Finding Text
Compliance Requirement: Special Tests and Provisions Criteria: In accordance with the Project’s regulatory agreement with HUD, management shall establish and maintain a replacement reserve account to aid in funding extraordinary maintenance and repair and replacement of capital items. The replacement reserve funds must be deposited in a federally secured depository in an interest-bearing account. All earnings including interest on the reserve must be added to the reserve. An amount as required by HUD will be deposited monthly in the reserve fund. All disbursements from the reserve must be approved by HUD. Condition: Based on the evaluation of the cash account that holds the replacement reserve funds, the account is not interest-bearing. Cause: Management was unaware of replacement reserve compliance requirements. Effect: The organization is not in compliance with this requirement. Recommendation: To avoid potential non-compliance, we recommend that management transfer the funds into an interest-bearing account. Management’s Response: Refer to Corrective Action Plan.