Audit 373767

Finding 2025-001 – Internal Control Over Maintenance Inventory (Allowable Costs) – ALN 14.850 Public and Indian Housing – Subsidy – Noncompliance & Significant Deficiency Condition & Cause: Our analytic procedures alerted us to the increase in maintenance materials inventory carried on the balance sheet. When we inquired of staff, it was relayed to us that existing internal controls in this area are not functioning as intended. Inventory is being added into the accounting system without being removed. We have confirmed a large increase in inventory starting during the FY 2023 audit period and increasing every year since. It was also confirmed by management that an inventory count has not been done in a number of years. The Authority has hired an inventory clerk as a step to address this weakness in internal control but the issue is ongoing and will take time to address properly. We have provided audit adjustments to recognize an allowance for accounts relating to this increase in materials balance. These adjustments have been accepted by management and are incorporated into the audited financial statements. Criteria: A deficiency in the internal control environment 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. The failure to properly implement internal control procedures can result in material misstatements of the account balances. Effect: The control deficiency resulted in a material adjustment to the financial statements. Oversight over the operations of the agency are not as effective when using information that contains material errors. Recommendation: The Housing Authority should be conducting an annual count of inventory as an internal control relating to the financial statements and as a safeguard against fraud and the misappropriation of assets. The Housing Authority should review its inventory process when purchasing goods and the subsequent removal of the inventory following a work order. Periodic review of this process should be done to ensure that the control activity is being followed and maintained. Questioned Costs: None Repeat Finding: No Was sampling statistically valid? Yes

Finding 2025-002 – Accounting Controls – Capital Fund Grant Management (Cash Management) – ALN 14.872 Public Housing Capital Fund – Noncompliance and Significant Deficiency Condition & Cause: We noted during our analysis of the Capital Fund grants that grant year 501-21 had passed its Period of Performance date of February 22, 2025. The grant still had remaining funds to be drawn of $568,507.34. It is unclear at this time if the Authority will be able to recuperate these funds. In addition to this grant the Authority also has a large number of other outstanding grants and amounts yet to be drawn. Grants 501-20 & 501-22 both have a Period of Performance which ends in 2026. The amount to be disbursed from these grants is $1,025,081 and $1,264,346, respectively. We note that subsequent to year end the Authority procured a $1.1 million dollar contract with HD Supply relating to doors at Moreno Court that should assist with this. We also note some instances of the Authority disbursing Operating Funds for Capital Fund purchases and later reimbursing itself through Capital Fund draws. This is evidenced by the year end discrepancy between HUD Accounts Receivable and the Capital Fund payable to vendors. This is specifically against cash management and program stipulations that require a draw and disbursement of funds within three days. This appears to be largely due to the Authority later reclassifying operating costs to capital fund costs in an effort to spend CFP grant dollars. In addition to the above-described deficiencies, we have noted that the capital fund grant tracking per the general ledger does not appear to agree with actual draws per the eLOCCS support. For example – CFP grant 501-19 per the GL displays $460,160.75 of revenue and costs. We note, however, that from the last audit period the Authority only had $387,309.08 of eligible grant costs remaining. The Authority will need to reallocate CFP costs across open grants. The Authority also does not have readily available spreadsheets or support which tracks each grants up to date expenditures to the general ledger. For the audit we had to rely on recreating the costs from the GL account histories. As the CFP grants are cost-driven, this information should be readily available for as an internal control over grant management. Each CFP draw from the eLOCCS system should be directly traceable to a direct eligible grant cost. During the fiscal year the Authority had its CFO resign. We attribute a large portion of the above-described deficiencies to that outcome. 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. PIH Notice 2025-14 provides additional guidance to Housing Authority’s as it relates to the ineligible use of Operating Funds to pay for Capital Fund Grant costs. 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. This can lead to delayed or lost funding from grant oversight in addition to noncompliance with grant stipulations. Recommendation: The Authority should establish internal controls relating to the management of the capital fund grants. Draws should be directly traceable to costs. Effective oversight over the grants should be maintained to allow for the timely draw and expenditure of funds. The general ledger should be maintained and agree to supporting draws and costs on a per grant basis. Questioned Costs: None Repeat Finding: No Was sampling statistically valid? Yes