Assistance Listing Number, Federal Agency, and Program Name - ALN 14.239, Department of Housing and Urban Development (HUD), Home Investment Partnerships Program Federal Award Identification Number and Year - M18MC260202 2018; M19MC260202 2019; M20MC260202 2020; M21MC260202 2021 Pass through Entity - N/A Finding Type - Material weakness and material noncompliance with laws and regulations Repeat Finding - Yes 2024 004 Criteria - Per 2 CFR 200.303, the recipient must establish, document, and maintain effective internal control over the federal award that provides reasonable assurance that the recipient or subrecipient is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. These internal controls should align with the guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The City is required to complete inspections of HOME-assisted units to ensure they meet the HUD housing standards outlined in 24 CFR 92.251(b)(viii). During the period of affordability (i.e., the period for which the nonfederal entity must maintain subsided housing) for HOME-assisted rental housing, the participating jurisdiction must perform on-site inspections to determine compliance with property standards and verify the information submitted by the owners no less than (a) every three years for projects containing 1 to 4 units, (b) every two years for projects containing 5 to 25 units, and (c) every year for projects containing 26 or more units. The participating jurisdiction must perform on-site inspections of rental housing occupied by tenants receiving HOME/HOME-ARP-assisted tenant-based rental assistance to determine compliance with housing quality standards (24 CFR sections 92.209(i), 92.251(f), and 92.504(d)). Per 24 CFR 92.504(d) (Sept. 30, 2024), once a housing quality standards inspection is completed, the results must be communicated to the property owner, and any deficiencies identified must be remedied immediately after notification if they are life-threatening and an additional inspection completed within 12 months for all other deficiencies. Condition - The requirements mandate that units be inspected, deficiencies communicated, and corrective actions taken promptly. However, controls over housing quality standards are not effectively designed, reflecting a persistent lack of segregation of duties necessary to ensure compliance. Furthermore, existing controls were insufficient to guarantee that HQS inspection requirements were met and that identified deficiencies were addressed in a timely manner. Questioned Costs - None If Questioned Costs are Not Determinable, Description of Why Known Questioned Costs Were Undetermined or Otherwise Could Not be Reported - N/A Identification of How Questioned Costs Were Computed - N/A Context - During our walkthrough of the City’s processes and controls, we observed that the inspector responsible for conducting inspections of HOME-assisted projects also prepares and signs the certification of completion, with no secondary review in place. In addition, sample testing revealed that 8 of 13 HOME-assisted projects were not inspected according to the established schedule. Finally, 4 of 13 projects did not have deficiencies identified during inspection resolved in a timely manner. Cause and Effect - The absence of effectively designed controls over inspection resulted in material noncompliance with program requirements, as described above. Recommendation - We recommend that the City establish and implement effective internal controls over inspections. These controls should include segregation of duties, independent review of inspection results, and documented approval processes. Strengthening these measures will help prevent errors or omissions from going undetected and reduce the risk of material noncompliance with program requirements. Views of Responsible Officials and Corrective Action Plan - During the fiscal year, the City reviewed and enhanced its internal controls over HQS inspections to strengthen oversight and segregation of duties. Process changes were implemented to ensure that inspections, documentation of deficiencies, follow-up actions, and certifications of completion have independent review and approval. In addition, management implemented monitoring procedures to track inspection schedules to help ensure HQS requirements are met in a timely manner. While corrective actions were initiated during the fiscal year, they were not fully implemented throughout the entire period. By year end, the controls were in place. The City will continue to monitor these controls to ensure ongoing compliance and to prevent similar issues from recurring.
Assistance Listing Number, Federal Agency, and Program Name - ALN 14.239, Department of Housing and Urban Development, Home Investment Partnerships Program Federal Award Identification Number and Year - M18MC260202 2018; M19MC260202 2019; M20MC260202 2020; M21MC260202 2021 Pass through Entity - N/A Finding Type - Material weakness Repeat Finding - Yes 2024 006 Criteria - Per 2 CFR 200.303, the recipient must establish, document, and maintain effective internal control over the federal award that provides reasonable assurance that the recipient or subrecipient is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. These internal controls should align with the guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. The HOME program has income targeting requirements such that only low-income or very low-income persons can receive housing assistance, as prescribed by 24 CFR 92.216, which covers income targeting for tenant-based rental assistance and rental units. The City maintains Asset Management Policies and Procedures to comply with these standards, which state that an annual review will be performed on each asset. Condition - The City lacked adequate controls to ensure annual reviews were conducted in accordance with its policy, limiting its ability to exercise proper oversight of eligibility determinations performed by the program’s contractor. If Questioned Costs are Not Determinable, Description of Why Known Questioned Costs Were Undetermined or Otherwise Could Not be Reported - N/A Identification of How Questioned Costs Were Computed - N/A Context - The City engaged a contractor to review developers’ income-eligibility determinations for HOME-assisted housing units. While the contractor performs these reviews, the City retains full responsibility for compliance with eligibility requirements. Our testing showed that the contractor reviewed 62 determinations during the fiscal period; however, the City conducted annual reviews for only 50 of these projects. Additionally, for 5 of 9 projects selected for testing, there was no evidence that the City reviewed the contractor’s certification of the developers’ income-eligibility determinations. As part of our procedures, we reviewed evidence that the contractor performed the required number of reviews and that individuals assessed were income-eligible to receive program benefits. Cause and Effect - The City did not implement controls to ensure eligibility reviews performed by the contractor were in compliance with the terms and conditions of the award. Without oversight of the contractor’s procedures for assessing participant eligibility, there is an increased risk that ineligible participants could receive program benefits, potentially resulting in material noncompliance and repayment obligations to the funder. Recommendation - We recommend that the City continue to implement oversight procedures to conduct and document reviews of contractor work related to compliance requirements and programmatic decisions, specifically, eligibility determinations. Views of Responsible Officials and Planned Corrective Actions - This finding is timing related and was resolved by the City during the fiscal year. The City reviewed and updated its policies and procedures to help ensure proper segregation of duties and proper oversight of eligibility determination. Additional processes now have independent review of inspections after the program’s contractor to further support program compliance. Review responsibilities were put in place to help ensure determinations receive an independent secondary review by city staff. These changes were in place by year end. The City will continue to monitor the program and review procedures to ensure continued compliance and to prevent the recurrence of similar timing-related issues.
