Finding 2023‐002: U.S. Department of the Treasury Federal Financial Assistance Listing 21.027 COVID‐19 Coronavirus State and Local Fiscal Recovery Funds Compliance Requirement: Procurement Suspension and Debarment Type of Finding: Significant Deficiency in Internal Controls over Compliance Criteria: 2 CFR 200.303(a) establishes that the auditee must establish and maintain effective internal control over the federal award that provides assurance that the entity is managing the federal award in compliance with federal statutes, regulations, and conditions of the federal award. Per 31 CFR 19.300, prior to entering into subawards and contracts with award funds, recipients must verify that such contractors and subrecipients are not suspended, debarred, or otherwise excluded pursuant to 31 CFR § 19.300. Condition: The County did not maintain evidence of review of state and federal debarred vendor listing for three vendors receiving SLFRF funds. Cause: The County indicated review was performed, but no internal policy required the documentation of evidence of the review of SAM.gov and Texas Comptroller debarred vendor listings. Effect: No evidence that any SLFRF funds were provided to debarred vendors. Questioned Costs: None Context / Sampling: We tested 3 of 3 transactions subject to suspension and debarment in the SLFRF program. Repeat Finding from Prior Year: No Recommendation: To avoid the potential of missing review of the debarred vendor listings, the County should require documentation of review of the debarred vendor listings at least semi‐annually. Views of Responsible Officials: Management agrees with the noted finding. Refer to Corrective Action Plan.
Significant Deficiency in Internal Control over Compliance Condition: During the year ended September 30, 2023, a transaction for an unallowable cost was reported in the Organization's accounting records for a Federal program. Criteria: The non-Federal entity, per 2 CFR 200.303(a), "Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award." Cause: The Organization's internal control over compliance with Uniform Guidance did not prevent nor detect and correct an unallowable transaction relating to a Federal award. Effect: An unallowable cost was reported under the Federal program. Upon identification from the auditor, reasonable action was taken to replace the unallowable expenditure from the underlying accounting records for the Federal program. Recommendation: We recommend that the Organization adhere to internal control requirements prescribed under Uniform Guidance, specifically, 2 CFR 200.303. Other Issues: See the following pages for the Corrective Action Plan and the Summary Schedule of Prior Audit Findings.
Finding 2023-001 – Allowable Activities and Costs of Provider Relief Fund Significant Deficiency in Internal Control over Compliance Program: COVID-19 Provider Relief Fund (PRF) and American Rescue Plan (ARP) Rural Distribution Federal Assistance Listing Number: 93.498 Federal Grantor: U.S. Department of Health and Human Services Pass-Through Entity: None Criteria: Per 2 CFR 200.430(i), personnel costs charged to federal grants are required to be supported by documentation including time records. Per 2 CFR 200.303, a non-federal entity must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and terms and conditions of the Federal award. Condition: Our audit procedures over the calculation of COVID patient days used to allocate the payroll cost to the PRF/ARP federal program disclosed the amounts were not properly calculated. Cause: The Medical Center has controls in place to review the calculation; however, the control did not operate to identify an error in the calculation of COVID patient days. Effect: The error in the calculation resulted in underreporting payroll costs allowed to be charged to PRF/ARP in the amount of $566,272. Questioned Costs: None Perspective: The error in the calculation resulted in underreporting payroll costs allowed to be charged to PRF/ARP in the amount of $566,272. Repeat Finding: This is not a repeat finding. Recommendation: We recommend the Medical Center implement additional internal controls over compliance in order to properly identify any errors in calculation. View of Responsible Officials: See management’s response to the finding in the accompanying Corrective Action Plan.
