Finding 2022-001 ? Accounting Controls ? Internal Controls over Financial Statement Preparation CFDA 14.850 & 14.871 ? Noncompliance and Material Weakness Criteria: Regulations at 2 CFR Part 200, Uniform Administrative Requirements, outline the internal control requirements for recipients of federal grant funds. Non-Federal entities must demonstrate, ?Effective control over, and accountability for, all funds, property, and other assets.? A deficiency in internal control exists when the design or operation of a control does not allow management or its employees, in the normal course of operation, to detect or correct errors, fraud, or misstatements in a timely manner. The failure to properly implement internal control procedures can result in material misstatements of the account balances and noncompliance with grant oversight provisions. Condition: We noted the following deficiencies related to the maintenance of accounting records and the underlying internal controls: 1) Cash and Investments ? We noted in the general ledger and in the unaudited Financial Data Schedule (FDS) submission that the Authority accounted for general fund activity in Public Housing AMP 1. AMP 1 converted fully to the Rental Assistance Demonstration (RAD) program during the audited period and as such transferred most assets to the new blended component unit. The Authority failed, however, to transfer the cash balance which at fiscal year end netted with intercompany balances to $1,350,336. We have proposed audit adjustments to correct this misstatement and will transfer the funds to AMP 2. We also noted that the Housing Authority accounts for most transactions through a general cash fund and then balances the general ledgers through a system of intercompany accounts. The Authority does not appear to clear these intercompany balances, however, which causes these accounts and the related cash accounts to perpetually increase. The balances net against each other and result in no net book effect. We note that due to the increasing balances, however, that it increases the complexity of account analysis and increases the risk of financial misstatement and error. 2) GASB 68 Retirement Accounting ? Upon review of the GASB 68 retirement balance sheet accounts we noted that the Authority failed to account for employer contributions paid subsequent to the measurement date of the actuarial valuation. This resulted in audit adjustments in the amount of $326,173 to the agency-wide financial statements. We also noted that the allocation of the liability and related accounting should be reviewed and possibly adjusted for future accounting periods. 3) Accounts Payable ? We noted that the Authority calculated and prepared support for vendor and utility accruals at fiscal year end. In error the Authority set the accruals to reverse in the same period which resulted in none of the accruals being represented in the financial statements. We have posted adjustment to correct for this in the audited financial statements. 4) Tenant Accounts Receivable ? The Authority incorrectly included activity in the general ledger TAR accounts that did not reflect actual operating transactions. The Authority in the past set up mirror accounts for HAP activity in the RAD developments but shifted from those original general ledgers to their now current general ledgers. The Authority incorrectly included these unused ledgers in the financial statements which resulted in TARs being overstated by $289,134. We have proposed audit adjustment to correct this deficiency for the audited financial statements. 5) HCV HAP Accounting ? We reviewed the unaudited Housing Choice Voucher HAP Subsidy accounts and found that the Authority netted the RAD PBV Housing Assistance transfers against the increment funding received for the RAD PBV conversion. This resulted in both HAP Subsidy and HAP expense being understated by $824,689. The Authority has implemented additional controls subsequent to the end of the fiscal year to properly recognize the HAP expense on the HCV side for the PBV transfers to RAD. Cause: Lack of internal controls in the area of financial reporting and in the review of the financial statements. We also noted that the Director of Finance was taking a leave of absence due to a family illness. The Authority hired an outside consultant to do a partial review and closeout of the financial statements in order to submit the unaudited FDS. Effect: Improper balancing of accounts and accounting controls can result in misstated financial statements and improper financial information being communicated to management and to HUD. Recommendation: We recommend that year end internal control procedures be put in place to demonstrate effective oversight over account balances and grant activity. We also recommend management review the internal controls and adequacy of the HCV budget to cover administrative costs. Questioned Costs: None Repeat Finding: Yes, 2021-001 from prior year. Views of responsible officials: The Owensboro Housing Authority agrees with the findings and the recommended corrective actions.
