Audit 405609

2025-001: Public Housing Capital Fund Program, Federal Assistance Listing #14.872. Authority failed to obligate 90% of grant KY36P02450121 by 2/22/2023, the grant’s obligation end date (OED). Condition: In August 2025, the U.S. Department of Housing and Urban Development (HUD) determined that the Authority was not in compliance with Section 9(j) of the United States Housing Act of 1937 and the Capital Fund Rule (24 CFR § 905.306) because it failed to obligate at least 90% of grant KY36P02450121 by the required deadline of February 22, 2023. Consequently, HUD assessed a financial sanction of $782,322 against grant KY36P02450124, resulting in the loss of those funds to the Authority. Criteria: Under 2 CFR § 200.309, a non-federal entity may charge to a federal award only allowable costs incurred during the approved period of performance. Costs resulting from obligations made after the end date of the award are generally unallowable unless a formal extension or other written approval has been granted by the awarding agency. Cause: Management did not maintain adequate controls to ensure that obligations and expenditures were reviewed for compliance with the grant's approved period of performance prior to being charged to the federal award. Effect: Federal funds were not used in the authorized project period. As a result, the U.S. Department of Housing and Urban Development sanctioned the Authority and reduced grant KY36P02450124 from $782,322 to $0. Questioned Costs: None. Recommendations: We recommend the Authority implement procedures to monitor grant beginning and end dates, maintain documentation supporting the timing of obligations and expenditures charged to federal awards and to obtain written approval for any extensions before the award period expires. Management Response: Management concurs with the finding. The Authority has strengthened grant monitoring procedures. Management will work with the federal awarding agency to ensure timely use of project funds in the future.

2025-002: Public Housing Capital Fund Program, Federal Assistance Listing #14.872. Authority internal controls over grant expenditures failed to obligate funds by the grant’s obligation end date (OED). Condition: The Authority did not maintain effective internal controls to ensure Capital Fund Program grant funds were obligated by the required Obligation End Date. We noted that only 85% of grant funds were obligated as of the OED for Capital Fund Grant No. KY36P02450121. As a result, the Authority did not comply with the program's obligation requirements. Criteria: Pursuant to HUD Capital Fund Program requirements, Public Housing Authorities must obligate Capital Fund grants within the required obligation period. Grant funds not obligated by the grant's Obligation End Date (OED) are subject to recapture by HUD and are not available for eligible program activities after that date. Cause: The Authority's grant monitoring controls were not designed or operating effectively to identify approaching obligation deadlines and monitor unobligated grant balances. Management did not perform timely reviews of grant activity to ensure all funds were obligated prior to the OED. Effect: Failure to obligate grant funds by the OED constitutes noncompliance with HUD program requirements and resulted in a sanction which reduced grant KY36P02450124 from $782,322 to $0. In addition, ineffective controls increase the risk that future grant deadlines will not be met. Questioned Costs: None. Recommendations: We recommend the Authority strengthen its internal controls over Capital Fund grant administration by maintaining a comprehensive grant tracking schedule which includes all obligation and expenditure deadlines; reviewing grant activity and unobligated balances at least quarterly; assigning responsibility for monitoring compliance with Capital Fund deadlines; implementing documented supervisory reviews of grant status reports before grant obligation deadlines and establishing procedures to identify and address delays in procurement or contract execution that could affect timely obligation of grant funds. Managment Response: Management concurs with the finding and will implement enhanced monitoring procedures to ensure future Capital Fund grants are obligated within HUD-required timeframes.