2023-001 CASH MANAGEMENT U.S. Department of Environmental Protection ALN 66.456 – National Estuary Program Federal Award ID Number: 4T-02D39922 2023 Funding Criteria: 2 CFR 200.303 requires non-federal entities to establish and maintain effective internal controls. As required by 2 CFR 200.305(b), grant recipients may only draw funds for the minimum amounts needed for actual and immediate cash requirements to pay employees, contractors, subrecipients or to satisfy other obligations for allowable costs under the grant agreement. Disbursements within five (5) business days of the drawdown are deemed to comply with this requirement. Condition: On December 19, 2022 the grantee drew down their entire award of $909,800, but only $300,000 was for reimbursable expenses. The remaining $609,800 was an advance which is not permitted under the award terms or Uniform Guidance. The erroneous advance was identified by the grantor and returned by the Council on December 29, 2022. Cause: Council management misunderstood the award terms and the allowability of advances. Effect: Draws of funds in excess of amounts needed for actual and immediate cash requirements can result in the return of funds. Questioned Costs: None. Perspective: During our testing, we did not note any other instances in which funds were drawn on an advance basis, in excess of costs already incurred by the Council. The Council misunderstood guidance from the grantor, which led to the draw down of funds in advance of current needs. Recommendation: Management should obtain clarification in writing from the grantor on guidance outside of the established procedures to prevent future misunderstandings.
2023-002 PROCUREMENT U.S. Department of Environmental Protection ALN 66.456 – National Estuary Program Federal Award ID Number: 4T-02D39922 2023 Funding Criteria: 2 CFR 200.303 requires non-federal entities to establish and maintain effective internal controls. As stated in FAR Section 5.203, Publicizing and Response Time, the Council is required to allow for at least a 30-day response time for the receipt of bids or proposals from the date of issuance of the solicitation. Condition: The grantor identified payments made to a subrecipient for which the solicitation was held open for less than 30 days, prompting the grantor to ask the Council to replace those expenditures with other grant-eligible expenditures. Cause: Management was not aware of this requirement. Effect: The Council reclassified $48,120 of expenditures to be funded by other revenue sources and recorded $48,120 of deferred revenue that will be recognized in fiscal year 2024 when payments are made to the new subrecipient. Questioned Costs: None. Perspective: In our sample of procurements tested, we did not identify any other instances of non-compliance. Recommendation: Management should review all procurements for compliance with award terms, Uniform Guidance, and Federal Acquisition Regulations prior to submitting issuing the purchase order or subrecipient contract.
2023-003 SUSPENSION AND DEBARMENT U.S. Department of Environmental Protection ALN 66.456 – National Estuary Program Federal Award ID Number: 4T-02D39922 and CE-00D90119 2023 Funding Criteria: 2 CFR 200.303 requires non-federal entities to establish and maintain effective internal controls. Pursuant to 2 CFR section 180.300, the Council may not contract with or make subawards to parties that are identified as being suspended or debarred by the Federal Government. The Council must verify the parties’ eligibility to receive payment from a program funded by a Federal grant prior to entering a covered transaction (as defined in 2 CFR section 180.220). Condition: The Council did not have a process in place to verify that subrecipients and vendors for covered transactions were not suspended or debarred. Cause: Management was not aware of this procurement requirement. Effect: The Council could inadvertently enter a covered transaction with a suspended or debarred party, resulting in the disallowance of payments made to that party as eligible costs under the Federal program. Questioned Costs: None. Perspective: Many of the subawards made by the Council were to other local governments or universities, which are entities unlikely to be suspended or debarred. As part of our compliance testing, we tested a sample of subrecipients and vendors for suspension and debarment, noting no exceptions. Recommendation: We recommend the Council implement controls to ensure the Council does not enter a subaward or other covered transaction with a party that is suspended, debarred or otherwise excluded from participating in federal awards. We suggest the Council include a clause in the subrecipient contracts stating the contractor is not suspended or debarred. This clause would need to be included in any modifications to the contracts that provide for additional funding. For other covered transactions, the Council should document their verification of the vendor’s status on the System for Award Management (SAM) Exclusions website.
