Audit 330072

Finding 2024-008: Allowable Costs Capital Funds 14.872 Noncompliance Repeat Finding 2023-008 Questioned Costs - $305,004 Criteria: The Authority is awarded an annual Capital Fund grant each year. The Authority prepares a five-year plan which indicates what each annual grant will be spent on. This annual budget is modified upon the grant award to match the grant amount. Only items included within the budget are allowable costs. Condition: The Authority indicated in the Summary Schedule of Prior Audit Findings that the finding was corrected which was incorrect as no action had been taken by the Authority to correct the condition. During our prior audit, we noted the Authority expended $16,439.90 of its 2019 Capital Fund grants for work items not included in the 2019 Capital Fund budget. No action was taken to remedy this by the Authority and the questioned costs continue. We further noted in the prior audit the Authority advanced $96,898.10 in the 2019 Capital Fund grant and $89,605 in the 2021 Capital Fund grant from the 1480 General Capital Activity line item although no improvements had occurred. The Authority utilized $2,911.93 of the 2019 grant funds during the year ended March 31, 2024 leaving a balance of $183,581.17 of funds that were not obligated by the Authority and the obligation period has passed therefore these funds are being questions. The $2,911.93 referenced above were not included in the budget and therefore unallowed costs. The Authority expended $102,881 of its 2020 Capital Fund grant on items not included in the applicable budget and therefore the costs are unallowable and are being questioned. Cause: The Authority’s staff did not have an adequate understanding of capital fund grant funds even though we reviewed the requirements with the Authority during the past two audits. For the funds the Authority indicated to HUD were obligated so they could be advanced but were not, the Authority indicated HUD staff told them to do this so the funds would not be lost. Effect or Potential Effect: $305,004 of costs are being questioned as unallowable costs as the Authority did not have the related budget approved expenditures. Recommendation: The Authority should review its situation with HUD to determine the best course of action to deal with the unallowed costs. Further, the Authority should establish procedures to ensure Capital Fund grant expenditures are included in an approved budget prior to incurring the expenditure. The Authority should establish a monthly procedure where the capital fund grant activity is reported to the Board of Commissioners. For each grant, the report should include the total grant award, the amounts obligated, the amounts advanced and the amounts expended. The Board of Commissioners should be familiar with what was approved in the applicable grant budget so funds are only expended on these items. View of the Responsible Officials of the Auditee: The auditee’s management agrees with the finding.

Finding 2024-006: Special Tests and Provisions Rural Rental Housing Loan – Assistance Listing 10.415 Repeat Finding 2023-006 Noncompliance/Material Weakness Criteria: The Authority’s Rural Development Properties are required to make a $20,000 deposit into the replacement reserve annually until the balance in the account is at $200,000 or higher. Further, the Rural Development Properties should have adequate cash balances which exceed the security deposit liability. Condition: During the prior audit, it was noted the Authority had a shortfall in required contributions of $29,943.95. During the current year, the Authority made none of the $20,000 required contributions which resulted in the cumulative deficit of $49,943.95. In addition, the Authority must have approval from USDA prior to withdrawing funds. The Authority withdrew $35,000 without USDA’s approval as the Authority needed funds to operate. Cause: As noted in Finding 2024-001, the Rural Development Properties are struggling financially and have limited cash flow. Effect or Potential Effect: The Authority was in noncompliance with the Special Tests and Provisions that govern the program. Recommendation: The Authority must review the financial condition of the program and make budget cuts where possible so the program cash flows. The program should be financially viable on its own but the Authority could use other nonfederal funds to help fund the program at the discretion of the Board of Commissioners. View of the Responsible Officials of the Auditee: The auditee’s management agrees with the finding.

Finding 2024-007: Year End Reporting Rural Rental Housing Loan - 10.415, Rural Rental Housing Assistance – 10.427 Repeat Finding 2023-007 Noncompliance/Material Weakness Criteria: The Authority is responsible for completing and submitting Form RD 3560-7, Form RD 3560-10 and Attachment 4-F, Performance Standards Borrower Self-Certification Letter, within 90 days following the close of the project year end. Condition: We had requested copies of Form RD 3560-7, Form RD 3560-10 and Attachment 4-F for the yead ended March 31, 2024 and was unable to provide evidence that they were submitted and as a result we were unable to test the figures submitted. Cause: The Authority was unable to document that the reports were filed. Effect or Potential Effect: The Authority was in material noncompliance with U.S.D.A. Rural Development reporting requirements. Recommendation: The Authority should establish a procedure to complete the reports within the required timeframe and maintain records of what was submitted. View of the Responsible Officials of the Auditee: The auditee’s management agrees with the finding.

Finding 2024-007: Year End Reporting Rural Rental Housing Loan - 10.415, Rural Rental Housing Assistance – 10.427 Repeat Finding 2023-007 Noncompliance/Material Weakness Criteria: The Authority is responsible for completing and submitting Form RD 3560-7, Form RD 3560-10 and Attachment 4-F, Performance Standards Borrower Self-Certification Letter, within 90 days following the close of the project year end. Condition: We had requested copies of Form RD 3560-7, Form RD 3560-10 and Attachment 4-F for the yead ended March 31, 2024 and was unable to provide evidence that they were submitted and as a result we were unable to test the figures submitted. Cause: The Authority was unable to document that the reports were filed. Effect or Potential Effect: The Authority was in material noncompliance with U.S.D.A. Rural Development reporting requirements. Recommendation: The Authority should establish a procedure to complete the reports within the required timeframe and maintain records of what was submitted. View of the Responsible Officials of the Auditee: The auditee’s management agrees with the finding.

