Finding Text
Other Matter Compliance Criteria: Owners shall establish and maintain a replacement reserve to aid in funding extraordinary maintenance and repair and replacement of capital items. The replacement reserve funds must be deposited in a federally insured 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 (Regulatory Agreement, item 5 A). All disbursements from the reserve must be approved by HUD (24 CFR sections 891.405 and 891.605). Condition: During our test work, we noted that the Project established a separate federally insured depository account to serve as the replacement reserve account to aid in funding extraordinary maintenance and repair and replacement of capital items, however, the depository account was not in an interest-bearing account. Questioned Costs: None Context: See ?Condition? above. Effect: All earnings including interest on the reserve must be added to the reserve. The effect of not maintaining the replacement reserve funds in an interest-bearing account resulted in missed interest earnings on these funds during the year. Cause: The Project changed financial institutions during the year and the requirement to maintain these funds in an interest-bearing account was overlooked. Recommendation: We recommend that the Project transfer its replacement reserve to a federally insured depository in an interest-bearing account. All earnings including interest on the reserve must be added to the reserve. Views of Responsible Officials and Planned Corrective Actions: Management agrees with the find. See Corrective Action Plan.