| ID | Status | Date | Public/Private | Industry | AHACPA Contact |
|---|---|---|---|---|---|
| #15908 | Closed | public | Multifamily | Les Sparks |
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I have a client who deposited $40,000 extra into the replacement reserves at year-end to reduce surplus cash. Is there any HUD guidance to say that is not allowed? The client had in the prior year taken withdrawals in excess of the $40K for property improvements. And the client said they were trying to build the reserves back up. |
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I’m wanting to issue their report ASAP since it is their 12/31/20 period that I’m auditing. So it obviously late already (client’s fault). My understanding of the situation has changed slightly as well. The client didn’t deposit the $40K into replacement reserves until January 2021. But intended for the $40K to reduce their surplus cash computation at 12/31/20. Would that be an allowable deduction on the surplus cash computation? Not sure what line I would put it on. |
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Kamryn, I apologize for this delay.
There is no specific guidance against this. It is unusual, but not disallowed. The issue was they could not leave the money in the operating account. If they placed it the R4R account, the real issue is that there is a projection of the adequacy of the R4R over a long period of time is a key component of long-term project viability. So, using money from the R4R account is not necessarily an excuse to put more money in.
I would probably issue a management letter indicating that this action is not clearly acceptable. However, it is not clearly unacceptable either.
I think that HUD would likely not be happy, but could not legally win this battle.
Les Sparks
From: AHACPA Support <support@ahacpa.org> |