Audit 405194

Finding Number: 2023-010 Prior Year Finding Number: N/A Compliance Requirement: Special Test and Provision – Environmental Oversight/Review Program: Government Department/Agency: U.S. Department of Housing and Urban Development (HUD) U.S. Virgin Islands Housing Finance Authority (VIHFA) Community Development Block Grants/State’s Program and Non-Entitlement Grants in Hawaii ALN #: 14.228 Award #: B-17-DM-78-0001/B-18-DP-78-0001 Grant Award Period: 9/05/2017 – 09/30/2024 Award Year: 10/01/2022 to 09/30/2023 Criteria – Per HUD Section 104(g) of the HCDA (42 USA5304(G)). A state must: (1) require each of its units of general local government (subrecipients) to perform as a responsible federal official in carrying out all HUD environmental review requirements under 24 CFR Part 58, National Environmental Policy Act (NEPA), and other applicable authorities; (2) review and approved each subrecipient’s Request for Release of Funds (RROF) in accordance with the procedures provided under 24 CFR Part 58 Subpart H; (3) ensure that each subrecipient observes the statutory requirements that funds cannot be expended or obligated before the state approves its RROF and environmental certification, except as otherwise provided specifically in regulation or authorized by law; and (4) monitor and provide technical assistance to its subrecipients to ensure compliance with the environmental authorities (24 CFR Part 58) and the adequacy of environmental reviews. Further, activities must have an environmental review unless they meet criteria specified in the regulations that would exclude them from RROF and environmental certification requirements. A responsible entity does not have to comply with the requirements of 25 CFR 58 or undertake any environmental review, consultation, or other action under NEPA and the other provisions of law or authorities cited in 24 CFR 58.5 for exempt activities or projects consisting solely of exempt activities. Exempt activities include assistance for temporary or permanent improvements that do not alter environmental conditions and are limited to protection, repair, or restoration activities necessary only to control or arrest the effects from imminent threats to public safety. A CDBD-DR and CDBG-MIT grantee is required to ensure every project/activity undergoes the appropriate level of environmental review and receives clearance and Authorization to Use Grant Funds (AUGF) prior to expending any funds. As a result, special circumstances apply to HUD environmental reviews for disaster recovery efforts, and an Environmental Review is required accordingly: (a) analysis of impacts of a project on the surrounding environment and vice versa; (b) demonstrates compliance with federal environmental laws and authorities; and (c) encourages public participation. Condition – We sampled and selected 2 out of 5 projects and noted the following: • For the 2 projects, supporting documentation was not available for review. Question Costs – Not determinable Context – This condition was identified through a review of VIHFA’s compliance with the specific requirements, using a statistically valid sample. Effect – There is a risk that inadequate record keeping of environmental oversight and reviews could lead to non-compliance with Federal regulations, resulting in violation of Federal funding requirements and or disallowance of Federal funds. Cause – VIHFA does not appear to have adequate policies and procedures in place to ensure compliance with applicable special test, provision, and maintenance of underlying documentation. Recommendation – We recommend that the Authority improve internal controls to ensure adherence to Federal regulations related to special tests and provide environmental oversight and environmental reviews. Further, there should be supporting documentation to support compliance with applicable compliance requirements, and such information should also be maintained, monitored, and retained by responsible officials of the Authority. Views of Responsible Officials: While the audit identified a lack of supporting documentation for environmental oversight and reviews in two of five sampled projects, it is important to emphasize that the Virgin Islands Housing Finance Authority (VIHFA) has established robust compliance procedures in accordance with HUD Section 104(g) of the HCDA and 24 CFR Part 58. Serving as the Responsible Entity for all environmental reviews, the Authority consistently mandates that all projects undergo environmental review and submit Requests for Release of Funds (RROF) prior to the commitment or disbursement of any grant funds. Additionally, VIHFA conducts regular monitoring of subrecipients and provides technical assistance to ensure adherence to environmental regulations and the thoroughness of environmental reviews. The instances involving missing documentation were exceptional, likely resulting from administrative transitions that impacted the transmittal of environmental review records for the audit exercise. VIHFA affirms that all projects are subject to review: those with full approval and expended funds have completed an environmental review process, submitted a Request for Release of Funds (RROF), and received an Authority to Use Grant Funds (AUGF), or were determined to be exempt via the Categorical Excluded Not Subject to Part 58 determination. Any gaps in documentation are not indicative of systemic non-compliance but represent isolated occurrences that are being addressed. Management's Corrective Action Plan – Regarding the corrective action plan, VIHFA has established enhanced internal controls and comprehensive record-keeping protocols. This includes expanded training initiatives for staff and subrecipients, as well as strengthened procedures for record retention. The Authority has updated its policies and standard operating procedures to ensure greater coverage and effectiveness. VIHFA is committed to ongoing improvement and consistently meets all compliance requirements through detailed documentation. These measures have been implemented, training has taken place, and policies have been revised. The Authority maintains its dedication to continuous improvement and diligent fulfillment of all compliance obligations.

