2025-003 Allowability of Rental Assistance Payments – Landlord Verifications U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Continuum of Care Program—Assistance Listing No. 14.267 Hennepin County Contract HS00001366; Grant Period – Year ended June 30, 2025 Material Weakness in Internal Control over Compliance Criteria: 2 CFR 200.303 requires non-Federal entities to establish and maintain effective internal control over Federal awards to provide reasonable assurance that the entity is managing the awards in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Agate Housing and Services, Inc.’s internal control policies require landlord verifications to be completed prior to submitting a rental assistance payment, as evidenced by a completed and filed W- 9 form. Condition: Documentation to support that Agate Housing and Services, Inc.’s landlord verification process was completed prior to the disbursement of rental assistance payments was not available for nine of the forty sampled transactions. Cause: During 2025, Agate Housing and Services, Inc. digitized its inventory of W-9 forms and retained only the most recent W-9 for each vendor. Older versions of W-9 forms were purged, and any missing W-9 documentation was likely lost during this conversion process. Effect: The landlord verification process is a key internal control to ensure the legitimacy and existence of landlords and to help prevent fraud or mismanagement in the disbursement of Federal funds. As a result of missing documentation, there is insufficient evidence to demonstrate that landlord verifications were performed prior rental assistance payments being made. Context: A statistically valid sample of 40 rental assistance payment transactions totaling $52,138 was selected for testing from a population of 393 transactions totaling $561,523. The audit identified nine payments to landlords that were disbursed prior to documentation evidencing completion of landlord verification. Known Questioned Costs: None. In five of the nine instances, landlord verification documentation was obtained after-the-fact, supporting the legitimacy of the payments. In the remaining four instances, the landlords were well-established business entities. No concerns regarding allowability were identified. Identification of Repeat Finding: Not a repeat finding. Recommendation: We recommend that Agate Housing and Services, Inc. strengthen internal controls to ensure landlord verifications are completed and required documentation, including W-9 forms, is obtained and retained for all vendors prior to the disbursement of rental assistance funds. Management should implement a procedure to verify that required documentation is present before payment approval. Views of Responsible Officials and Planned Corrective Actions: Agate Housing and Services, Inc. agrees with the finding and is in the process of strengthening its controls over the verification of landlords.
2025-004 Special Tests and Provisions - Rent Reasonableness U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Continuum of Care Program—Assistance Listing No. 14.267 Hennepin County Contract HS00001366; Grant Period – Year ended June 30, 2025 Material Weakness in Internal Control over Compliance Criteria: 2 CFR 578.51(g) requires that rents charged under the Continuum of Care Program not exceed rents currently being charged by the same owner for comparable unassisted units. Internal controls should be in place to document compliance with this requirement. Condition: Internal controls are not adequately designed or implemented to ensure compliance with rent reasonableness requirements under the Continuum of Care Program, specifically that rents charged do not exceed amounts charged by the same owner for comparable unassisted units. Cause: Agate Housing and Services, Inc. does not currently require formal documentation to be maintained in tenant files demonstrating that rents charged were compared to rents for comparable unassisted units owned by the same landlord. Effect: The consideration and documentation of rent comparisons are critical to ensure rents charged are not in excess of those charged by the same owner for comparable unassisted units. Without documented support, there is an increased risk of noncompliance and potential fraud or mismanagement related to the disbursement of Federal funds. Context: During the audit, documentation was requested to demonstrate that rents charged by the same owner for comparable unassisted units were considered during the initial rent determination process. Based on discussions with management and staff, this comparison is performed through conversations with property owners; however, no documentation is maintained in tenant files to evidence that this compliance requirement was validated. Known Questioned Costs: None. In all cases reviewed, the total rent charged was consistent with rents for comparable units within the same geographic area. Identification of Repeat Finding: Not a repeat finding. Recommendation: We recommend that Agate Housing and Services, Inc. implement internal controls requiring program staff to validate compliance with rent reasonableness requirements and maintain adequate documentation to support final rent determinations. Views of Responsible Officials and Planned Corrective Actions: Agate Housing and Services, Inc. agrees with the finding and is in the process of strengthening its controls over the verification of landlords.
