Finding 2024-001 – Accounting Controls – Internal Controls over Financial Statement Preparation ALN 14.850 – Noncompliance and Material Weakness
Criteria:
Regulations at 2 CFR Part 200, Uniform Administrative Requirements, outline the internal control requirements for recipients of federal grant funds. Non-Federal entities must demonstrate, “Effective control over, and accountability for, all funds, property, and other assets.” A deficiency in internal control exists when the design or operation of a control does not allow management or its employees, in the normal course of operation, to detect or correct errors, fraud, or misstatements in a timely manner. The failure to properly implement internal control procedures can result in material misstatements of the account balances and noncompliance with grant oversight provisions.
Condition and Cause: We discovered a number of deficiencies related to the maintenance and accuracy of accounting records and the underlying control deficiencies noted during our audit field work. We noted that management experienced a complete turnover of all personnel in the financial department for the year ended June 30, 2024. The following are areas of weakness that we believe should be disclosed:
1) Cash and Investments
We encountered difficulties during the course of the audit in reconciling the cash and investment support to the general ledger. We determined that certain ledgers, were not included in the unaudited financial data schedule (FDS) submitted to HUD electronically. These ledgers contained a negative cash balance of approximately $273,000 which has been incorporated into the audited financial statements. These ledgers were allocation type ledgers whose figures have been adjusted into the Public Housing AMPs. These ledgers were distorting the cash and investment balances. We have proposed adjustments to correct this for the audited financial statements to report these accurately in all material respects.
2) Compensated Absences Liability not Adjusted
The Housing Authority has not changed or reevaluated the compensated absences liability from the previous audit. We also noted that significant personnel retired or have ended their employment with the agency which resulted in large payouts of unused leave. We noted this as an internal control deficiency in the year end closing process and was not discovered until the audit field work.
3) Former Executive Director Separation Agreement
The Housing Authority did not accrue a liability related to an employment contract and separation from the previous Executive Director. The Executive Director resigned on June 19, 2024 and subsequent to the end of the year a separation agreement was executed. According to GAAP requirements this accrual was necessary to properly reflect this obligation at the end of the fiscal year.
4) OPEB Valuation was not Conducted timely
It was disclosed to us early in the audit process that the Housing Authority had not had an OPEB reevaluation, required by GASB 75, performed within the current year. Subsequent to the end of the year an evaluation was received that was included in the current audited financial statements. The OPEB liability and related outflows and inflows of resources were adjusted within the audited financial statements but were materially different from the unaudited FDS submitted to HUD. 5) SPLOST Tracking of Revenue and Costs
We have examined the SPLOST draws and spending as it related to the North Downtown Athens Redevelopment. The client was unable to provide us with an accurate and up to date reconciliation of the draws vs costs as of June 30, 2024. We have attempted to recreate these with our examination of the SPLOST funding requests. We note that the client does have a SPLOST draw tracking spreadsheet but it did not agree to the balances reported on the general ledger.
We noted numerous errors in our review of the tracking of these revenues and costs. The largest of which was a $2,386,931 adjustment to recognize unearned revenues in the prior year related to a note receivable with the ND Athens Redevelopment. Client had also not adjusted its payables or retention balances associated with vendor draw requests. The internal controls in this area as of June 2024 are insufficient and we assess the probability of misstatements in this area as likely.
6) Business Activities Notes Receivable
The notes receivable associated with ND Athens had their interest accruals for the year recorded twice. There were also miscellaneous contributions included as notes that we have proposed adjustment to reclassify associated with ND Athens Phase II.
7) Other Adjustments
We note that the client has not provided an adjustment for accrued utilities. We have performed an estimated journal entry based upon prior year experience that we have included in the audited financial statements for consistency. These should be included in their year-end close process.
The Housing Authority did not post adjustments related to its GASB 87 lease liabilities in the Locally Owned and the COCC programs. We have provided these adjustments and they are included in the audited financial statements.
During our review of the Housing Authority payments in lieu of taxes (PILOT) calculation we noted several entries in the Public Housing AMPs that were posted in error. Total adjustment required to accurately state was $216,802.
Effect: Improper balancing of accounts and accounting controls can result in misstated financial statements and improper financial information being communicated to management and to HUD. Also, as a result of these adjustments and errors made in the preparation of the unaudited FDS submitted to HUD, the revised Financial Indicator scores for Public Housing have been materially changed, which resulted in a deduction and penalty in its PHAS financial scoring. As a result of the reduction in points the agency may be financially troubled in the subsequent year and subject to increased oversight by the Department of Housing & Urban Development.
Recommendation: Management will need to reassess the year-end process moving forward to ensure the accuracy and integrity of the financial statements. The Authority's recent appointment of key personnel after year-end is expected to support these efforts and help achieve these objectives.
Questioned Costs: None
Repeat Finding: No
Was sampling statistically valid? Yes
Finding 2024-002 – Low Income Public Housing Tenant Files – Eligibility – Noncompliance & Material Weakness – Public and Indian Housing – ALN #14.850
Criteria:
The Code of Federal regulations, the Housing Authority Admissions and Continued Occupancy Policy and specific HUD guidelines for the Low Income Public Housing program.
