Audit 366031

Finding 2024-001 Federal assistance listing number and name: 10.415 Rural Rent Housing Loans Awards numbers and years: 2024 Federal agency: United States Department of Agriculture Compliance Requirement: Activities allowed or unallowed, allowable costs/ cash management, eligibility, equipment, period of performance, procurement, program income, reporting, special tests Questioned Costs: None Criteria: In accordance with 2 CFR §200.512(a), non-Federal entities that expend $750,000 or more in Federal awards during the fiscal year must submit the audit report to the FAC Federal Audit Clearinghouse (FAC) within the earlier of 30 calendar days after receipt of the auditor’s report(s), or nine months after the end of the audit period. Additionally, program-specific requirements may mandate timely submission to other agencies, including Rural Development (RD). Condition and Context: The auditee did not submit the required audit reports to the Federal Audit Clearinghouse (FAC) and Rural Development (RD) in a timely manner. Specifically:  The 2023 Audit Report was not submitted to the FAC as required under 2 CFR Part 200, Subpart F.  The 2024 Audit Report was submitted past the regulatory deadline to both the FAC and RD. Cause: The delays and omission appear to have resulted from the prior auditor not being able to submit the Audit Report due to technical issues and the Rural Department not providing the loan statements in a timely manner. Effect: Failure to submit audit reports timely impedes the federal government’s oversight responsibilities, potentially affects the auditee's risk assessment, and may jeopardize continued funding eligibility. Recommendation: Management should establish and adhere to a documented internal timeline to ensure timely audit preparation and submission. This should include calendar reminders, assigned staff responsibilities, and periodic checks throughout the audit cycle. Communication with the auditor should begin early in the fiscal year to ensure deadlines are met.

Finding 2024-002 Federal assistance listing number and name: 10.415 Rural Rent Housing Loans Awards numbers and years: 2024 Federal agency: United States Department of Agriculture Compliance Requirement: Special Tests and Provisions Criteria: The Project is required to establish and maintain separate reserve accounts for taxes and insurance. Regular monthly deposits must be made based on projected annual costs. Condition and Context: The management did not establish or maintain required tax and insurance reserve accounts during the fiscal year. These reserves are required under loan and regulatory agreements to ensure funds are available to meet property tax and insurance obligations when due. Cause: The Project did not implement a process for calculating, funding, and tracking reserve contributions throughout the year. Effect: Failure to establish fund tax and insurance reserves increases the risk that sufficient funds will not be available when these obligations become due, potentially leading to delinquent payments, lapses in insurance coverage, or non-compliance with loan covenants. Recommendation: The management should implement procedures to establish reserve accounts for taxes and insurance. Make consistent monthly deposits to these reserve accounts and periodically review account balances and adjust contributions as needed to ensure adequate funding.

Finding 2024-003 Federal assistance listing number and name: 10.415 Rural Rent Housing Loans Awards numbers and years: 2024 Federal agency: United States Department of Agriculture Compliance Requirement: Activities allowed or unallowed, allowable costs/ cash management, eligibility, equipment, period of performance, procurement, program income, reporting, special tests Questioned Costs: None Criteria: Generally Accepted Auditing Standard AU-C 265“Communicating Internal Control Related Matters Identified in an Audit” requires the auditor to communicate potential weaknesses in internal control that are considered significant deficiencies in internal control. Condition and Context: Management has requested that the auditor propose certain year-end adjustments to bring the financial statements into conformity with Generally Accepted Accounting Principles (GAAP). For example, cash to accrual adjustments, depreciation calculations and adjustments, adjustments to debt and interest expense, interest subsidy adjustments, etc. Cause: The management company has certain reporting requirements for its affordable housing project which it manages. These requirements may include agency budget to actual reporting, tax reporting deadlines to limited partners and financial audit reporting deadlines. Due to the number of projects managed, these adjustments would require additional accounting personnel to meet the deadlines. Consequently, the Management Company requests the auditor to propose certain standard recurring adjustments to facilitate meeting the deadlines. Effect: All adjustments proposed by the auditor are required to be reviewed and approved by Management. There is a risk that the auditor may propose an incorrect journal entry, and the error may not be detected by management. Recommendation: Management needs to evaluate the risk of requesting the auditor to propose standard annual journal entries. Based upon management’s risk assessment of the internal control deficiency, management may decide to hire additional temporary accounting personnel to make the required entries.

