2023-003 Federal Agencies: U.S. Department of Housing and Urban Development Federal Program Names: Community Development Block Grants Assistance Listing Numbers: 14.218 Pass-Through Agency: District of Columbia, Department of Housing and Community Development Pass-Through Number: 2012-009 Award Period: January 1, 2023 through December 31, 2023 Type of Finding: Material Weakness in Internal Control Over Compliance Criteria: Federal funding arrangements may be subject to compliance requirements, schedule of expenditures of federal awards reporting, and single audit requirements when federal expenditures meet the applicable threshold. Under 2 CFR § 200.501(a), a nonfederal entity that expends federal awards at or above the applicable threshold during the fiscal year is required to have a single audit or program-specific audit conducted for that year. In addition, 2 CFR § 200.510(b) requires the auditee to prepare a schedule of expenditures of federal awards for the period covered by the auditee’s financial statements. Condition: The $200,000 predevelopment and $3,800,000 construction loans from the District of Columbia Department of Housing and Community Development were financed with federal funding. Management and the prior auditors were not previously aware of the federal funding source, and the loan had not been evaluated for applicable federal compliance requirements under OMB Circular A-133 or the Uniform Guidance since the inception of the agreement. Questioned Costs: None Context: Federal funding arrangements may be subject to compliance requirements, schedule of expenditures of federal awards reporting, and single audit requirements when federal expenditures meet the applicable threshold. The Uniform Guidance requires a single audit or program-specific audit when a nonfederal entity expends federal awards at or above the applicable threshold during the fiscal year. Cause: RAP, Inc. did not have a formal process to identify whether loans, grants, or financing agreements were funded through federal sources or subject to OMB Circular A-133 or Uniform Guidance requirements. As a result, the loan was not included in the entity’s federal award compliance review process. Effect: RAP, Inc. may be at risk of noncompliance with federal award requirements, including SEFA reporting, single audit, and pass-through agency requirements. Under 2 CFR § 200.516(a), these matters may need to be reported as audit findings when they involve significant deficiencies, material weaknesses, material noncompliance, or known or likely questioned costs above the reporting threshold. Under 2 CFR § 200.339, the federal agency or pass-through entity may also impose remedies for noncompliance, such as disallowing costs, withholding payments or funding, suspending or terminating the award, or taking other legally available actions. Recommendation: We recommend that management implement a formal process to review all loan, grant, and financing agreements to determine whether funding is derived from federal sources and whether the arrangement is subject to federal compliance or single audit requirements. This review should be performed at inception of each agreement and updated at least annually, with documentation maintained in the entity’s debt and contract repository and reviewed by personnel responsible for compliance and financial reporting. Views of Responsible Officers and Corrective Action Plan: Please refer to Regional Addiction Prevention, Inc.’s Corrective Action Plan.