Audit 408755

Finding 2025-002: Insufficient Documentation of Management Review of Section 3 Quarterly and Annual Reporting Audit Finding: Significant Deficiency Federal Program: Community Development Block Grant Mitigation Program Citywide Drainage Improvements (Assistance Listing 14.228) Compliance Requirement: Reporting and Special Tests and Provisions – Section 3 Requirements Criteria: In accordance with Title 2 of the Code of Federal Regulations (2 CFR) § 200.303, the City must establish and maintain effective internal controls over federal awards that provide reasonable assurance of compliance with federal statutes, regulations, and the terms and conditions of the award. Additionally, 2 CFR § 200.328 requires the City to ensure that reports submitted to the pass-through entity are accurate, complete, and supported by adequate review and oversight. The U.S. Department of Housing and Urban Development’s (HUD) Section 3 regulations at 24 CFR Part 75 require recipients to prepare and submit quarterly and cumulative annual Section 3 reports documenting efforts to provide employment, training, and contracting opportunities to low- and moderate-income persons and businesses within the project area. Condition: The City’s grant administrator is responsible for preparing and submitting the required quarterly and annual Section 3 reports to the Texas General Land Office on behalf of the City. However, there is no documentation demonstrating that City management reviews or approves these reports prior to and after submission. Cause: The City has not established procedures requiring City management to review and document approval of the Section 3 reports prepared and submitted to the Texas General Land Office. Effect: Without documentation of City management review and approval of the Section 3 reports prepared and submitted by the grant administrator, there is an increased risk that reports submitted to the passthrough entity may be inaccurate, incomplete, or not fully compliant with federal reporting requirements. Questioned Costs: None noted. Repeat Finding: This finding is related to the prior year finding 2024-002. Recommendation: The City should strengthen internal controls over federal reporting by establishing and documenting procedures to ensure City management reviews and approves all Section 3 reports prepared and submitted by the grant administrator. Evidence of this review, such as sign-offs or approval correspondence, should be retained in the grant files to demonstrate compliance with Uniform Guidance and HUD Section 3 reporting requirements. View of Responsible Officials: Management concurs with the recommendation. Please refer to the Corrective Action Plan for additional details.