Finding Text
Condition: The Organization failed to bring the reserve account to a fully funded position
during the period ended December 31, 2022. Deposits and interest were
added during the current period in the amount of $9,256. This leaves the
period underfunded and the total deficit at $2,254.
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 $764.33 per month unless a different date or amount is approved in
writing by HUD.” During the prior year, the replacement reserve was
underfunded by $2,338. During the current year, the Organization needed to
make twelve payments of $764.33 plus an additional $2,338 for the prior year
underfunding for total required deposits of $11,510. $9,256 was deposited in
the replacement reserve account during 2022. Current reserve balance is
$116,203, and the required reserve balance is $118,457.
Effect: The reserve account is underfunded by $2,254 as of December 31, 2022.
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.