Finding 2022-002 ? Cash management ? RAD Conversion and Replacement Reserves CFDA 14.850 ? Noncompliance and Significant Deficiency Criteria: HUD PIH Notice 2019-23 issued September 5, 2019 as well as Public Law No. 112-55 and subsequent Appropriations Acts, state that ?the project owner shall establish and maintain a replacement reserve in an interest-bearing account to add in funding extraordinary maintenance and repair and replacement of capital items.? The replacement reserve is specified in the HUD RAD Use Agreement along with the monthly amount to be funded into the reserve. Condition: We note that the Authority has begun to deposit funds into the Reserve for Replacement account as stipulated in the RCC and HAP contract signed with HUD. We also note, however, that the reserves are still underfunded and not at the level of the Initial Deposit to the Replacement Reserves (IDRR). The initial balance for the Reserve Accounts, not taking into account monthly contributions, should have been $464,600. The Replacement Reserve level at June 30, 2022 is $287,038. We do note that this balance has been set aside in a separate account and transferred to the RAD ledger, but the amount is also not being tracked separately on the general ledger. We examined the Public Housing operating subsidy obligated to the AMPs as part of our review of the financial statements. We noted that the Authority did not contribute the obligated calendar year subsidy to the RAD conversions. Per PIH Notice 2019-23 RAD conversions are eligible for this funding in the first calendar year of operations. As amounts obligated are not capped by the amount of RAD HAP contract rents the entire amount of subsidy obligated for AMP 1 could have been used to fund the RAD developments. We note that management is aware of this issue and chose not to transfer these funds into these developments as they believe the level of funding was sufficient. Cause: The Authority transitioned to new finance staff and certain procedures were not performed by the former Director of Finance. Consequently, when the new personnel began there was insufficient knowledge as to the RAD requirements and maintaining the books and records of account. Effect: Improper funding of the replacement reserve can result in improper resources for capital improvements when needed. The reserve is designed to not impact operations but provide a steady resource of funding for future capital needs. Recommendation: We recommend that the RAD properties be properly funded and record the replacement reserve into a separate interest-bearing account. We also recommend that monthly amounts be deposited to this account in order to make appropriate provisions for future capital needs. Questioned Costs: None Repeat Finding: Yes, 2021-002 from prior year. Views of responsible officials: The Owensboro Housing Authority agrees with the findings and the recommended corrective actions.
Finding 2022-001 ? Accounting Controls ? Internal Controls over Financial Statement Preparation CFDA 14.850 & 14.871 ? Noncompliance and Material Weakness Criteria: Regulations at 2 CFR Part 200, Uniform Administrative Requirements, outline the internal control requirements for recipients of federal grant funds. Non-Federal entities must demonstrate, ?Effective control over, and accountability for, all funds, property, and other assets.? A deficiency in internal control exists when the design or operation of a control does not allow management or its employees, in the normal course of operation, to detect or correct errors, fraud, or misstatements in a timely manner. The failure to properly implement internal control procedures can result in material misstatements of the account balances and noncompliance with grant oversight provisions. Condition: We noted the following deficiencies related to the maintenance of accounting records and the underlying internal controls: 1) Cash and Investments ? We noted in the general ledger and in the unaudited Financial Data Schedule (FDS) submission that the Authority accounted for general fund activity in Public Housing AMP 1. AMP 1 converted fully to the Rental Assistance Demonstration (RAD) program during the audited period and as such transferred most assets to the new blended component unit. The Authority failed, however, to transfer the cash balance which at fiscal year end netted with intercompany balances to $1,350,336. We have proposed audit adjustments to correct this misstatement and will transfer the funds to AMP 2. We also noted that the Housing Authority accounts for most transactions through a general cash fund and then balances the general ledgers through a system of intercompany accounts. The Authority does not appear to clear these intercompany balances, however, which causes these accounts and the related cash accounts to perpetually increase. The balances net against each other and result in no net book effect. We note that due to the increasing balances, however, that it increases the complexity of account analysis and increases the risk of financial misstatement and error. 2) GASB 68 Retirement Accounting ? Upon review of the GASB 68 retirement balance sheet accounts we noted that the Authority failed to account for employer contributions paid subsequent to the measurement date of the actuarial valuation. This resulted in audit adjustments in the amount of $326,173 to the agency-wide financial statements. We also noted that the allocation of the liability and related accounting should be reviewed and possibly adjusted for future accounting periods. 