Condition & Cause:
We reviewed seventy-six (76) tenant files from the Low Income Public Housing program for various compliance indicators. We found that seven (7) files, or about 9% of the sample, were noncompliant for income-related reasons. Specifically, two (2) files had income miscalculations that did not materially affect the tenants, and five (5) files relied on tenant self-declaration without documenting attempts to gather the preferred third-party verification.
We also found that the Authority did not conduct the required annual self-inspections of public housing units during the fiscal year, as mandated by 24 CFR 5.707. Inspections were performed in August 2024, subsequent to fiscal year end and 18 months following the previous inspections. This is consistent with the Authority's low scores on the NSPIRE inspections, which were also conducted subsequent to fiscal year end.
We noted that the Agency underwent extensive changes in management during the current fiscal year ended June 30, 2024, which resulted in several staff vacancies, which contributed to the noncompliance.
Effect:
Improper calculation and verification of annual income can result in inaccurate subsidy amounts, financial burdens on participants, and misstatements in the Authority’s financial statements. Delayed unit inspections increase the risk of unsafe or unsanitary living conditions. These issues lead to noncompliance with regulations and heightened scrutiny from oversight bodies.
Recommendation:
We recommend that the Agency conduct an audit of existing tenants to determine the extent of noncompliance regarding income calculation and verification. Additionally, the Agency should ensure that units are inspected at least annually.
Questioned Costs: None
Repeat Finding: No
Was sampling statistically valid? Yes
Finding 2024-003 – Capital Fund Grant Reconciliations – Special Tests – Significant Deficiency Capital Fund Program – ALN #14.872
Criteria:
The Code of Federal regulations and the Capital Grant reporting requirements give the guidelines for accounting and reporting of the Capital Grant Program activity.
Condition & Cause:
The client did not have prepared reconciliations of the FY 2024 capital fund grant revenues and associated costs. We have had to reconstruct this based on our examination of the data within the accounting system. We were able to get the variances to a point that we believe are immaterial to the financial statements.
Effect:
Inadequate internal controls in this area can result in the possibility of misstatements in the financials and could result in noncompliance with grant management. Additionally, improper record keeping can cause a deficiency in cash management and requesting funds from the eLoccs system.
Recommendation:
We recommend that the Housing Authority should reconcile this monthly.
Questioned Costs: None
Repeat Finding: No
Was sampling statistically valid? Yes
Finding 2024-001 – Accounting Controls – Internal Controls over Financial Statement Preparation ALN 14.850 – Noncompliance and Material Weakness
Criteria:
Regulations at 2 CFR Part 200, Uniform Administrative Requirements, outline the internal control requirements for recipients of federal grant funds. Non-Federal entities must demonstrate, “Effective control over, and accountability for, all funds, property, and other assets.” A deficiency in internal control exists when the design or operation of a control does not allow management or its employees, in the normal course of operation, to detect or correct errors, fraud, or misstatements in a timely manner. The failure to properly implement internal control procedures can result in material misstatements of the account balances and noncompliance with grant oversight provisions.
Condition and Cause: We discovered a number of deficiencies related to the maintenance and accuracy of accounting records and the underlying control deficiencies noted during our audit field work. We noted that management experienced a complete turnover of all personnel in the financial department for the year ended June 30, 2024. The following are areas of weakness that we believe should be disclosed:
1) Cash and Investments
We encountered difficulties during the course of the audit in reconciling the cash and investment support to the general ledger. We determined that certain ledgers, were not included in the unaudited financial data schedule (FDS) submitted to HUD electronically. These ledgers contained a negative cash balance of approximately $273,000 which has been incorporated into the audited financial statements. These ledgers were allocation type ledgers whose figures have been adjusted into the Public Housing AMPs. These ledgers were distorting the cash and investment balances. We have proposed adjustments to correct this for the audited financial statements to report these accurately in all material respects.
2) Compensated Absences Liability not Adjusted
The Housing Authority has not changed or reevaluated the compensated absences liability from the previous audit. We also noted that significant personnel retired or have ended their employment with the agency which resulted in large payouts of unused leave. We noted this as an internal control deficiency in the year end closing process and was not discovered until the audit field work.
3) Former Executive Director Separation Agreement
The Housing Authority did not accrue a liability related to an employment contract and separation from the previous Executive Director. The Executive Director resigned on June 19, 2024 and subsequent to the end of the year a separation agreement was executed. According to GAAP requirements this accrual was necessary to properly reflect this obligation at the end of the fiscal year.
