Audit 402331

Inaccurate Reporting/Lack of Independent Review and Approval of Reporting (Repeat) Finding Type. Material Noncompliance; Material Weakness in Internal Controls over Compliance. (Reporting) Federal program(s) U.S. Department of Housing and Urban Development - Community Development Block Grants/Entitlement Grants Cluster; Assistance Listing Number 14.218; Direct award; All project numbers Criteria. Recipients of federal awards are required to report periodically on financial information, as specified by the grant agreement. Reported information should be supported by the entity’s accounting records and subjected to an independent review and approval prior to submission in order to detect and correct any errors or omissions. Additionally, the PR-26 financial summary reports are submitted as part of the Consolidated Annual Performance Evaluation Report (CAPER) and should be properly reconciled to present all inflows and outflows of resources related to the program including the appropriate unexpended balance. Condition. During our audit procedures over the County's CDBG reporting, we noted that none of the reports were subject to an independent review and approval prior to submission in order to detect and correct potential errors or omissions until partway through the year under audit. We also noted that the PR-26 was submitted as required, but contained financial data that did not agree to the County's underlying accounting records. Expenditures were properly reported for the year under audit, but it was identified that the County had incorrectly reported its unexpended balance going back to 2020, when the unexpended balance was not properly carried over from the 2019 report to the 2020 report. This resulted in an incorrect unexpended balance which presented as a net negative unexpended balance in the current year report. Cause. The County implemented a review and approval process during calendar year 2025 in response to the findings from the prior year's audit, and appears to have controls in place moving forward. However, for the period under audit the County did not yet have the internal controls in place to ensure that financial reports were reviewed and approved prior to submission. In addition, the County does not have proper internal controls in place to ensure that the reporting submitted agrees to underlying accounting records with respect to the requirement that unexpended balances are properly carried forward between reporting periods. Effect. The County submitted inaccurate reporting in its PR-26 that was inconsistent with other financial reports submitted and with the County's general ledger. The County is also exposed to an increased risk that future noncompliance could occur and not be prevented or detected by the County's internal controls until controls are consistently implemented across fiscal years. Questioned Costs. None. Recommendation. We recommend that the County implement necessary internal controls to ensure that proper review and approval is documented and reports agree to accounting records. Financial information being submitted to outside entities should be reviewed and approved by the Financial Services department to ensure that it is in agreement with the County's general ledger and consistent with other required financial reporting. View of Responsible Officials. Management acknowledges that financial reporting requires enhanced controls and reconciliation procedures. A review of detailed reconciliation steps will be conducted to identify areas within current processes where regular reviews can be implemented to ensure accuracy and completeness. The County plans to implement this process by July FY2026, which will provide two full quarters of reviewed and monitored activity prior to year-end reporting.

Reporting of Prior Year Program Income Finding Type. Material Noncompliance; Material Weakness in Internal Controls over Compliance. (Program Income) Federal program(s) U.S. Department of Housing and Urban Development - Community Development Block Grants/Entitlement Grants Cluster; Assistance Listing Number 14.218; Direct award; All project numbers Criteria. In accordance with 2 CFR § 200.307, program income must be used in accordance with the terms and conditions of the federal award and must be accounted for and reported accurately. Recipients are required to reconcile program income received and expended during the grant period to ensure it is used for allowable purposes and properly reflected in financial reports. Failure to reconcile and report program income may result in noncompliance with federal grant regulations and could impact the allowability of costs charged to the award. Condition. The County recognized a substantial amount of program income during the fiscal year ended September 30, 2025, for program income that was received in prior periods but incorrectly reported as unearned over many years. It is unclear what portion of this prior year unearned revenue was reported to the Department of Housing and Urban Development ("HUD") through the Integrated Disbursement and Information System ("IDIS") now that the revenue has been properly recognized in the general ledger. Cause. In prior years, the County did not have the proper internal controls in place to ensure that program income was properly tracked, monitored and reported. Effect. The County has a risk of inaccurately reporting program income to HUD. The County is also exposed to an increased risk noncompliance could occur and not be prevented or detected by the County's internal controls. Questioned Costs. None. Recommendation. We recommend the County review its prior year records to determine which portion of the currently recognized revenue has already been reported to HUD. Additionally, the County's Neighborhood and Housing Development ("NHD") department should coordinate with HUD to establish the appropriate approach for reporting and expending this program income going forward. View of Responsible Officials. An in-depth review of all program income activity dating back to 1995 is currently underway within both the general ledger and the IDIS system. The purpose of this review is to determine the total amount of program income received and reported to HUD. Upon completion of the review, the County will collaborate with HUD to determine the appropriate use and expenditure of the identified funds in accordance with applicable program requirements.