Finding 2024-004 Federal assistance listing number and name: 10.415 Rural Rent Housing Loans Awards numbers and years: 2024 Federal agency: United States Department of Agriculture Compliance Requirement: Procurement Questioned Costs: None Criteria: 2 CFR 200.318(a) requires nonfederal entities to have and use documented procurement procedures, consistent with federal, state, and local requirements, for the acquisition of property or services under a federal award. These procedures must ensure full and open competition and address conflicts of interest Condition and Context: The entity has not established or documented a formal procurement policy or procedures to guide the acquisition of goods and services. No written guidelines were provided during the review period. Cause: The absence of an established procurement policy appears to be due to a lack of prioritization or awareness of regulatory requirements regarding procurement governance. Effect: The lack of a procurement policy increases the risk of non-compliance with applicable procurement laws and guidelines, and reduced accountability and transparency in financial operations. Recommendation: The management should develop, approve, and implement a comprehensive procurement policy in accordance with applicable laws and best practices.

Finding 2024-001 Federal assistance listing number and name: 10.415 Rural Rent Housing Loans Awards numbers and years: 2024 Federal agency: United States Department of Agriculture Compliance Requirement: Activities allowed or unallowed, allowable costs/ cash management, eligibility, equipment, period of performance, procurement, program income, reporting, special tests Questioned Costs: None Criteria: In accordance with 2 CFR §200.512(a), non-Federal entities that expend $750,000 or more in Federal awards during the fiscal year must submit the audit report to the FAC Federal Audit Clearinghouse (FAC) within the earlier of 30 calendar days after receipt of the auditor’s report(s), or nine months after the end of the audit period. Additionally, program-specific requirements may mandate timely submission to other agencies, including Rural Development (RD). Condition and Context: The auditee did not submit the required audit reports to the Federal Audit Clearinghouse (FAC) and Rural Development (RD) in a timely manner. Specifically:  The 2023 Audit Report was not submitted to the FAC as required under 2 CFR Part 200, Subpart F.  The 2024 Audit Report was submitted past the regulatory deadline to both the FAC and RD. Cause: The delays and omission appear to have resulted from the prior auditor not being able to submit the Audit Report due to technical issues and the Rural Department not providing the loan statements in a timely manner. Effect: Failure to submit audit reports timely impedes the federal government’s oversight responsibilities, potentially affects the auditee's risk assessment, and may jeopardize continued funding eligibility. Recommendation: Management should establish and adhere to a documented internal timeline to ensure timely audit preparation and submission. This should include calendar reminders, assigned staff responsibilities, and periodic checks throughout the audit cycle. Communication with the auditor should begin early in the fiscal year to ensure deadlines are met.

Finding 2024-002 Federal assistance listing number and name: 10.415 Rural Rent Housing Loans Awards numbers and years: 2024 Federal agency: United States Department of Agriculture Compliance Requirement: Special Tests and Provisions Criteria: The Project is required to establish and maintain separate reserve accounts for taxes and insurance. Regular monthly deposits must be made based on projected annual costs. Condition and Context: The management did not establish or maintain required tax and insurance reserve accounts during the fiscal year. These reserves are required under loan and regulatory agreements to ensure funds are available to meet property tax and insurance obligations when due. Cause: The Project did not implement a process for calculating, funding, and tracking reserve contributions throughout the year. Effect: Failure to establish fund tax and insurance reserves increases the risk that sufficient funds will not be available when these obligations become due, potentially leading to delinquent payments, lapses in insurance coverage, or non-compliance with loan covenants. Recommendation: The management should implement procedures to establish reserve accounts for taxes and insurance. Make consistent monthly deposits to these reserve accounts and periodically review account balances and adjust contributions as needed to ensure adequate funding.