Finding 2024-008: Allowable Costs Capital Funds 14.872 Noncompliance Repeat Finding 2023-008 Questioned Costs - $305,004 Criteria: The Authority is awarded an annual Capital Fund grant each year. The Authority prepares a five-year plan which indicates what each annual grant will be spent on. This annual budget is modified upon the grant award to match the grant amount. Only items included within the budget are allowable costs. Condition: The Authority indicated in the Summary Schedule of Prior Audit Findings that the finding was corrected which was incorrect as no action had been taken by the Authority to correct the condition. During our prior audit, we noted the Authority expended $16,439.90 of its 2019 Capital Fund grants for work items not included in the 2019 Capital Fund budget. No action was taken to remedy this by the Authority and the questioned costs continue. We further noted in the prior audit the Authority advanced $96,898.10 in the 2019 Capital Fund grant and $89,605 in the 2021 Capital Fund grant from the 1480 General Capital Activity line item although no improvements had occurred. The Authority utilized $2,911.93 of the 2019 grant funds during the year ended March 31, 2024 leaving a balance of $183,581.17 of funds that were not obligated by the Authority and the obligation period has passed therefore these funds are being questions. The $2,911.93 referenced above were not included in the budget and therefore unallowed costs. The Authority expended $102,881 of its 2020 Capital Fund grant on items not included in the applicable budget and therefore the costs are unallowable and are being questioned. Cause: The Authority’s staff did not have an adequate understanding of capital fund grant funds even though we reviewed the requirements with the Authority during the past two audits. For the funds the Authority indicated to HUD were obligated so they could be advanced but were not, the Authority indicated HUD staff told them to do this so the funds would not be lost. Effect or Potential Effect: $305,004 of costs are being questioned as unallowable costs as the Authority did not have the related budget approved expenditures. Recommendation: The Authority should review its situation with HUD to determine the best course of action to deal with the unallowed costs. Further, the Authority should establish procedures to ensure Capital Fund grant expenditures are included in an approved budget prior to incurring the expenditure. The Authority should establish a monthly procedure where the capital fund grant activity is reported to the Board of Commissioners. For each grant, the report should include the total grant award, the amounts obligated, the amounts advanced and the amounts expended. The Board of Commissioners should be familiar with what was approved in the applicable grant budget so funds are only expended on these items. View of the Responsible Officials of the Auditee: The auditee’s management agrees with the finding.

Finding 2024-006: Special Tests and Provisions Rural Rental Housing Loan – Assistance Listing 10.415 Repeat Finding 2023-006 Noncompliance/Material Weakness Criteria: The Authority’s Rural Development Properties are required to make a $20,000 deposit into the replacement reserve annually until the balance in the account is at $200,000 or higher. Further, the Rural Development Properties should have adequate cash balances which exceed the security deposit liability. Condition: During the prior audit, it was noted the Authority had a shortfall in required contributions of $29,943.95. During the current year, the Authority made none of the $20,000 required contributions which resulted in the cumulative deficit of $49,943.95. In addition, the Authority must have approval from USDA prior to withdrawing funds. The Authority withdrew $35,000 without USDA’s approval as the Authority needed funds to operate. Cause: As noted in Finding 2024-001, the Rural Development Properties are struggling financially and have limited cash flow. Effect or Potential Effect: The Authority was in noncompliance with the Special Tests and Provisions that govern the program. Recommendation: The Authority must review the financial condition of the program and make budget cuts where possible so the program cash flows. The program should be financially viable on its own but the Authority could use other nonfederal funds to help fund the program at the discretion of the Board of Commissioners. View of the Responsible Officials of the Auditee: The auditee’s management agrees with the finding.

Finding 2024-007: Year End Reporting Rural Rental Housing Loan - 10.415, Rural Rental Housing Assistance – 10.427 Repeat Finding 2023-007 Noncompliance/Material Weakness Criteria: The Authority is responsible for completing and submitting Form RD 3560-7, Form RD 3560-10 and Attachment 4-F, Performance Standards Borrower Self-Certification Letter, within 90 days following the close of the project year end. Condition: We had requested copies of Form RD 3560-7, Form RD 3560-10 and Attachment 4-F for the yead ended March 31, 2024 and was unable to provide evidence that they were submitted and as a result we were unable to test the figures submitted. Cause: The Authority was unable to document that the reports were filed. Effect or Potential Effect: The Authority was in material noncompliance with U.S.D.A. Rural Development reporting requirements. Recommendation: The Authority should establish a procedure to complete the reports within the required timeframe and maintain records of what was submitted. View of the Responsible Officials of the Auditee: The auditee’s management agrees with the finding.

Finding 2024-007: Year End Reporting Rural Rental Housing Loan - 10.415, Rural Rental Housing Assistance – 10.427 Repeat Finding 2023-007 Noncompliance/Material Weakness Criteria: The Authority is responsible for completing and submitting Form RD 3560-7, Form RD 3560-10 and Attachment 4-F, Performance Standards Borrower Self-Certification Letter, within 90 days following the close of the project year end. Condition: We had requested copies of Form RD 3560-7, Form RD 3560-10 and Attachment 4-F for the yead ended March 31, 2024 and was unable to provide evidence that they were submitted and as a result we were unable to test the figures submitted. Cause: The Authority was unable to document that the reports were filed. Effect or Potential Effect: The Authority was in material noncompliance with U.S.D.A. Rural Development reporting requirements. Recommendation: The Authority should establish a procedure to complete the reports within the required timeframe and maintain records of what was submitted. View of the Responsible Officials of the Auditee: The auditee’s management agrees with the finding.