Finding Text
Statement of Condition During the year ended December 31, 2022, no deposits were made into the reserve for replacement. Management had not repaid $40,239 due to reserve for replacement. Additionally, during 2022, the property transferred $9,000 of reserve for replacement funds to operations to fund payroll and operating payables. Criteria In accordance with HUD Handbook 4571.3, Section 202 Supportive Housing for the Elderly, HUD projects are required to maintain monthly deposits to the reserve for replacement. Funds may only be used with the approval of HUD. Currently, the property is required to make monthly deposits of $5,500 to the replacement reserve. Questioned Costs None. Effect Shiloh Manor, Inc. is not in compliance with the requirement to fund the reserve for replacement monthly. Context On December 31, 2017, HUD had approved a loan to operations from the reserve for replacement of $40,239 to be repaid upon receipt of the past due subsidy. When the past due subsidy was received the property was unable to repay the loan because of an unexpected increase in vacancies as a result of tenant turnover. During 2022, the property transferred $9,000 of reserve for replacement funds to operations to fund payroll and operating payables; the funds have not been reimbursed as of December 31, 2022. The monthly payments of $5,500 into the reserve for replacement could not be resumed due to poor cash flow. Cause Inadequate cash flow to fund operations and required reserve for replacement funding. Identification as a Repeat Finding Finding No. 2018-002, 2019-004, 2020-001 and 2021-001 Recommendation Management should contact HUD to address the delinquent amounts. Auditor Noncompliance Code: N - Reserve for replacement deposits. Finding Resolution Status: In process. Reporting Views of Responsible Officials and Planned Corrective Action Management is in communication with HUD to address the finding. However, management is not able to commit to any type of repayment plan on 2017 and 2022 loans until the property is in a positive operating cash flow position. Management will transfer $9,000 in 2023 to reimburse reserve for replacement for 2022 payroll funding withdrawal.