Finding Text
Finding 2024-002
Federal assistance listing number and name: 10.415 Rural Rent Housing Loans
Awards numbers and years: 2024
Federal agency: United States Department of Agriculture
Compliance Requirement: Special Tests and Provisions
Criteria:
The Project is required to establish and maintain separate reserve accounts for taxes and insurance.
Regular monthly deposits must be made based on projected annual costs.
Condition and Context:
The management did not establish or maintain required tax and insurance reserve accounts during the
fiscal year. These reserves are required under loan and regulatory agreements to ensure funds are
available to meet property tax and insurance obligations when due.
Cause:
The Project did not implement a process for calculating, funding, and tracking reserve contributions
throughout the year.
Effect:
Failure to establish fund tax and insurance reserves increases the risk that sufficient funds will not be
available when these obligations become due, potentially leading to delinquent payments, lapses in
insurance coverage, or non-compliance with loan covenants.
Recommendation:
The management should implement procedures to establish reserve accounts for taxes and insurance.
Make consistent monthly deposits to these reserve accounts and periodically review account balances and
adjust contributions as needed to ensure adequate funding.