Finding 555898 (2024-002)

Other Compliance Matters 2024-002 Replacement Reserve Account was not correctly titled. Condition The Project is required by the regulatory agreement to establish and maintain a replacement reserves account. The reserve account was transferred from New Jersey Housing and Mortgage Finance Agency (NJHMFA) to the Project during the year. The funds were not deposited into an account tilted as Replacement Reserve. Criteria Management of the Project is responsible for complying with laws and regulations. This responsibility includes compliance with HUD regulations requiring the Project to establish and maintain a replacement reserve account. Questioned Costs None Context The Replacement Reserve account was not correctly established. Cause The Replacement Reserve Account was previously held by New Jersey Housing and Mortgage Finance Agency (NJHMFA). NJHMFA's oversight ended in 2023 and the Replacement Reserve funds were dispersed to the Project in 2024. The Project deposited the funds into certificates of deposit accounts which were not titled Replacement Reserve. Effect The Project's Replacement Reserve funds were not deposited into an account which correctly listed it as restricted for the Replacement Reserve, which was not in accordance with the regulatory agreement with HUD. Recommendation We recommend that management establish a bank account titled Reserve Replacement and immediately fund the account with the amount received from HMFA along with the corresponding interest income. Management should take the necessary steps to ensure that future deposits are made in accordance with the HUD agreement.