3) Accounts Payable ? We noted that the Authority calculated and prepared support for vendor and utility accruals at fiscal year end. In error the Authority set the accruals to reverse in the same period which resulted in none of the accruals being represented in the financial statements. We have posted adjustment to correct for this in the audited financial statements. 4) Tenant Accounts Receivable ? The Authority incorrectly included activity in the general ledger TAR accounts that did not reflect actual operating transactions. The Authority in the past set up mirror accounts for HAP activity in the RAD developments but shifted from those original general ledgers to their now current general ledgers. The Authority incorrectly included these unused ledgers in the financial statements which resulted in TARs being overstated by $289,134. We have proposed audit adjustment to correct this deficiency for the audited financial statements. 5) HCV HAP Accounting ? We reviewed the unaudited Housing Choice Voucher HAP Subsidy accounts and found that the Authority netted the RAD PBV Housing Assistance transfers against the increment funding received for the RAD PBV conversion. This resulted in both HAP Subsidy and HAP expense being understated by $824,689. The Authority has implemented additional controls subsequent to the end of the fiscal year to properly recognize the HAP expense on the HCV side for the PBV transfers to RAD. Cause: Lack of internal controls in the area of financial reporting and in the review of the financial statements. We also noted that the Director of Finance was taking a leave of absence due to a family illness. The Authority hired an outside consultant to do a partial review and closeout of the financial statements in order to submit the unaudited FDS. Effect: Improper balancing of accounts and accounting controls can result in misstated financial statements and improper financial information being communicated to management and to HUD. Recommendation: We recommend that year end internal control procedures be put in place to demonstrate effective oversight over account balances and grant activity. We also recommend management review the internal controls and adequacy of the HCV budget to cover administrative costs. Questioned Costs: None Repeat Finding: Yes, 2021-001 from prior year. Views of responsible officials: The Owensboro Housing Authority agrees with the findings and the recommended corrective actions.
Finding 2022-001 ? Accounting Controls ? Internal Controls over Financial Statement Preparation CFDA 14.850 & 14.871 ? Noncompliance and Material Weakness Criteria: Regulations at 2 CFR Part 200, Uniform Administrative Requirements, outline the internal control requirements for recipients of federal grant funds. Non-Federal entities must demonstrate, ?Effective control over, and accountability for, all funds, property, and other assets.? A deficiency in internal control exists when the design or operation of a control does not allow management or its employees, in the normal course of operation, to detect or correct errors, fraud, or misstatements in a timely manner. The failure to properly implement internal control procedures can result in material misstatements of the account balances and noncompliance with grant oversight provisions. Condition: We noted the following deficiencies related to the maintenance of accounting records and the underlying internal controls: 1) Cash and Investments ? We noted in the general ledger and in the unaudited Financial Data Schedule (FDS) submission that the Authority accounted for general fund activity in Public Housing AMP 1. AMP 1 converted fully to the Rental Assistance Demonstration (RAD) program during the audited period and as such transferred most assets to the new blended component unit. The Authority failed, however, to transfer the cash balance which at fiscal year end netted with intercompany balances to $1,350,336. We have proposed audit adjustments to correct this misstatement and will transfer the funds to AMP 2. We also noted that the Housing Authority accounts for most transactions through a general cash fund and then balances the general ledgers through a system of intercompany accounts. The Authority does not appear to clear these intercompany balances, however, which causes these accounts and the related cash accounts to perpetually increase. The balances net against each other and result in no net book effect. We note that due to the increasing balances, however, that it increases the complexity of account analysis and increases the risk of financial misstatement and error. 2) GASB 68 Retirement Accounting ? Upon review of the GASB 68 retirement balance sheet accounts we noted that the Authority failed to account for employer contributions paid subsequent to the measurement date of the actuarial valuation. This resulted in audit adjustments in the amount of $326,173 to the agency-wide financial statements. We also noted that the allocation of the liability and related accounting should be reviewed and possibly adjusted for future accounting periods. 