Finding Text
Finding 2022-002 ? Cash management ? RAD Conversion and Replacement Reserves CFDA 14.850 ? Noncompliance and Significant Deficiency Criteria: HUD PIH Notice 2019-23 issued September 5, 2019 as well as Public Law No. 112-55 and subsequent Appropriations Acts, state that ?the project owner shall establish and maintain a replacement reserve in an interest-bearing account to add in funding extraordinary maintenance and repair and replacement of capital items.? The replacement reserve is specified in the HUD RAD Use Agreement along with the monthly amount to be funded into the reserve. Condition: We note that the Authority has begun to deposit funds into the Reserve for Replacement account as stipulated in the RCC and HAP contract signed with HUD. We also note, however, that the reserves are still underfunded and not at the level of the Initial Deposit to the Replacement Reserves (IDRR). The initial balance for the Reserve Accounts, not taking into account monthly contributions, should have been $464,600. The Replacement Reserve level at June 30, 2022 is $287,038. We do note that this balance has been set aside in a separate account and transferred to the RAD ledger, but the amount is also not being tracked separately on the general ledger. We examined the Public Housing operating subsidy obligated to the AMPs as part of our review of the financial statements. We noted that the Authority did not contribute the obligated calendar year subsidy to the RAD conversions. Per PIH Notice 2019-23 RAD conversions are eligible for this funding in the first calendar year of operations. As amounts obligated are not capped by the amount of RAD HAP contract rents the entire amount of subsidy obligated for AMP 1 could have been used to fund the RAD developments. We note that management is aware of this issue and chose not to transfer these funds into these developments as they believe the level of funding was sufficient. Cause: The Authority transitioned to new finance staff and certain procedures were not performed by the former Director of Finance. Consequently, when the new personnel began there was insufficient knowledge as to the RAD requirements and maintaining the books and records of account. Effect: Improper funding of the replacement reserve can result in improper resources for capital improvements when needed. The reserve is designed to not impact operations but provide a steady resource of funding for future capital needs. Recommendation: We recommend that the RAD properties be properly funded and record the replacement reserve into a separate interest-bearing account. We also recommend that monthly amounts be deposited to this account in order to make appropriate provisions for future capital needs. Questioned Costs: None Repeat Finding: Yes, 2021-002 from prior year. Views of responsible officials: The Owensboro Housing Authority agrees with the findings and the recommended corrective actions.