Finding Text
Condition: The Organization failed to bring the reserve account to a fully funded position during
the period ended March 31, 2022. Deposits and interest were added during the current period in
the amount of $12,218. This leaves the period underfunded and the total deficit at $29,433.
Criteria: The Regulatory Agreement with HUD states, “Mortgagor will establish and maintain a
reserve fund for replacements in a separate account in a bank which is insured by the Federal
Deposit Insurance Corporation…. Concurrently with the effective commencement of rental
assistance payments under the Project Assistance Contract, the Mortgagor will deposit an amount
equal to $840.08 per month unless a different date or amount is approved in writing by HUD.”
During the prior year, the replacement reserve was underfunded by $29,433. During the current
year, the Project needed to make twelve payments of $840.08 plus an additional $31,570 for the
prior year underfunding for total required deposits of $41,651. Current reserve balance is $33,429,
and the required reserve balance is $62,862.
Effect: The reserve account is underfunded by $29,433 as of March 31, 2022. Thus, necessary
repairs and improvements may not be performed until the reserve is fully funded and/or is
authorized by HUD.
Cause: Management failed to deposit the funds as required since the Organization’s financial
position made it difficult to do so.
Recommendation: We recommend the Organization bring the reserve account to a fully funded
position.
Auditee's Response: The Organization will work towards bringing the reserve account into
compliance.