Finding Text
2023-002 – Replacement Reserve Withdrawals
Finding Type. Immaterial noncompliance; Significant deficiency in internal control over compliance (Special Tests and Provisions)
Federal program
U.S. Department of Housing and Urban Development
· Supportive Housing for the Elderly (ALN# 14.157)
Criteria. Under Section 202 of the National Housing Act of 1959, Project management is responsible for obtaining proper documentation and approval by HUD for any withdrawals made from the replacement reserve. Such withdrawals should only be made for qualifying items that have not been previously reimbursed out of the reserve.
Condition. Certain capital expenditures, amounting to $6,135, were requested and reimbursed from the reserve for replacements after already having been requested and reimbursed from the reserve. Management corrected this oversight and transferred the duplicate reimbursed funds from the Project's operating account to the reserve for replacements in May 2024.
Cause. Management has not properly implemented internal control procedures to ensure previously reimbursed items are not requested for reimbursement from the reserve for replacements again.
Effect. As a result of this condition, the reserve for replacements account was underfunded during 2023.
Questioned Costs. No costs are required to be questioned as a result of this finding, inasmuch as no unallowable expenditures were noted.
Recommendation. We recommend that management review all requested items to be approved and ensure they have not been previously approved for reimbursement from the replacement reserve.
View of Responsible Officials. Management agrees with this comment and has prepared a corrective action plan.