Finding Number: 2023-011 Prior Year Finding Number: 2022-003 Program: Emergency Rental Assistance (ERA) ALN: 21.023 Compliance Requirement: Eligibility Criteria --- Pursuant to 2 CFR §200.303, non-Federal entities are required to establish and maintain effective internal control over Federal awards to provide reasonable assurance of compliance with applicable laws, regulations, and award terms. In addition, the Emergency Rental Assistance (ERA) program, as established under the Consolidated Appropriations Act, 2021, and the American Rescue Plan Act of 2021, requires that funds be provided only to eligible households meeting specified criteria. The 2023 Compliance Supplement further requires grantees to obtain and retain documentation supporting residency, lease agreements, and rental obligations. Condition --- We sampled and selected 60 of 505 emergency rental assistance payment and noted for 57 samples multiple exceptions, including: • Missing or unsigned lease agreements • Lack of landlord ownership verification • Unsupported costs • Missing identification documentation • Incomplete or unapproved payment request forms • Incomplete or improperly notarized application documentation No exceptions were noted in the remaining three transactions tested. Questioned Costs --- $68,934.72 Context --- The condition was identified through testing performed using a statistically valid sample of program transactions. Effect --- Failure to maintain adequate supporting documentation increases the risk that ineligible beneficiaries may receive assistance, resulting in noncompliance with Federal program requirements. Cause --- Management did not consistently adhere to established policies and procedures requiring the retention of complete documentation supporting eligibility determinations. Recommendation --- We recommend that management strengthen internal controls to ensure that all required documentation is obtained, reviewed, and retained prior to approval of assistance. Views of Responsible Officials Management acknowledges the findings and appreciates the opportunity to provide clarification and context regarding the noted exceptions. First, with respect to landlord ownership verification, it should be noted that proof of property ownership was only required for private landlords in accordance with program policies and procedures. As such, this requirement was not applicable to all transactions reviewed. The documentation samples provided for audit testing were sourced from ERAP program files accessible to program staff. While some payment request forms within these files may appear incomplete or unsigned, the official, fully approved versions are maintained by Accounting. In certain cases, ERAP did not receive copies of the executed forms for inclusion in its files. Accordingly, although the sampled documents may not reflect final approval, the fully approved payment request forms are on file with Accounting and can be provided to support the transactions. Management also notes that staffing and process limitations during the earlier phases of program implementation contributed to documentation inconsistencies. The Grant Administrator position, which plays a critical role in oversight and compliance, was filled in February 2023. Since that time, significant improvements have been made to internal controls and operational procedures, including: o Strengthening document collection and verification processes o Improving timeliness in application review and approval to reduce bottlenecks o Enhancing case file completeness and organization o Transitioning from primarily paper-based records to electronic file management systems These procedural enhancements were formally documented in the ERAP Review Process to ensure consistency, accountability, and ongoing compliance with federal requirements. Additionally, administrative expenses exceeding the 15% threshold were reviewed and approved by Treasury, as the overage was directly attributable to the recapturing of $16 million by Treasury prior to the ERA1 closeout. Furthermore, Housing Stability Services’ expenditure remained within the 10% threshold for ERA2. Management remains committed to continuous improvement and has taken corrective actions to strengthen internal controls, ensure proper documentation retention, and maintain full compliance with applicable federal regulations.