Finding 2024-003 Federal assistance listing number and name: 10.415 Rural Rent Housing Loans Awards numbers and years: 2024 Federal agency: United States Department of Agriculture Compliance Requirement: Activities allowed or unallowed, allowable costs/ cash management, eligibility, equipment, period of performance, procurement, program income, reporting, special tests Questioned Costs: None Criteria: Generally Accepted Auditing Standard AU-C 265“Communicating Internal Control Related Matters Identified in an Audit” requires the auditor to communicate potential weaknesses in internal control that are considered significant deficiencies in internal control. Condition and Context: Management has requested that the auditor propose certain year-end adjustments to bring the financial statements into conformity with Generally Accepted Accounting Principles (GAAP). For example, cash to accrual adjustments, depreciation calculations and adjustments, adjustments to debt and interest expense, interest subsidy adjustments, etc. Cause: The management company has certain reporting requirements for its affordable housing project which it manages. These requirements may include agency budget to actual reporting, tax reporting deadlines to limited partners and financial audit reporting deadlines. Due to the number of projects managed, these adjustments would require additional accounting personnel to meet the deadlines. Consequently, the Management Company requests the auditor to propose certain standard recurring adjustments to facilitate meeting the deadlines. Effect: All adjustments proposed by the auditor are required to be reviewed and approved by Management. There is a risk that the auditor may propose an incorrect journal entry, and the error may not be detected by management. Recommendation: Management needs to evaluate the risk of requesting the auditor to propose standard annual journal entries. Based upon management’s risk assessment of the internal control deficiency, management may decide to hire additional temporary accounting personnel to make the required entries.

Finding 2024-004 Federal assistance listing number and name: 10.415 Rural Rent Housing Loans Awards numbers and years: 2024 Federal agency: United States Department of Agriculture Compliance Requirement: Procurement Questioned Costs: None Criteria: 2 CFR 200.318(a) requires nonfederal entities to have and use documented procurement procedures, consistent with federal, state, and local requirements, for the acquisition of property or services under a federal award. These procedures must ensure full and open competition and address conflicts of interest Condition and Context: The entity has not established or documented a formal procurement policy or procedures to guide the acquisition of goods and services. No written guidelines were provided during the review period. Cause: The absence of an established procurement policy appears to be due to a lack of prioritization or awareness of regulatory requirements regarding procurement governance. Effect: The lack of a procurement policy increases the risk of non-compliance with applicable procurement laws and guidelines, and reduced accountability and transparency in financial operations. Recommendation: The management should develop, approve, and implement a comprehensive procurement policy in accordance with applicable laws and best practices.

Finding 2024-001 Federal assistance listing number and name: 10.415 Rural Rent Housing Loans Awards numbers and years: 2024 Federal agency: United States Department of Agriculture Compliance Requirement: Activities allowed or unallowed, allowable costs/ cash management, eligibility, equipment, period of performance, procurement, program income, reporting, special tests Questioned Costs: None Criteria: In accordance with 2 CFR §200.512(a), non-Federal entities that expend $750,000 or more in Federal awards during the fiscal year must submit the audit report to the FAC Federal Audit Clearinghouse (FAC) within the earlier of 30 calendar days after receipt of the auditor’s report(s), or nine months after the end of the audit period. Additionally, program-specific requirements may mandate timely submission to other agencies, including Rural Development (RD). Condition and Context: The auditee did not submit the required audit reports to the Federal Audit Clearinghouse (FAC) and Rural Development (RD) in a timely manner. Specifically:  The 2023 Audit Report was not submitted to the FAC as required under 2 CFR Part 200, Subpart F.  The 2024 Audit Report was submitted past the regulatory deadline to both the FAC and RD. Cause: The delays and omission appear to have resulted from the prior auditor not being able to submit the Audit Report due to technical issues and the Rural Department not providing the loan statements in a timely manner. Effect: Failure to submit audit reports timely impedes the federal government’s oversight responsibilities, potentially affects the auditee's risk assessment, and may jeopardize continued funding eligibility. Recommendation: Management should establish and adhere to a documented internal timeline to ensure timely audit preparation and submission. This should include calendar reminders, assigned staff responsibilities, and periodic checks throughout the audit cycle. Communication with the auditor should begin early in the fiscal year to ensure deadlines are met.