3) Accounts Payable ? We noted that the Authority calculated and prepared support for vendor and utility accruals at fiscal year end. In error the Authority set the accruals to reverse in the same period which resulted in none of the accruals being represented in the financial statements. We have posted adjustment to correct for this in the audited financial statements. 4) Tenant Accounts Receivable ? The Authority incorrectly included activity in the general ledger TAR accounts that did not reflect actual operating transactions. The Authority in the past set up mirror accounts for HAP activity in the RAD developments but shifted from those original general ledgers to their now current general ledgers. The Authority incorrectly included these unused ledgers in the financial statements which resulted in TARs being overstated by $289,134. We have proposed audit adjustment to correct this deficiency for the audited financial statements. 5) HCV HAP Accounting ? We reviewed the unaudited Housing Choice Voucher HAP Subsidy accounts and found that the Authority netted the RAD PBV Housing Assistance transfers against the increment funding received for the RAD PBV conversion. This resulted in both HAP Subsidy and HAP expense being understated by $824,689. The Authority has implemented additional controls subsequent to the end of the fiscal year to properly recognize the HAP expense on the HCV side for the PBV transfers to RAD. Cause: Lack of internal controls in the area of financial reporting and in the review of the financial statements. We also noted that the Director of Finance was taking a leave of absence due to a family illness. The Authority hired an outside consultant to do a partial review and closeout of the financial statements in order to submit the unaudited FDS. Effect: Improper balancing of accounts and accounting controls can result in misstated financial statements and improper financial information being communicated to management and to HUD. Recommendation: We recommend that year end internal control procedures be put in place to demonstrate effective oversight over account balances and grant activity. We also recommend management review the internal controls and adequacy of the HCV budget to cover administrative costs. Questioned Costs: None Repeat Finding: Yes, 2021-001 from prior year. Views of responsible officials: The Owensboro Housing Authority agrees with the findings and the recommended corrective actions.
Finding 2022-002 ? Cash management ? RAD Conversion and Replacement Reserves CFDA 14.850 ? Noncompliance and Significant Deficiency Criteria: HUD PIH Notice 2019-23 issued September 5, 2019 as well as Public Law No. 112-55 and subsequent Appropriations Acts, state that ?the project owner shall establish and maintain a replacement reserve in an interest-bearing account to add in funding extraordinary maintenance and repair and replacement of capital items.? The replacement reserve is specified in the HUD RAD Use Agreement along with the monthly amount to be funded into the reserve. Condition: We note that the Authority has begun to deposit funds into the Reserve for Replacement account as stipulated in the RCC and HAP contract signed with HUD. We also note, however, that the reserves are still underfunded and not at the level of the Initial Deposit to the Replacement Reserves (IDRR). The initial balance for the Reserve Accounts, not taking into account monthly contributions, should have been $464,600. The Replacement Reserve level at June 30, 2022 is $287,038. We do note that this balance has been set aside in a separate account and transferred to the RAD ledger, but the amount is also not being tracked separately on the general ledger. We examined the Public Housing operating subsidy obligated to the AMPs as part of our review of the financial statements. We noted that the Authority did not contribute the obligated calendar year subsidy to the RAD conversions. Per PIH Notice 2019-23 RAD conversions are eligible for this funding in the first calendar year of operations. As amounts obligated are not capped by the amount of RAD HAP contract rents the entire amount of subsidy obligated for AMP 1 could have been used to fund the RAD developments. We note that management is aware of this issue and chose not to transfer these funds into these developments as they believe the level of funding was sufficient. Cause: The Authority transitioned to new finance staff and certain procedures were not performed by the former Director of Finance. Consequently, when the new personnel began there was insufficient knowledge as to the RAD requirements and maintaining the books and records of account. Effect: Improper funding of the replacement reserve can result in improper resources for capital improvements when needed. The reserve is designed to not impact operations but provide a steady resource of funding for future capital needs. Recommendation: We recommend that the RAD properties be properly funded and record the replacement reserve into a separate interest-bearing account. We also recommend that monthly amounts be deposited to this account in order to make appropriate provisions for future capital needs. Questioned Costs: None Repeat Finding: Yes, 2021-002 from prior year. Views of responsible officials: The Owensboro Housing Authority agrees with the findings and the recommended corrective actions.
