Finding 2023-008: Allowable Costs
Capital Funds 14.872
Noncompliance
Questioned Costs - $292,548
Criteria: The Authority is awarded an annual Capital Fund grant each year. The Authority prepares a five-year plan which indicates what each annual grant will be spent on. This annual budget is modified upon the grant award to match the grant amount. Only items included within the budget are allowable costs.
Condition: During our audit, we noted the Authority expended $16,439.90 of its 2019 Capital Fund grants for work items not included in the 2019 Capital Fund budget. We further noted the Authority advanced $96,898.10 in the 2019 Capital Fund grant and $89,605 in the 2021 Capital Fund grant from the 1480 General Capital Activity line item although no improvements had occurred. The funds are reported as unearned revenue at March 31, 2023.
Cause: The Authority’s staff did not have an adequate understanding of capital fund grant funds. The obligation dates were approaching and the Authority selected “capital fund like” transactions which were the $16,439.90 spent. The remaining grant funds were advanced so the Authority would not lose them.
Effect or Potential Effect: $292,548 of costs are being questioned as unallowable costs as the Authority did not have the related budget approved expenditures.
Recommendation: The Authority should review its situation with HUD to determine the best course of action to deal with the unallowed costs. Further, the Authority should establish procedures to ensure Capital Fund grant expenditures are included in an approved budget prior to incurring the expenditure. The Authority should establish a monthly procedure where the capital fund grant activity is reported to the Board of Commissioners. For each grant, the report should include the total grant award, the amounts obligated, the amounts advanced and the amounts expended. The Board of Commissioners should be familiar with what was approved in the applicable grant budget so funds are only expended on these items.
Finding 2023-006: Special Tests and Provisions
Rural Rental Housing Loan – Assistance Listing 10.415
Repeat Finding 2022-005
Noncompliance
Criteria: The Authority’s Rural Development Properties are required to make a $20,000 deposit into the replacement reserve annually until the balance in the account is at $200,000 or higher.
Further, the Rural Development Properties should have adequate cash balances which exceed the security deposit liability.
Condition: During the prior audit, it was noted the Authority had a shortfall in required contributions of $9,943.95. During the current year, the Authority made none of the $20,000 required contributions which resulted in the cumulative deficit of $29,943.95.
Cause: As noted in Finding 2023-001, the Rural Development Properties are struggling financially and have limited cash flow.
Effect or Potential Effect: The Authority was in noncompliance with the Special Tests and Provisions that govern the program.
Recommendation: The Authority must review the financial condition of the program and make budget cuts where possible so the program cash flows. The program should be financially viable on its own but the Authority could use other nonfederal funds to help fund the program at the discretion of the Board of Commissioners.
View of the Responsible Officials of the Auditee: The auditee’s management agrees with the finding.
Finding 2023-007: Year End Reporting
Rural Rental Housing Loan - 10.415
Noncompliance/Material Weakness
Criteria: The Authority is responsible for completing and submitting Form RD 3560-7, Form RD 3560-10 and Attachment 4-F, Performance Standards Borrower Self-Certification Letter, within 90 days following the close of the project year end.
Condition: We had requested copies of Form RD 3560-7, Form RD 3560-10 and Attachment 4-F for the yead ended March 31, 2023 and management indicated they had not yet completed them yet which was beyond the 90 day requirement.
Cause: The Authority was late in completing its year end financial records.
Effect or Potential Effect: The Authority was in material noncompliance with U.S.D.A. Rural Development reporting requirements.
Recommendation: The Authority should complete and submit the late reports immediately. Further Authority should have procedures in place to ensure the require reports are submitted within the deadline.
View of the Responsible Officials of the Auditee: The auditee’s management agrees with the finding.
Finding 2023-008: Allowable Costs
Capital Funds 14.872
Noncompliance
Questioned Costs - $292,548
Criteria: The Authority is awarded an annual Capital Fund grant each year. The Authority prepares a five-year plan which indicates what each annual grant will be spent on. This annual budget is modified upon the grant award to match the grant amount. Only items included within the budget are allowable costs.
Condition: During our audit, we noted the Authority expended $16,439.90 of its 2019 Capital Fund grants for work items not included in the 2019 Capital Fund budget. We further noted the Authority advanced $96,898.10 in the 2019 Capital Fund grant and $89,605 in the 2021 Capital Fund grant from the 1480 General Capital Activity line item although no improvements had occurred. The funds are reported as unearned revenue at March 31, 2023.
Cause: The Authority’s staff did not have an adequate understanding of capital fund grant funds. The obligation dates were approaching and the Authority selected “capital fund like” transactions which were the $16,439.90 spent. The remaining grant funds were advanced so the Authority would not lose them.
Effect or Potential Effect: $292,548 of costs are being questioned as unallowable costs as the Authority did not have the related budget approved expenditures.
Recommendation: The Authority should review its situation with HUD to determine the best course of action to deal with the unallowed costs. Further, the Authority should establish procedures to ensure Capital Fund grant expenditures are included in an approved budget prior to incurring the expenditure. The Authority should establish a monthly procedure where the capital fund grant activity is reported to the Board of Commissioners. For each grant, the report should include the total grant award, the amounts obligated, the amounts advanced and the amounts expended. The Board of Commissioners should be familiar with what was approved in the applicable grant budget so funds are only expended on these items.
Finding 2023-006: Special Tests and Provisions
Rural Rental Housing Loan – Assistance Listing 10.415
Repeat Finding 2022-005
Noncompliance
Criteria: The Authority’s Rural Development Properties are required to make a $20,000 deposit into the replacement reserve annually until the balance in the account is at $200,000 or higher.
Further, the Rural Development Properties should have adequate cash balances which exceed the security deposit liability.
Condition: During the prior audit, it was noted the Authority had a shortfall in required contributions of $9,943.95. During the current year, the Authority made none of the $20,000 required contributions which resulted in the cumulative deficit of $29,943.95.
Cause: As noted in Finding 2023-001, the Rural Development Properties are struggling financially and have limited cash flow.
Effect or Potential Effect: The Authority was in noncompliance with the Special Tests and Provisions that govern the program.
Recommendation: The Authority must review the financial condition of the program and make budget cuts where possible so the program cash flows. The program should be financially viable on its own but the Authority could use other nonfederal funds to help fund the program at the discretion of the Board of Commissioners.
View of the Responsible Officials of the Auditee: The auditee’s management agrees with the finding.
Finding 2023-007: Year End Reporting
Rural Rental Housing Loan - 10.415
Noncompliance/Material Weakness
Criteria: The Authority is responsible for completing and submitting Form RD 3560-7, Form RD 3560-10 and Attachment 4-F, Performance Standards Borrower Self-Certification Letter, within 90 days following the close of the project year end.
Condition: We had requested copies of Form RD 3560-7, Form RD 3560-10 and Attachment 4-F for the yead ended March 31, 2023 and management indicated they had not yet completed them yet which was beyond the 90 day requirement.
Cause: The Authority was late in completing its year end financial records.
Effect or Potential Effect: The Authority was in material noncompliance with U.S.D.A. Rural Development reporting requirements.
Recommendation: The Authority should complete and submit the late reports immediately. Further Authority should have procedures in place to ensure the require reports are submitted within the deadline.
View of the Responsible Officials of the Auditee: The auditee’s management agrees with the finding.