2023-003 SUSPENSION AND DEBARMENT U.S. Department of Environmental Protection ALN 66.456 – National Estuary Program Federal Award ID Number: 4T-02D39922 and CE-00D90119 2023 Funding Criteria: 2 CFR 200.303 requires non-federal entities to establish and maintain effective internal controls. Pursuant to 2 CFR section 180.300, the Council may not contract with or make subawards to parties that are identified as being suspended or debarred by the Federal Government. The Council must verify the parties’ eligibility to receive payment from a program funded by a Federal grant prior to entering a covered transaction (as defined in 2 CFR section 180.220). Condition: The Council did not have a process in place to verify that subrecipients and vendors for covered transactions were not suspended or debarred. Cause: Management was not aware of this procurement requirement. Effect: The Council could inadvertently enter a covered transaction with a suspended or debarred party, resulting in the disallowance of payments made to that party as eligible costs under the Federal program. Questioned Costs: None. Perspective: Many of the subawards made by the Council were to other local governments or universities, which are entities unlikely to be suspended or debarred. As part of our compliance testing, we tested a sample of subrecipients and vendors for suspension and debarment, noting no exceptions. Recommendation: We recommend the Council implement controls to ensure the Council does not enter a subaward or other covered transaction with a party that is suspended, debarred or otherwise excluded from participating in federal awards. We suggest the Council include a clause in the subrecipient contracts stating the contractor is not suspended or debarred. This clause would need to be included in any modifications to the contracts that provide for additional funding. For other covered transactions, the Council should document their verification of the vendor’s status on the System for Award Management (SAM) Exclusions website.
2023-004 SUBRECIPIENT MONITORING U.S. Department of Environmental Protection ALN 66.456 – National Estuary Program Federal Award ID Number: 4T-02D39922 and CE-00D90119 2023 Funding Criteria: 2 CFR 200.303 requires non-federal entities to establish and maintain effective internal controls. The use of subrecipients in achieving the goals of the federal award requires the establishment of controls over the monitoring of subrecipients pursuant to 2 CFR section 200.331 and 200.332. This includes the requirement for the subaward contract to include information such as the federal award identification (Assistance Listing Number (ALN) and name of the federal program), all requirements imposed by the pass-through entity on the subrecipient so that the Federal award is used in accordance with Federal statutes, regulations and the terms and conditions of the Federal award and any additional requirements that the pass-through entity imposes on the subrecipient in order for the pass-through entity to meet its own responsibility to the Federal awarding agency including identification of any required financial and performance reports. Condition: Subrecipient awards did not consistently include the required language including the ALN and the pass-through of Federal award requirements. Additionally, the Council did not have controls in place to obtain and review subrecipient single audit reports as a means to ensure the subrecipients are taking timely and appropriate action on deficiencies, if any, pertaining to the Federal award. Cause: In some cases, the Council used the contract template for a subaward for a state financial assistance program rather than for a Federal award and, as a result, required information and language was missing from the contract. Further, the Council did not update its procedures over subrecipient monitoring to include follow-up of any deficiencies pertaining to the subrecipients’ use of the Federal funding detected through audits, on-site reviews or other means. Effect: Without the required language in the subrecipient contracts, subrecipients may not have the information necessary for them to establish appropriate controls over compliance required by the Federal award and to appropriately identify the Federal award and related expenditures on their Schedule of Expenditures of Federal Awards, if applicable. Additionally, without the monitoring of the results of audits and on-site reviews, the Council may not have sufficient information to evaluate the risks of noncompliance associated with a subrecipient. Questioned Costs: None. Perspective: The Council did perform monitoring activities related to the use of funds by subrecipients; however, not all controls required for subrecipient monitoring to comply with 2 CFR section 200.331 and 200.332 were fully implemented for the fiscal year under audit. Required language was not included in two of the eight subrecipient awards tested. For one of these two contracts, the contract was originally funded with local share and applied to the Federal award only after the grantor modified the award to allow the Council to apply pre-award expenditures to the grant program. Recommendation: The Council should review existing subrecipient agreements and amend any contracts that may be missing the required Uniform Guidance language. Management should ensure that future contracts use the template appropriate for the funding source (Federal, state or non-grant funded). To ensure compliance with the requirements for subrecipient monitoring, the Council should establish processes to (1) review and reports required by the subrecipient contract; (2) document the Council’s follow-up on action taken by the subrecipient on any deficiencies detected through audits, on-site reviews or other means; and (3) issue a management decision for audit findings pertaining to the Federal award provided to the subrecipient.
