Finding Text
SECTION II – FINANCIAL STATEMENT FINDINGS
Finding 2023-1 Lack of Internal Controls Over Monthly Replacement Reserve Funding
Finding Resolution Status: Resolved
Information on Universal Population Size: Two Instances Sample Size: 12
Identification of Repeat Finding and Finding Reference Number: 2022-1
Questioned Costs: $0
Criteria: Monthly deposits to the Replacement Reserve account must be made monthly in accordance with HUD required amounts.
Condition: In accordance with the HUD requirements, the Project was required to make monthly deposits to the Replacement Reserve account in the total amount of $16,128 for the year ended June 30, 2023. Although the Project made deposits to the Replacement Reserve account in the total amount of $16,128 for the year ended June 30, 2023, the deficiency of $2,688 from the prior year was included in these deposits. Two monthly deposits were not made during the year ended June 30, 2023. In addition, deposits are not being consistently made on a monthly basis to the Replacement Reserve account. There were no internal controls in place to detect or prevent missed deposits to the Replacement Reserve account.
Cause: Unknown
Effect: Replacement Reserve account is underfunded and the Project is not in compliance with HUD’s regulations. If a significant replacement need were to arise, there may not be adequate funds in Replacement Reserve to cover the cost.
Auditors’ Recommendation: Management should implement internal controls suitable to detect and prevent missed replacement reserve deposits and to ensure that the Management makes all required monthly deposits to the Replacement Reserve account. Also, Management should make the necessary deposit to restore the funding shortfall as of June 30, 2023. In addition, Management should establish internal control procedures to reconcile, on a monthly basis, the Replacement Reserve account balance and the Replacement Reserve general ledger to the total amount of the Replacement Reserve required by HUD.
Auditor Non-Compliance Code: N – Reserve for Replacement Requirements
FHA/Contract Number: 064- HD044
Auditor’s Summary of the Auditee’s Comments on the Findings and Recommendations: The Auditee has resolved this finding as of September 26, 2023, by depositing the two missed deposits in the amount of $2,688. The Auditee has also taken steps to prevent this finding in the future by implementing new controls of automatic monthly transfer of deposit to the Replacement Reserve.
Reporting Views of Responsible Officials: We agree with the auditor’s finding and recommendations. Magnolia Manor has taken steps to assure that the Replacement Reserve account will not be underfunded again by making the transfer an automatic transfer from the Operating account to the Reserve account. The amount that the account was underfunded was deposited on September 26, 2023.
Response Indicator: Agree
Completion Date: September 26, 2023
Response: Magnolia Manor has taken steps to assure that the Replacement Reserve account will not be underfunded again by making the transfer an automatic transfer from the Operating account to the Reserve account. The amount that the account was underfunded was deposited on September 26, 2023.
Contact Person: Rhonda M. Kay
SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Supportive Housing for Persons with Disabilities CFDA # 14.181
See Finding 2023-1 under Section II – Financial Statement Findings.