Assistance Listing Number, Federal Agency, and Program Name - ALN 93.914, Department of Health and Human Services (HHS), HIV Relief Project Grants Federal Award Identification Number and Year - 6 H89HA00021 32 01 2024 Pass through Entity - N/A Finding Type - Material weakness and material noncompliance with laws and regulations Repeat Finding - No Criteria - Per 2 CFR 200.303, the recipient must establish, document, and maintain effective internal control over the federal award that provides reasonable assurance that the recipient or subrecipient is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. These internal controls should align with the guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Per 2 CFR 200.305(b)(3), when the reimbursement method is used, the federal agency or pass-through entity must make payment within 30 calendar days after receipt of the payment request, unless the federal agency or pass-through entity reasonably believes the request to be improper. Condition - A lack of effective controls resulted in noncompliance with federal payment requirements, specifically for payments made to subrecipients. Questioned Costs - None If Questioned Costs are Not Determinable, Description of Why Known Questioned Costs Were Undetermined or Otherwise Could Not be Reported - N/A Identification of How Questioned Costs Were Computed - N/A Context - During testing over a sample of 40 payments to subrecipients, we noted 3 payments that were made more than the required 30 days after the City received a reimbursement request from the subrecipient. Cause and Effect - A lack of effectively operating controls could result in the untimely disbursement of funds to subrecipients and material noncompliance with federal payment requirements. Recommendation - We recommend that the City design and implement controls to ensure compliance with federal payment requirements, including establishing timelines for processing subrecipient payments and review to ensure adherence to federal payment requirements. Views of Responsible Officials and Planned Corrective Actions - The three payments made were paid 1 to 2 days after the 30 day reimbursement requirement. The City will review its subrecipient payment terms and implement additional processes to help ensure compliance with federal payment requirements.
Assistance Listing Number, Federal Agency, and Program Name - ALN 10.557, United States Department of Agriculture, WIC Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) Federal Award Identification Number and Year - E20240675 00 and E20241960 00 2024 Pass through Entity - Michigan Department of Health and Human Services (MDHHS) Finding Type - Material weakness Repeat Finding - No Criteria - 2 CFR 200 Appendix V.4 requires that each central service cost allocation plan be accompanied by a certification, which includes the period to which the accumulated costs under the plan are allocated. 2 CFR 200.303(a) requires nonfederal entities to establish and maintain effective internal controls over federal awards, providing reasonable assurance of compliance with federal statutes, regulations, and award terms. These controls should align with the "Standards for Internal Control in the Federal Government" or the COSO framework. Condition - The City applied indirect costs to the programs in a manner that did not align with the allocation methodology outlined in the 2022-2023 cost allocation plan submitted to MDHHS. Furthermore, the plan lacked explicit certification and contained minor errors and omissions. Questioned Costs - None If Questioned Costs are Not Determinable, Description of Why Known Questioned Costs Were Undetermined or Otherwise Could Not be Reported - N/A Identification of How Questioned Costs Were Computed - N/A Context - The City prepares an annual cost allocation plan as required by 2 CFR 200, Appendix V. During testing, we noted that the City charged indirect costs to ensure the amount did not exceed the budgeted indirect cost amount. However, under the methodology submitted with the plan, indirect costs should have been allocated based on the program’s total direct costs. Although total direct costs were below the budgeted amount, indirect costs were applied without consideration of this methodology. Additionally, the plan lacked evidence of certification and did not accurately specify the allocation period. Following identification of these matters, the City obtained approval from MDHHS permitting indirect costs to be charged without regard to total direct costs and acknowledging oversights in the plan, including the failure to clearly identify the applicable allocation period. Based on MDHHS’ approval, the additional indirect costs charged, though not proportional to total direct costs, did not result in questioned costs. Cause and Effect - The City’s internal controls were not sufficient to ensure that the required certification was performed or to detect the inconsistent application of the indirect cost allocation methodology. This control weakness increases the risk of noncompliance and may result in excessive indirect costs being charged to the program. Recommendation - We recommend that the City conduct a comprehensive review of its indirect cost allocation methodology, incorporating feedback provided by the funder, to ensure consistency between the cost allocation plan and its application. Additionally, the City should design and implement internal controls to verify that indirect costs are applied in accordance with the approved methodology and allocation period. We further recommend that all personnel involved in the preparation, submission, and application of indirect costs receive training on the revised methodology and related controls to prevent future inconsistencies and reduce the risk of noncompliance. Views of Responsible Officials and Planned Corrective Actions - Upon identification, the City worked with the Michigan Department of Health and Human Services and obtained approval and acceptance of the indirect cost calculation. The City will continue to work with MDHHS to ensure full compliance. The City has initiated a review of its indirect cost allocation methodology to ensure compliance. Management is updating the cost allocation calculation to document the approved allocation method and ensure the method is in accordance with the approved plan. The City will also provide training to staff involved in the preparation, submission, and calculation of the indirect costs to ensure understanding requirements.