Audit 312734

FINDING 2022-003Subject: Community Development Block Grants/State's programand Non-Entitlement Grants in Hawaii - ReportingFederal Agency: Department of Housing and Urban DevelopmentFederal Program: Community Development Block Grants/State's programand Non-Entitlement Grants in HawaiiAssistance Listings Number: 14.228Federal Award Number or Year (or Other Identifying Number): B20DC1180001Compliance Requirement: ReportingAudit Finding: Material WeaknessCondition and ContextThe Town had not properly designed or implemented a system of internal controls that would likelybe effective in preventing, or detecting and correcting, noncompliance. Recipients are required to submitannually a report related to hiring opportunities and labor hours. This report is referred to as the Section 3Housing Report.The Town contracted with an outside company to oversee the administration of its CDBG grant.Although, the company compiled and submitted the required Section 3 Housing Report and the companyreviewed the reports with a Town employee prior to submission, the Town's review was not documentedand could not be verified.The lack of internal controls was a systemic issue throughout the audit period.Criteria2 CFR 200.303 states in part:"The non-Federal entity must:(a) Establish and maintain effective internal control over the Federal award that providesreasonable assurance that the non-Federal entity is managing the Federal award in compliancewith Federal statutes, regulations, and the terms and conditions of the Federalaward. These internal controls should be in compliance with guidance in 'Standards forInternal Control in the Federal Government' issued by the Comptroller General of theUnited States or the 'Internal Control Integrated Framework', issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO). . . ."CauseA proper system of internal controls over the semiannual reporting was not designed by managementof the Town to ensure complete and accurate reporting of information related to the CommunityDevelopment Block Grants/State's program and Non-Entitlement Grants in Hawaii award. Embeddedwithin a properly designed and implemented internal control system should be internal controls consistingof policies and procedures. Policies reflect the Town's management statements of what should be done toeffect internal controls, and procedures should consist of actions that would implement these policies.EffectWithout the proper implementation of an effectively designed system of internal controls, the internalcontrol system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance.Questioned CostsThere were no questioned costs identified.RecommendationWe recommended that management of the Town design and implement a proper system of internalcontrols, including strengthening its policies and procedures to ensure appropriate reviews, approvals, andoversight are taking place.Views of Responsible OfficialsFor the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2022-003Subject: Community Development Block Grants/State's programand Non-Entitlement Grants in Hawaii - ReportingFederal Agency: Department of Housing and Urban DevelopmentFederal Program: Community Development Block Grants/State's programand Non-Entitlement Grants in HawaiiAssistance Listings Number: 14.228Federal Award Number or Year (or Other Identifying Number): B20DC1180001Compliance Requirement: ReportingAudit Finding: Material WeaknessCondition and ContextThe Town had not properly designed or implemented a system of internal controls that would likelybe effective in preventing, or detecting and correcting, noncompliance. Recipients are required to submitannually a report related to hiring opportunities and labor hours. This report is referred to as the Section 3Housing Report.The Town contracted with an outside company to oversee the administration of its CDBG grant.Although, the company compiled and submitted the required Section 3 Housing Report and the companyreviewed the reports with a Town employee prior to submission, the Town's review was not documentedand could not be verified.The lack of internal controls was a systemic issue throughout the audit period.Criteria2 CFR 200.303 states in part:"The non-Federal entity must:(a) Establish and maintain effective internal control over the Federal award that providesreasonable assurance that the non-Federal entity is managing the Federal award in compliancewith Federal statutes, regulations, and the terms and conditions of the Federalaward. These internal controls should be in compliance with guidance in 'Standards forInternal Control in the Federal Government' issued by the Comptroller General of theUnited States or the 'Internal Control Integrated Framework', issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO). . . ."CauseA proper system of internal controls over the semiannual reporting was not designed by managementof the Town to ensure complete and accurate reporting of information related to the CommunityDevelopment Block Grants/State's program and Non-Entitlement Grants in Hawaii award. Embeddedwithin a properly designed and implemented internal control system should be internal controls consistingof policies and procedures. Policies reflect the Town's management statements of what should be done toeffect internal controls, and procedures should consist of actions that would implement these policies.EffectWithout the proper implementation of an effectively designed system of internal controls, the internalcontrol system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance.Questioned CostsThere were no questioned costs identified.RecommendationWe recommended that management of the Town design and implement a proper system of internalcontrols, including strengthening its policies and procedures to ensure appropriate reviews, approvals, andoversight are taking place.Views of Responsible OfficialsFor the views of responsible officials, refer to the Corrective Action Plan that is part of this report.