Audit 390871

Cause: Turnover of staff in the Housing Authority and delay in recruitment. Lack of internal control over the retention of program reports that form as the basis of the FASS-PH submissions. Effect or Potential Effect: The City may be subject to a permanent reduction or offset of administrative fees in an amount to be determined by HUD and demotion of the PHA’s SEMAP scoring one level. Questioned Cost: None. Context: The City obtained the notification from HUD dated on July 11, 2024 regarding a final notification of noncompliance related to financial reporting and PHA Plan requirements. The City submitted its audited financial statements for fiscal years 2021 and 2022 on June 25, 2024 and December 20, 2024, respectively. The auditor noted that the audited financial statements for fiscal year 2023 were submitted on June 10, 2025. The audited financial statements for fiscal year 2024 will be submitted in February 2026. Statistical Sampling Validity: Not applicable. Repeat of a Prior-Year Finding: 2018-007, 2019-005, 2020-001, 2021-002, 2023-004 Recommendation: We recommend the City establish policies and procedures that will ensure the submission of unaudited and audited financial information to HUD on a timely basis. Management Response and Corrective Action Plan City's Response: The City concurs with the recommendation. Corrective Action Plan: The City Controller’s Office drafted a Grants policy that is currently under review by City Management. Community development staff will ensure a succession plan is in place for any staff turnover and for report preparation compliance. The PHA Executive Director will work with the City Manager, City Controller’s Internal Auditor and Grants reporting team to ensure: 1. Timely reporting 2. There is viable Grants administration policy 3. There is an internal schedule and timeline in preparation for the submissions 4. There is Controller’s office and PHA staff dedicated to financial PHA reporting 5. That there’s an internal soft audit conducted by the aforementioned staff prior to HUD’s deadlines 6. Controller’s office staff is trained by Nan McKay on financial reporting for PHA’s (in process – Internal Auditor taking training in February 2026). 7. The Controller’s office will identify consultants to assist with timely audit submissions as deemed necessary by the City Manager, executive director and City Controller. Planned Implementation Date: July 2026 beginning of fiscal year with new funding and CHA/Controller’s officer reporting structure Responsible Person(s): City Manager, City Controller, PHA Executive Director, and Human Resources Director

Cause: The City’s internal control processes for reviewing and approving compensation changes were not followed promptly. There was a lack of procedures ensuring that salary adjustments were approved prior to the effective date. Effect or Potential Effect: Untimely approval of compensation changes increases the risk of inaccurate or unallowable personnel costs being charged to the federal award. This may result in questioned costs, noncompliance with federal regulations, and potential audit findings. Questioned Cost: None. Context: We selected five out of nine employees who worked on the program and in all cases, the PAF were authorized much later than the effective date of the compensation change. Statistical Sampling Validity: More than 50% of employees who work on the program were selected. Repeat of a Prior-Year Finding: 2022-005, 2023-005. Recommendation: The City should reinforce internal controls to ensure that all compensation changes are reviewed and approved promptly. This should include:  Establishing a timeline for the approval of compensation adjustments.  Implementing procedures that prevent compensation changes from being applied until formal approval is obtained.  Ensuring proper documentation of all approved salary changes is maintained. Management Response and Corrective Action Plan City's Response: The City concurs with the recommendation and has implemented hiring for temporary work assignments in order to facilitate update. Corrective Action Plan: The HR and payroll software will be updated by the City by December 2026. Planned Implementation Date: December 2026 Responsible Person(s): City Manager

Condition: We noted that the entity experienced significant turnover in key management positions responsible for overseeing compliance with federal awards during FY 2024. As a result, there was insufficient oversight of federal programs and internal controls. Critical duties related to compliance monitoring, reporting, and financial management were not performed adequately during the transition period, and there was a lack of continuity in management practices. Cause: The entity did not have adequate processes in place to ensure continuity of oversight and management responsibilities during periods of turnover. There were no succession plans or interim measures to ensure that compliance duties were properly transitioned and maintained. Effect or Potential Effect: The lack of oversight during the management turnover period increases the risk of non-compliance with federal award requirements. It can lead to gaps in monitoring, failure to meet reporting deadlines, inaccurate financial management, and the potential for disallowed costs or other negative consequences. Questioned Cost: None. Context: The deficiency was found during our testing of reporting and special tests and provisions. Statistical Sampling Validity: Not applicable. No sampling was performed. Repeat of a Prior-Year Finding: 2022-007, 2023-006. Recommendation: The entity should establish policies and procedures to ensure continuity of oversight and compliance monitoring during management transitions. This should include: 1. Developing a formal succession plan for key management positions responsible for overseeing federal programs. 2. Implementing interim oversight measures, such as assigning temporary leadership or redistributing compliance responsibilities during periods of transition. 3. Ensuring that new management receives timely training on compliance responsibilities and internal controls related to federal awards. Management Response and Corrective Action Plan City's Response: The City concurs with the recommendation. Corrective Action Plan: The recommendations are included in the new Grants policy. The City Manager shall review and submit to City Council for approval and adoption. Expected implementation by June 2026. Planned Implementation Date: June 2026 Responsible Person(s): City Manager

Cause: The condition was primarily due to inadequate internal controls over federal grant reporting, including insufficient monitoring of reporting deadlines, compounded by turnover in City personnel responsible for CSLFRF compliance. Effect or Potential Effect: Failure to submit required federal reports in accordance with program requirements constitutes noncompliance with CSLFRF reporting requirements and may result in increased federal oversight, required corrective actions, withholding of future funding, repayment of funds, or other enforcement actions by the granting agency. Questioned Cost: None. The reporting deficiencies did not directly result in questioned costs. Context: According to the Assistant City Manager, the City was unable to provide the required CSLFRF reporting documentation or evidence of submission for FY 2024 during the audit period. Management further indicated that CSLFRF reports for FY 2025 were subsequently submitted; however, such submissions were outside the scope of the audit period and did not provide evidence of compliance with FY 2024 reporting requirements. Statistical Sampling Validity: Not applicable. No statistical sampling was performed. Repeat of a Prior-Year Finding: 2022-004. Recommendation: The City should design and implement effective internal controls over federal grant reporting to ensure compliance with CSLFRF reporting requirements. Such controls should include clearly assigned reporting responsibilities, documented reporting timelines, procedures for timely submission through the Treasury reporting portal, and retention of supporting documentation evidencing report submission. Management Response and Corrective Action Plan City's Response: The City concurs with the recommendation. Corrective Action Plan: The new Grants policy will be reviewed and approved by the City Manager and implemented by June 2026. Community Development staff will ensure a succession plan is in place for any staff turnover and for report preparation compliance. Planned Implementation Date: June 2026 Responsible Person(s): City Manager