4) OPEB Valuation was not Conducted timely
It was disclosed to us early in the audit process that the Housing Authority had not had an OPEB reevaluation, required by GASB 75, performed within the current year. Subsequent to the end of the year an evaluation was received that was included in the current audited financial statements. The OPEB liability and related outflows and inflows of resources were adjusted within the audited financial statements but were materially different from the unaudited FDS submitted to HUD. 5) SPLOST Tracking of Revenue and Costs
We have examined the SPLOST draws and spending as it related to the North Downtown Athens Redevelopment. The client was unable to provide us with an accurate and up to date reconciliation of the draws vs costs as of June 30, 2024. We have attempted to recreate these with our examination of the SPLOST funding requests. We note that the client does have a SPLOST draw tracking spreadsheet but it did not agree to the balances reported on the general ledger.
We noted numerous errors in our review of the tracking of these revenues and costs. The largest of which was a $2,386,931 adjustment to recognize unearned revenues in the prior year related to a note receivable with the ND Athens Redevelopment. Client had also not adjusted its payables or retention balances associated with vendor draw requests. The internal controls in this area as of June 2024 are insufficient and we assess the probability of misstatements in this area as likely.
6) Business Activities Notes Receivable
The notes receivable associated with ND Athens had their interest accruals for the year recorded twice. There were also miscellaneous contributions included as notes that we have proposed adjustment to reclassify associated with ND Athens Phase II.
7) Other Adjustments
We note that the client has not provided an adjustment for accrued utilities. We have performed an estimated journal entry based upon prior year experience that we have included in the audited financial statements for consistency. These should be included in their year-end close process.
The Housing Authority did not post adjustments related to its GASB 87 lease liabilities in the Locally Owned and the COCC programs. We have provided these adjustments and they are included in the audited financial statements.
During our review of the Housing Authority payments in lieu of taxes (PILOT) calculation we noted several entries in the Public Housing AMPs that were posted in error. Total adjustment required to accurately state was $216,802.
Effect: Improper balancing of accounts and accounting controls can result in misstated financial statements and improper financial information being communicated to management and to HUD. Also, as a result of these adjustments and errors made in the preparation of the unaudited FDS submitted to HUD, the revised Financial Indicator scores for Public Housing have been materially changed, which resulted in a deduction and penalty in its PHAS financial scoring. As a result of the reduction in points the agency may be financially troubled in the subsequent year and subject to increased oversight by the Department of Housing & Urban Development.
Recommendation: Management will need to reassess the year-end process moving forward to ensure the accuracy and integrity of the financial statements. The Authority's recent appointment of key personnel after year-end is expected to support these efforts and help achieve these objectives.
Questioned Costs: None
Repeat Finding: No
Was sampling statistically valid? Yes
Finding 2024-002 – Low Income Public Housing Tenant Files – Eligibility – Noncompliance & Material Weakness – Public and Indian Housing – ALN #14.850
Criteria:
The Code of Federal regulations, the Housing Authority Admissions and Continued Occupancy Policy and specific HUD guidelines for the Low Income Public Housing program.
Condition & Cause:
We reviewed seventy-six (76) tenant files from the Low Income Public Housing program for various compliance indicators. We found that seven (7) files, or about 9% of the sample, were noncompliant for income-related reasons. Specifically, two (2) files had income miscalculations that did not materially affect the tenants, and five (5) files relied on tenant self-declaration without documenting attempts to gather the preferred third-party verification.
We also found that the Authority did not conduct the required annual self-inspections of public housing units during the fiscal year, as mandated by 24 CFR 5.707. Inspections were performed in August 2024, subsequent to fiscal year end and 18 months following the previous inspections. This is consistent with the Authority's low scores on the NSPIRE inspections, which were also conducted subsequent to fiscal year end.
We noted that the Agency underwent extensive changes in management during the current fiscal year ended June 30, 2024, which resulted in several staff vacancies, which contributed to the noncompliance.
Effect:
Improper calculation and verification of annual income can result in inaccurate subsidy amounts, financial burdens on participants, and misstatements in the Authority’s financial statements. Delayed unit inspections increase the risk of unsafe or unsanitary living conditions. These issues lead to noncompliance with regulations and heightened scrutiny from oversight bodies.
Recommendation:
We recommend that the Agency conduct an audit of existing tenants to determine the extent of noncompliance regarding income calculation and verification. Additionally, the Agency should ensure that units are inspected at least annually.
Questioned Costs: None
Repeat Finding: No
Was sampling statistically valid? Yes
Finding 2024-003 – Capital Fund Grant Reconciliations – Special Tests – Significant Deficiency Capital Fund Program – ALN #14.872
Criteria:
The Code of Federal regulations and the Capital Grant reporting requirements give the guidelines for accounting and reporting of the Capital Grant Program activity.
Condition & Cause:
The client did not have prepared reconciliations of the FY 2024 capital fund grant revenues and associated costs. We have had to reconstruct this based on our examination of the data within the accounting system. We were able to get the variances to a point that we believe are immaterial to the financial statements.
Effect:
Inadequate internal controls in this area can result in the possibility of misstatements in the financials and could result in noncompliance with grant management. Additionally, improper record keeping can cause a deficiency in cash management and requesting funds from the eLoccs system.
Recommendation:
We recommend that the Housing Authority should reconcile this monthly.
Questioned Costs: None
Repeat Finding: No
Was sampling statistically valid? Yes