Finding 947865 (2022-001)

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 the year, we noted that the required deposits to the replacement reserve of $53,232 was not made. Cause The Project’s cash flow deficiencies resulted in noncompliance with the reserve requirement. Effect Required replacement reserve was not complied with during fiscal year 2022. Questioned Cost None. Context Twelve (12) monthly deposits were not made during the year. Recommendation We recommend that the Project regularly monitors deposits in the reserve for replacement to ensure that it complies with the requirements of 24 CFR sections 891.405 and 891.605 or request waiver due to cash flow issues. View of Responsible Official and Planned Corrective Action We are in communication with HUD on the proposed action plans to meet the required deposits.