Finding Number: 2023-012 Prior Year Finding Number: 2022-004 Program: Emergency Rental Assistance (ERA) ALN: 21.023 Compliance Requirement: Reporting Criteria --- In accordance with 2 CFR §200.303, entities must establish and maintain internal controls to ensure compliance with Federal requirements. ERA reporting guidance requires timely submission of accurate and complete reports, adherence to administrative cost limitations, and proper classification of expenditures. Condition --- Testing of two quarterly ERA2 reports and the ERA1 final close-out report identified the following: • Lack of evidence of review by the Chief Financial Officer prior to submission • Reports submitted after the required deadline • Incomplete demographic data • Exceedance of administrative and housing stability cost thresholds • Insufficient supporting documentation for reported amounts Questioned Costs --- Not determinable Context --- The condition was identified through testing of selected quarterly and final reports. Effect --- Inadequate controls over reporting increase the risk of inaccurate or unsupported financial and performance data being submitted to the Federal awarding agency. Cause --- Management did not establish or maintain effective controls over the preparation, review, and approval of reports. Recommendation --- We recommend that management enhance internal controls over reporting, including formal review procedures, timely submission processes, and retention of supporting documentation. Views of Responsible Officials: Management acknowledges the findings and provides the following context regarding the delay in submission of the FY 2023 reporting package. During FY 2023, the Internal Control Memoranda used to guide and review program operations that contained information that changed during the fiscal year due to the restructuring of the ARP Division and the implementation of the Grant Administrator role. These organizational changes affected reporting lines and oversight responsibilities, but the Internal Control Memoranda were not updated in real time to fully reflect them. To help ensure timely submission of the quarterly compliance reports, the reporting process was updated to remove the multi-level review requirement. The reports are highly detailed and require significant compilation and reconciliation within a limited timeframe between the close of the reporting period and the submission deadline. Eliminating the multi-level review process allowed management to meet reporting deadlines more efficiently. Additionally, administrative expenses exceeding the 15% threshold were reviewed and approved by Treasury, as the overage was directly attributable to the recapturing of $16 million by Treasury prior to the ERA1 closeout. Furthermore, Housing Stability Services expenditure remained within the 10% threshold for ERA2. It is also important to note that the report is cumulative in nature, which allows for corrections or updates to be incorporated in subsequent quarterly submissions, thereby maintaining overall reporting accuracy over time. Additionally, copies of all submitted reports are provided to both the CFO and the Executive Director (ED) for review and oversight. Further strengthening financial oversight, the CFO requires all direct reports to submit monthly to bi-monthly financial reports. These reports are used to continuously monitor program performance, identify any discrepancies, and address issues in a timely manner. Management remains committed to strengthening internal controls and ensuring the timely and accurate submission of all required federal reporting.

Finding Number: 2023-013 Prior Year Finding Number: 2022-005 Programs: Multiple Federal Programs Compliance Requirement: Reporting – Data Collection Form and Reporting Package Criteria --- In accordance with 2 CFR §200.512, the audit reporting package must be submitted to the Federal Audit Clearinghouse within the required timeframe. Condition --- The reporting package for the fiscal year ended September 30, 2023, was not submitted within the required deadline. Questioned Costs --- Not applicable Context --- The issue was identified through compliance review procedures. Effect --- Failure to submit the reporting package timely may result in sanctions, including potential reduction or loss of Federal funding. Cause --- Management did not have sufficient resources to ensure timely submission. Recommendation --- We recommend that management enhance staffing capacity and strengthen internal controls to ensure timely submission of required reports. Views of Responsible Officials: Management acknowledges the findings and provides the following context regarding the delay in submission of the FY 2023 compliance reports. During FY 2023, the Internal Control Memoranda used to guide and review program operations contained information that changed during the fiscal year due to the restructuring of the ARP Division and the implementation of the Grant Administrator role. These organizational changes impacted reporting lines and oversight responsibilities, and the Internal Control Memoranda were not updated in real time to fully reflect these changes. To ensure timely submission of the quarterly compliance reports, the reporting process was updated to remove the multi-level review requirement. The reports are highly detailed and require significant compilation and reconciliation within a limited timeframe between the close of the reporting period and the submission deadline. Eliminating the multi-level review process allowed management to meet reporting deadlines more efficiently. It is also important to note that the compliance reports are cumulative reports, which allows for corrections or updates to be incorporated in subsequent quarterly submissions, thereby maintaining overall reporting accuracy over time. Additionally, copies of all submitted reports are provided to both the CFO and the Executive Director (ED) for review and oversight. If changes are required, they are reporting in the subsequent quarterly submission. Further strengthening financial oversight, the CFO requires all direct reports to submit monthly to bi-monthly financial reports. These reports are used to continuously monitor program performance, identify any discrepancies, and address issues in a timely manner. Management remains committed to strengthening internal controls and ensuring the timely and accurate submission of all required federal reporting.