Finding Text
Finding 2023-002: Required Monthly Deposits to the Replacement Reserve - Significant Deficiency
Assistance Listing Number: 14.181
Federal Agency: U.S. Department of Housing and Urban Development
Federal Award Number: Not applicable
Federal Award Year: July 1, 2022 - June 30, 2023
Pass-Through Entity: Not applicable
Criteria: The Corporation 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 section 891.405).
Questioned Cost: $22,057 in missing deposits.
Condition/Context: There were seven months where the required deposits were missed. Our sample included all twelve months of required deposits and therefore, the entire population was subject to testing.
Effect: Seven months of deposits were missed to the reserve for replacement account.
Cause: Lack of management oversight due to turnover and delay in rental revenue.
Recommendation: The Corporation should have procedures in place to ensure all required monthly deposits are made.