2025-005 Allowability of Payroll Expenditures U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Continuum of Care Program—Assistance Listing No. 14.267 Hennepin County Contract HS00001366; Grant Period – Year ended June 30, 2025 Material Weakness in Internal Control over Compliance, Noncompliance Other Matter Criteria: 2 CFR 200.430(g)(1)(i) states charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed, supported by a system of internal control that provides reasonable assurance that the charges are accurate, allowable, and properly allocated. Refer to financial statement finding 2025-002 for further context. Condition: Payroll controls were not adequately designed or implemented to accurately account for payroll expenditures charged to the Continuum of Care Program for the first half of fiscal year 2025 (July 1, 2024 through December 31, 2024). In addition, supporting payroll documentation was missing or incomplete for certain individual payroll allocations charged to the program during this period. Refer to financial statement finding 2025-002 for further context. Cause: Refer to financial statement finding 2025-002. Effect: Refer to financial statement finding 2025-002. Context: A statistically valid sample of 41 payroll entries by employee totaling $67,977 was selected for testing from a population of more than 250 individual payroll entries totaling $208,015. The audit identified nine instances in which payroll controls were not followed. Refer to Financial Statement Finding 2025-002 for further context. Extrapolated likely questioned costs total $16,525, representing 2.9% of total payroll costs allocated to this program. Known Questioned Costs: Total known questioned costs of $4,940. Identification of Repeat Finding: 2024-001 - Lack of Documentation in Personnel Files Recommendation: Refer to financial statement finding 2025-002. Views of Responsible Officials and Planned Corrective Actions: Refer to financial statement finding 2025-002.
2025-006 Allowability of Rental Assistance Payments - Unallowable Program Expenditure U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Continuum of Care Program—Assistance Listing No. 14.267 Hennepin County Contract HS00001366; Grant Period – Year ended June 30, 2025 Significant Deficiency in Internal Control over Compliance, Noncompliance Other Matter Criteria: 2 CFR 200.403(a) requires that costs charged to Federal awards be necessary, reasonable, and allocable to the performance of the Federal award. In addition, expenditures under the Continuum of Care Program must meet program allowability requirements. Cleaning costs are not explicitly identified as allowable rental assistance expenses under 24 CFR 578.51. Condition: One instance of unallowable program costs was noted during our testing of direct program expenses. Cause: Turnover within the accounting department during 2025 resulted in policies and procedures not being consistently followed. Effect: The questioned cost and related extrapolated costs may be disallowed. Context: A statistically valid sample of 40 rental assistance payment transactions totaling $52,138 was selected for testing from a population of 393 transactions totaling $561,523. The audit identified one transaction totaling $2,325 for cleaning costs paid to a landlord, which does not appear to be an allowable expenditure under the Continuum of Care Program. In addition, the cleaning costs exceeded one month’s rent. Total extrapolated questioned costs were $25,040. Known Questioned Costs: Total known questioned costs of $2,325. Identification of Repeat Finding: Not a repeat finding. Recommendation: We recommend that Agate Housing and Services, Inc. strengthen internal controls to ensure all expenditures charged to the Continuum of Care Program are allowable and comply with applicable federal and program requirements. Views of Responsible Officials and Planned Corrective Actions: Agate Housing and Services, Inc. agrees with the finding and is in the process of strengthening its controls over its review of program expenditures prior to submitting requests for reimbursement.
2025-007 Special Tests and Provisions - Rent Reasonableness U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Continuum of Care Program—Assistance Listing No. 14.267 Hennepin County Contract HS00001366; Grant Period – Year ended June 30, 2025 Significant Deficiency in Internal Control over Compliance Criteria: 2 CFR 578.51(g) requires recipients and subrecipients to determine whether rent charged for units receiving rental assistance is reasonable in relation to rents charged for comparable unassisted units, taking into consideration factors such as location, size, type, quality, amenities, facilities, and management and maintenance. Internal controls should be in place to document this determination. Condition: Documentation supporting one rent reasonableness determination could not be located for one direct program expense tested. Cause: Turnover within the program department during 2025 resulted in policies and procedures not being consistently followed. Effect: The rent reasonableness verification process is a key internal control to ensure rental assistance payments are reasonable and compliant with program requirements, which helps reduce the risk of fraud or mismanagement in the disbursement of Federal funds. Context: A statistically valid sample of 40 rental assistance payment transactions totaling $52,138 was selected for testing from a population of 393 transactions totaling $561,523. The audit identified one transaction totaling $1,300 that could not be substantiated with documentation supporting a rent reasonableness determination. Known Questioned Costs: None. The rental assistance payment reviewed was consistent with payments made for comparable transactions, and no concerns regarding allowability were identified. Identification of Repeat Finding: Not a repeat finding. Recommendation: We recommend that Agate Housing and Services, Inc. strengthen internal controls to ensure rent reasonableness determinations are completed and documented for all program participants prior to the disbursement of rental assistance funds. Management should implement a procedure to verify that required documentation is present before payment approval. Views of Responsible Officials and Planned Corrective Actions: Agate Housing and Services, Inc. agrees with the finding and is in the process of strengthening its controls over maintaining documentation of all rent reasonableness verifications.