Finding 947866 (2022-002)

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 We noted that the required annual deposits to the replacement reserve for 30 months for 2020, 2021 and 2022 amounting to $80,430 was not deposited to the replacement reserve. 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 Thirty (30) monthly deposits to the replacement reserve was not made for 2020, 2021 and 2022. 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 will work on monthly cash flows availability to ensure funding the replacement reserve shortfall.