Audit 367044

Federal Agency: U.S. Department of Housing and Urban Development (HUD) Federal Program: Housing Opportunities for Persons With AIDS (HOPWA) Assistance Listing Number: 14.241 Award Number and Period: [NMH200032], [May 21, 2021 – August 31, 2024] [NMH240051], [November 1, 2024 – October 31, 2027] Type of Compliance Requirements: Internal Controls Type of Finding: (E) Material Weakness in Internal Control Over Compliance of Federal Awards Questions Cost: Statement of Condition During our audit, we noted that the expenditures reported on the Schedule of Expenditures of Federal Awards (SEFA) could not be fully reconciled to the general ledger. Several federal awards lacked clearly designated ledger accounts, making it difficult to trace specific expenditures. In addition, multiple loan agreements did not identify the federal funding source. Furthermore, recycled funds were not tracked separately from new grant funds within the accounting records. Specifically, all grants should be tracked separately in the general ledger, and the revenue and expenses should match the reimbursement grants. The SEFA reconciliation should be done thoroughly and discrepancies reconciled or resolved, if that is the case. The policies for recycling the funds should be updated with the financial tracking in the general ledger and update with all grantor recommendations.The recycled funds received/spent should be separately tracked and used per policies and grantor recommendations. Effect The lack of properly tracking expenditures and recycled funds increases the risk of misstating the SEFA, billing non-allowable or duplicate costs to the grantor, and not meeting timeliness or use restrictions related to program income. This may lead to questioned costs or future audit findings. Recycled funds not properly tracked separately may result in noncompliance with the application of loan funding. Cause The issues stemmed from frequent staff turnover and the complexity of accounting for loans and recycled funds across departments. Recommendation We recommend the Housing Trust: 1. Revise and implement grant management policy and procedures that ensure each grant has a dedicated general ledger account. 2. Require all reimbursement requests to be supported by general ledger detail. 3. Ensure program income and recycled funds are separately tracked in accordance with federal guidelines. 4. Establish regular reconciliations between Finance and Program records to maintain consistency. View of Responsible Official The Housing Trust acknowledges the finding. Prior staffing and system limitations created gaps in tracking recycled funds and aligning general ledger data to SEFA. Since then: - A dedicated Finance Manager now oversees all financial activities. - A grant-specific chart of accounts structure has been created in QBO. - Each grant now has a dedicated class and project for transaction tracking. - Recycled funds are being tracked separately from new funds in both QBO and the reimbursement log. - SEFA schedules will be reconciled monthly and reviewed with each billing cycle. Corrective Action Plan Timeline - Finalize and adopt new Grant Management Policies: by September 2025 - Implement monthly SEFA reconciliations: by September 2025 - Complete staff training on program income and federal grant tracking: by September 2025 Designated Employee Responsible for Corrective Action - Finance Manager - Assets Specialist Assistant - Accounting Technician

Federal Agency: U.S. Department of Housing and Urban Development (HUD) Federal Program: Housing Opportunities for Persons With AIDS (HOPWA) Assistance Listing Number: 14.241 Award Number and Period: [NMH200032], [May 21, 2021 – August 31, 2024] [NMH240051], [November 1, 2024 – October 31, 2027] Type of Compliance Requirements: Internal Controls Type of Finding: (E) Material Weakness in Internal Control Over Compliance of Federal Awards Questions Cost: Statement of Condition During our audit, we noted that the expenditures reported on the Schedule of Expenditures of Federal Awards (SEFA) could not be fully reconciled to the general ledger. Several federal awards lacked clearly designated ledger accounts, making it difficult to trace specific expenditures. In addition, multiple loan agreements did not identify the federal funding source. Furthermore, recycled funds were not tracked separately from new grant funds within the accounting records. Specifically, all grants should be tracked separately in the general ledger, and the revenue and expenses should match the reimbursement grants. The SEFA reconciliation should be done thoroughly and discrepancies reconciled or resolved, if that is the case. The policies for recycling the funds should be updated with the financial tracking in the general ledger and update with all grantor recommendations.The recycled funds received/spent should be separately tracked and used per policies and grantor recommendations. Effect The lack of properly tracking expenditures and recycled funds increases the risk of misstating the SEFA, billing non-allowable or duplicate costs to the grantor, and not meeting timeliness or use restrictions related to program income. This may lead to questioned costs or future audit findings. Recycled funds not properly tracked separately may result in noncompliance with the application of loan funding. Cause The issues stemmed from frequent staff turnover and the complexity of accounting for loans and recycled funds across departments. Recommendation We recommend the Housing Trust: 1. Revise and implement grant management policy and procedures that ensure each grant has a dedicated general ledger account. 2. Require all reimbursement requests to be supported by general ledger detail. 3. Ensure program income and recycled funds are separately tracked in accordance with federal guidelines. 4. Establish regular reconciliations between Finance and Program records to maintain consistency. View of Responsible Official The Housing Trust acknowledges the finding. Prior staffing and system limitations created gaps in tracking recycled funds and aligning general ledger data to SEFA. Since then: - A dedicated Finance Manager now oversees all financial activities. - A grant-specific chart of accounts structure has been created in QBO. - Each grant now has a dedicated class and project for transaction tracking. - Recycled funds are being tracked separately from new funds in both QBO and the reimbursement log. - SEFA schedules will be reconciled monthly and reviewed with each billing cycle. Corrective Action Plan Timeline - Finalize and adopt new Grant Management Policies: by September 2025 - Implement monthly SEFA reconciliations: by September 2025 - Complete staff training on program income and federal grant tracking: by September 2025 Designated Employee Responsible for Corrective Action - Finance Manager - Assets Specialist Assistant - Accounting Technician