Finding 2024-002 Federal assistance listing number and name: 10.415 Rural Rent Housing Loans Awards numbers and years: 2024 Federal agency: United States Department of Agriculture Compliance Requirement: Special Tests and Provisions Criteria: The Project is required to establish and maintain separate reserve accounts for taxes and insurance. Regular monthly deposits must be made based on projected annual costs. Condition and Context: The management did not establish or maintain required tax and insurance reserve accounts during the fiscal year. These reserves are required under loan and regulatory agreements to ensure funds are available to meet property tax and insurance obligations when due. Cause: The Project did not implement a process for calculating, funding, and tracking reserve contributions throughout the year. Effect: Failure to establish fund tax and insurance reserves increases the risk that sufficient funds will not be available when these obligations become due, potentially leading to delinquent payments, lapses in insurance coverage, or non-compliance with loan covenants. Recommendation: The management should implement procedures to establish reserve accounts for taxes and insurance. Make consistent monthly deposits to these reserve accounts and periodically review account balances and adjust contributions as needed to ensure adequate funding.

Finding 2024-003 Federal assistance listing number and name: 10.415 Rural Rent Housing Loans Awards numbers and years: 2024 Federal agency: United States Department of Agriculture Compliance Requirement: Activities allowed or unallowed, allowable costs/ cash management, eligibility, equipment, period of performance, procurement, program income, reporting, special tests Questioned Costs: None Criteria: Generally Accepted Auditing Standard AU-C 265“Communicating Internal Control Related Matters Identified in an Audit” requires the auditor to communicate potential weaknesses in internal control that are considered significant deficiencies in internal control. Condition and Context: Management has requested that the auditor propose certain year-end adjustments to bring the financial statements into conformity with Generally Accepted Accounting Principles (GAAP). For example, cash to accrual adjustments, depreciation calculations and adjustments, adjustments to debt and interest expense, interest subsidy adjustments, etc. Cause: The management company has certain reporting requirements for its affordable housing project which it manages. These requirements may include agency budget to actual reporting, tax reporting deadlines to limited partners and financial audit reporting deadlines. Due to the number of projects managed, these adjustments would require additional accounting personnel to meet the deadlines. Consequently, the Management Company requests the auditor to propose certain standard recurring adjustments to facilitate meeting the deadlines. Effect: All adjustments proposed by the auditor are required to be reviewed and approved by Management. There is a risk that the auditor may propose an incorrect journal entry, and the error may not be detected by management. Recommendation: Management needs to evaluate the risk of requesting the auditor to propose standard annual journal entries. Based upon management’s risk assessment of the internal control deficiency, management may decide to hire additional temporary accounting personnel to make the required entries.

Finding 2024-004 Federal assistance listing number and name: 10.415 Rural Rent Housing Loans Awards numbers and years: 2024 Federal agency: United States Department of Agriculture Compliance Requirement: Procurement Questioned Costs: None Criteria: 2 CFR 200.318(a) requires nonfederal entities to have and use documented procurement procedures, consistent with federal, state, and local requirements, for the acquisition of property or services under a federal award. These procedures must ensure full and open competition and address conflicts of interest Condition and Context: The entity has not established or documented a formal procurement policy or procedures to guide the acquisition of goods and services. No written guidelines were provided during the review period. Cause: The absence of an established procurement policy appears to be due to a lack of prioritization or awareness of regulatory requirements regarding procurement governance. Effect: The lack of a procurement policy increases the risk of non-compliance with applicable procurement laws and guidelines, and reduced accountability and transparency in financial operations. Recommendation: The management should develop, approve, and implement a comprehensive procurement policy in accordance with applicable laws and best practices.

Finding 2024-001 Federal assistance listing number and name: 10.415 Rural Rent Housing Loans Awards numbers and years: 2024 Federal agency: United States Department of Agriculture Compliance Requirement: Activities allowed or unallowed, allowable costs/ cash management, eligibility, equipment, period of performance, procurement, program income, reporting, special tests Questioned Costs: None Criteria: In accordance with 2 CFR §200.512(a), non-Federal entities that expend $750,000 or more in Federal awards during the fiscal year must submit the audit report to the FAC Federal Audit Clearinghouse (FAC) within the earlier of 30 calendar days after receipt of the auditor’s report(s), or nine months after the end of the audit period. Additionally, program-specific requirements may mandate timely submission to other agencies, including Rural Development (RD). Condition and Context: The auditee did not submit the required audit reports to the Federal Audit Clearinghouse (FAC) and Rural Development (RD) in a timely manner. Specifically:  The 2023 Audit Report was not submitted to the FAC as required under 2 CFR Part 200, Subpart F.  The 2024 Audit Report was submitted past the regulatory deadline to both the FAC and RD. Cause: The delays and omission appear to have resulted from the prior auditor not being able to submit the Audit Report due to technical issues and the Rural Department not providing the loan statements in a timely manner. Effect: Failure to submit audit reports timely impedes the federal government’s oversight responsibilities, potentially affects the auditee's risk assessment, and may jeopardize continued funding eligibility. Recommendation: Management should establish and adhere to a documented internal timeline to ensure timely audit preparation and submission. This should include calendar reminders, assigned staff responsibilities, and periodic checks throughout the audit cycle. Communication with the auditor should begin early in the fiscal year to ensure deadlines are met.

