Finding Text
Delay in Deposit of Surplus Cash into Residual Receipts Account: Internal
Control Weakness Impacting HUD Compliance
Findings Resolution Status: In Process
Information on Universe Population Size: N/A
Sample Size Information: N/A
Auditor Non-Compliance Code Drop-Down: Cash Management
Criteria: According to HUD Handbook 4370.2 REV-1, Chapter 2, Paragraph 2-17, Owners of
HUD-assisted projects are required to deposit surplus cash into the Residual Receipts account
within 60 days after the end of the fiscal year unless otherwise directed by HUD. The surplus
cash must be calculated using HUD Form 93486 (Computation of Surplus Cash) and the amount
must be deposited promptly to ensure funds are preserved for project use and available for HUD
approved purposes.
Condition: Based on the REAC surplus cash computation provided by the client, there was a
reportable surplus cash balance as of the fiscal year-end. However, upon tracing subsequent bank
statements, the audit team was unable to identify the corresponding deposit into the Residual
Receipts account. No supporting documentation was provided during the audit to substantiate
whether the deposit was made or delayed with HUD approval.
Cause of Condition: Management has deferred the deposit of surplus cash into the Residual
Receipts account pending the issuance of the final audit report. HUD regulations generally
require the deposit of surplus cash based on the project's year-end computation and do not
condition the timing of the deposit on the finalization of audited financial statements. As such,
this practice has resulted in a delay in complying with the regulatory requirement.
Potential Effect of Condition: Failure to timely deposit surplus cash into the Residual Receipts
account constitutes noncompliance with HUD requirements and exposes the project to risk of
findings during HUD reviews. Additionally, it may impact on the project's ability to demonstrate
sound financial management and regulatory adherence.
Questioned Cost: 23,139. The questioned cost represents the full amount of surplus cash
calculated by the client as of year-end, which was not deposited into the Residual Receipts
account within the HUD-required 60-day timeframe.
Reporting Views of Responsible Officials: The Organization agrees with the findings and
recommendations and will adhere to the corrective action plan.
Context: HUD regulations require surplus cash to be deposited into the Residual Receipts
account within 60 days following the end of the fiscal year. Based on the client’s REAC surplus
cash computation as of September 30, 2024, the calculated surplus was $23,139. However, no
corresponding deposit was identified in subsequent bank records reviewed by auditors.
Additionally, no documentation was provided to show that HUD approval was sought or
received for delaying the deposit. This delay appears to be due to a management practice of
waiting until the final audit report is issued before initiating the deposit—contrary to HUD
requirements, which base the timeline on unaudited year-end figures. Although the universe and
sample size are not applicable in this finding (since it involves a single required year-end action),
the condition affects the entire project's cash management compliance and reflects a procedural
gap that could have broader implications in future years if not corrected.
Recommendation:
1. Ensure that future surplus cash deposits to the Residual Receipts account are made within
60 days after fiscal year-end, based on the unaudited surplus cash computation.
2. Establish internal procedures to track and schedule these deposits in advance of the
deadline, regardless of the audit completion status.
3. If a deferral is necessary, formally submit a written request to HUD explaining the reason
for the delay and obtain documented approval.
4. Maintain supporting documentation of all communications and approvals related to any
delayed or deferred deposits for audit and compliance purposes.
Management's Response: Management acknowledges the auditor’s observation and deposit
will be made.