Finding Text
Finding No. HUD 2023-2; Section 202 Capital Advance, CFDA 14.157
Statement of Condition
During the year ended December 31, 2023, the project did not make the required monthly deposits to the replacement reserve on a monthly basis as required under the HUD Program and, as of December 31, 2023, was deficient in the required annual deposits to the reserve in the amount of $2,963.
Criteria
The program documents with HUD require that the project make monthly deposits to its replacement reserve.
Context
The replacement reserve activity during the year ended December 31, 2023 was reviewed. We identified instances where the deposits were not made on a monthly basis or at the correct monthly amounts. We also determined that the total deposits made for the year did not aggregate to the required annual deposits required to be made to the replacement reserve.
Effect
Failure to make payments on a monthly basis and at the required amounts resulted in an underfunding of the replacement reserve and a violation of the HUD agreement.
Cause
Management did not make deposits on a timely basis or in the correct amounts to the replacement reserve required to be established and maintained by HUD.
Repeat Finding
This finding is a repeat finding (see prior year finding #2022-1).
Recommendation
Management should review its process for identifying the required monthly deposit amount and it process for ensuring that transfers to the replacement reserve are made in a timely manner.
Auditor Noncompliance Code: N. Reserve for replacements deposits
Finding Resolution Status: In process
Views of Responsible Officials
Management concurs with the finding. Management funded the $2,963 shortfall on February 16, 2024. In addition, management has communicated with the staff the importance of timely replacement reserve deposits and compliance with this requirement to ensure that all required deposits are made as established by HUD. In addition, management will implement a process to transfer the funds via an ACH process to ensure time funding of the reserve.