Finding 2024-002 Federal assistance listing number and name: 10.415 Rural Rent Housing Loans Awards numbers and years: 2024 Federal agency: United States Department of Agriculture Compliance Requirement: Special Tests and Provisions Criteria: The Project is required to establish and maintain separate reserve accounts for taxes and insurance. Regular monthly deposits must be made based on projected annual costs. Condition and Context: The management did not establish or maintain required tax and insurance reserve accounts during the fiscal year. These reserves are required under loan and regulatory agreements to ensure funds are available to meet property tax and insurance obligations when due. Cause: The Project did not implement a process for calculating, funding, and tracking reserve contributions throughout the year. Effect: Failure to establish fund tax and insurance reserves increases the risk that sufficient funds will not be available when these obligations become due, potentially leading to delinquent payments, lapses in insurance coverage, or non-compliance with loan covenants. Recommendation: The management should implement procedures to establish reserve accounts for taxes and insurance. Make consistent monthly deposits to these reserve accounts and periodically review account balances and adjust contributions as needed to ensure adequate funding.

Finding 2024-003 Federal assistance listing number and name: 10.415 Rural Rent Housing Loans Awards numbers and years: 2024 Federal agency: United States Department of Agriculture Compliance Requirement: Activities allowed or unallowed, allowable costs/ cash management, eligibility, equipment, period of performance, procurement, program income, reporting, special tests Questioned Costs: None Criteria: Generally Accepted Auditing Standard AU-C 265“Communicating Internal Control Related Matters Identified in an Audit” requires the auditor to communicate potential weaknesses in internal control that are considered significant deficiencies in internal control. Condition and Context: Management has requested that the auditor propose certain year-end adjustments to bring the financial statements into conformity with Generally Accepted Accounting Principles (GAAP). For example, cash to accrual adjustments, depreciation calculations and adjustments, adjustments to debt and interest expense, interest subsidy adjustments, etc. Cause: The management company has certain reporting requirements for its affordable housing project which it manages. These requirements may include agency budget to actual reporting, tax reporting deadlines to limited partners and financial audit reporting deadlines. Due to the number of projects managed, these adjustments would require additional accounting personnel to meet the deadlines. Consequently, the Management Company requests the auditor to propose certain standard recurring adjustments to facilitate meeting the deadlines. Effect: All adjustments proposed by the auditor are required to be reviewed and approved by Management. There is a risk that the auditor may propose an incorrect journal entry, and the error may not be detected by management. Recommendation: Management needs to evaluate the risk of requesting the auditor to propose standard annual journal entries. Based upon management’s risk assessment of the internal control deficiency, management may decide to hire additional temporary accounting personnel to make the required entries.

Finding 2024-004 Federal assistance listing number and name: 10.415 Rural Rent Housing Loans Awards numbers and years: 2024 Federal agency: United States Department of Agriculture Compliance Requirement: Procurement Questioned Costs: None Criteria: 2 CFR 200.318(a) requires nonfederal entities to have and use documented procurement procedures, consistent with federal, state, and local requirements, for the acquisition of property or services under a federal award. These procedures must ensure full and open competition and address conflicts of interest Condition and Context: The entity has not established or documented a formal procurement policy or procedures to guide the acquisition of goods and services. No written guidelines were provided during the review period. Cause: The absence of an established procurement policy appears to be due to a lack of prioritization or awareness of regulatory requirements regarding procurement governance. Effect: The lack of a procurement policy increases the risk of non-compliance with applicable procurement laws and guidelines, and reduced accountability and transparency in financial operations. Recommendation: The management should develop, approve, and implement a comprehensive procurement policy in accordance with applicable laws and best practices.