentation for the withdrawal and submit it to HUD for retroactive approval, if possible. 3. Strengthen Internal Controls • Deposit Procedures: Implement a more robust tracking system to ensure monthly deposits meet HUD requirements. This will include automated Outlook reminders and quarterly reviews led by the Controller. The first quarterly review for the 3 months ending 3/31/2025 will occur in April of 2025. • Approval Process: Enhance the approval process for withdrawals from the replacement reserve. Ensure all withdrawals are documented and approved by HUD before funds are accessed. The Controller will verify and document HUD approval. 4. Training and Communication • Staff Training: Conduct training sessions for staff involved in financial management to ensure they understand HUD requirements and the importance of compliance. First training will be in April 2025. • Regular Updates: Utilize weekly one on one meetings to review compliance with HUD requirements and address any issues promptly. 5. Monitoring and Reporting • Monthly Reviews: Embed steps in our monthly review process to monitor deposits and withdrawals, ensuring they comply with HUD requirements. • Reports: Prepare detailed reports on compliance status and corrective actions taken and share these with relevant stakeholders. 6. Follow-Up • HUD Communication: Maintain open communication with HUD to ensure all corrective actions are satisfactory and to address any further concerns. • Continuous Improvement: Regularly review and update procedures to prevent recurrence of similar issues. Person(s) Responsible: Kelly Johnson, Siphi Nkosi, LuAnn Meinholz Timing for Implementation: April 1, 2025 through June 30, 2025.

Other Findings in this Audit

555085 2024-001

Significant Deficiency
1131526 2024-001

Significant Deficiency
1131527 2024-001

Significant Deficiency

Programs in Audit

ALN	Program Name	Expenditures
14.239	Home Investment Partnerships Program	$280,000
14.181	Supportive Housing for Persons with Disabilities	$60,964