Finding 2022-001 ? Accounting Controls ? Internal Controls over Financial Statement Preparation CFDA 14.850 & 14.871 ? Noncompliance and Material Weakness Criteria: Regulations at 2 CFR Part 200, Uniform Administrative Requirements, outline the internal control requirements for recipients of federal grant funds. Non-Federal entities must demonstrate, ?Effective control over, and accountability for, all funds, property, and other assets.? A deficiency in internal control exists when the design or operation of a control does not allow management or its employees, in the normal course of operation, to detect or correct errors, fraud, or misstatements in a timely manner. The failure to properly implement internal control procedures can result in material misstatements of the account balances and noncompliance with grant oversight provisions. Condition: We noted the following deficiencies related to the maintenance of accounting records and the underlying internal controls: 1) Cash and Investments ? We noted in the general ledger and in the unaudited Financial Data Schedule (FDS) submission that the Authority accounted for general fund activity in Public Housing AMP 1. AMP 1 converted fully to the Rental Assistance Demonstration (RAD) program during the audited period and as such transferred most assets to the new blended component unit. The Authority failed, however, to transfer the cash balance which at fiscal year end netted with intercompany balances to $1,350,336. We have proposed audit adjustments to correct this misstatement and will transfer the funds to AMP 2. We also noted that the Housing Authority accounts for most transactions through a general cash fund and then balances the general ledgers through a system of intercompany accounts. The Authority does not appear to clear these intercompany balances, however, which causes these accounts and the related cash accounts to perpetually increase. The balances net against each other and result in no net book effect. We note that due to the increasing balances, however, that it increases the complexity of account analysis and increases the risk of financial misstatement and error. 2) GASB 68 Retirement Accounting ? Upon review of the GASB 68 retirement balance sheet accounts we noted that the Authority failed to account for employer contributions paid subsequent to the measurement date of the actuarial valuation. This resulted in audit adjustments in the amount of $326,173 to the agency-wide financial statements. We also noted that the allocation of the liability and related accounting should be reviewed and possibly adjusted for future accounting periods. 3) Accounts Payable ? We noted that the Authority calculated and prepared support for vendor and utility accruals at fiscal year end. In error the Authority set the accruals to reverse in the same period which resulted in none of the accruals being represented in the financial statements. We have posted adjustment to correct for this in the audited financial statements. 4) Tenant Accounts Receivable ? The Authority incorrectly included activity in the general ledger TAR accounts that did not reflect actual operating transactions. The Authority in the past set up mirror accounts for HAP activity in the RAD developments but shifted from those original general ledgers to their now current general ledgers. The Authority incorrectly included these unused ledgers in the financial statements which resulted in TARs being overstated by $289,134. We have proposed audit adjustment to correct this deficiency for the audited financial statements. 5) HCV HAP Accounting ? We reviewed the unaudited Housing Choice Voucher HAP Subsidy accounts and found that the Authority netted the RAD PBV Housing Assistance transfers against the increment funding received for the RAD PBV conversion. This resulted in both HAP Subsidy and HAP expense being understated by $824,689. The Authority has implemented additional controls subsequent to the end of the fiscal year to properly recognize the HAP expense on the HCV side for the PBV transfers to RAD. Cause: Lack of internal controls in the area of financial reporting and in the review of the financial statements. We also noted that the Director of Finance was taking a leave of absence due to a family illness. The Authority hired an outside consultant to do a partial review and closeout of the financial statements in order to submit the unaudited FDS. Effect: Improper balancing of accounts and accounting controls can result in misstated financial statements and improper financial information being communicated to management and to HUD. Recommendation: We recommend that year end internal control procedures be put in place to demonstrate effective oversight over account balances and grant activity. We also recommend management review the internal controls and adequacy of the HCV budget to cover administrative costs. Questioned Costs: None Repeat Finding: Yes, 2021-001 from prior year. Views of responsible officials: The Owensboro Housing Authority agrees with the findings and the recommended corrective actions.