2023-004 SUBRECIPIENT MONITORING U.S. Department of Environmental Protection ALN 66.456 – National Estuary Program Federal Award ID Number: 4T-02D39922 and CE-00D90119 2023 Funding Criteria: 2 CFR 200.303 requires non-federal entities to establish and maintain effective internal controls. The use of subrecipients in achieving the goals of the federal award requires the establishment of controls over the monitoring of subrecipients pursuant to 2 CFR section 200.331 and 200.332. This includes the requirement for the subaward contract to include information such as the federal award identification (Assistance Listing Number (ALN) and name of the federal program), all requirements imposed by the pass-through entity on the subrecipient so that the Federal award is used in accordance with Federal statutes, regulations and the terms and conditions of the Federal award and any additional requirements that the pass-through entity imposes on the subrecipient in order for the pass-through entity to meet its own responsibility to the Federal awarding agency including identification of any required financial and performance reports. Condition: Subrecipient awards did not consistently include the required language including the ALN and the pass-through of Federal award requirements. Additionally, the Council did not have controls in place to obtain and review subrecipient single audit reports as a means to ensure the subrecipients are taking timely and appropriate action on deficiencies, if any, pertaining to the Federal award. Cause: In some cases, the Council used the contract template for a subaward for a state financial assistance program rather than for a Federal award and, as a result, required information and language was missing from the contract. Further, the Council did not update its procedures over subrecipient monitoring to include follow-up of any deficiencies pertaining to the subrecipients’ use of the Federal funding detected through audits, on-site reviews or other means. Effect: Without the required language in the subrecipient contracts, subrecipients may not have the information necessary for them to establish appropriate controls over compliance required by the Federal award and to appropriately identify the Federal award and related expenditures on their Schedule of Expenditures of Federal Awards, if applicable. Additionally, without the monitoring of the results of audits and on-site reviews, the Council may not have sufficient information to evaluate the risks of noncompliance associated with a subrecipient. Questioned Costs: None. Perspective: The Council did perform monitoring activities related to the use of funds by subrecipients; however, not all controls required for subrecipient monitoring to comply with 2 CFR section 200.331 and 200.332 were fully implemented for the fiscal year under audit. Required language was not included in two of the eight subrecipient awards tested. For one of these two contracts, the contract was originally funded with local share and applied to the Federal award only after the grantor modified the award to allow the Council to apply pre-award expenditures to the grant program. Recommendation: The Council should review existing subrecipient agreements and amend any contracts that may be missing the required Uniform Guidance language. Management should ensure that future contracts use the template appropriate for the funding source (Federal, state or non-grant funded). To ensure compliance with the requirements for subrecipient monitoring, the Council should establish processes to (1) review and reports required by the subrecipient contract; (2) document the Council’s follow-up on action taken by the subrecipient on any deficiencies detected through audits, on-site reviews or other means; and (3) issue a management decision for audit findings pertaining to the Federal award provided to the subrecipient.
2023-002 – Allowable Activities/Allowable Costs Federal Program Information: Department of Interior: CFDA - 93.600 - Head Start Cluster Criteria: Title 2 CFR 200.303 requires effective internal controls over Federal Award provide a reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal Statutes, regulations, terms and conditions of the award. Condition: During the audit procedures it was identified that the Band’s process to document approval over disbursements is not working effectively. Cause: Band does not have the necessary internal controls over compliance. Effect: Insufficient Controls could allow for unallowable costs to be charged. Identification of Questioned Costs: None identified. Context: There were 101 cash disbursements and 25 were tested and it was found that 5 of the disbursements tested had receipts/invoices that were not legible or provided documentation that was not an invoice these 5 also did not include descriptions of what was purchased. The same 5 disbursements included payment of sales tax that was charged to the grant. This is not statistically valid sample. Repeat Finding: This is not a repeat finding. Recommendation: It is recommended that the Band implements internal control processes and procedures to ensure that they are following the criteria above. Views of Responsible Officials and Corrective Action Plan: Please see the Corrective Action Plan issued by the Houlton Band of Maliseet Indians.
2023-002 – Allowable Activities/Allowable Costs Federal Program Information: Department of Interior: CFDA - 93.600 - Head Start Cluster Criteria: Title 2 CFR 200.303 requires effective internal controls over Federal Award provide a reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal Statutes, regulations, terms and conditions of the award. Condition: During the audit procedures it was identified that the Band’s process to document approval over disbursements is not working effectively. Cause: Band does not have the necessary internal controls over compliance. Effect: Insufficient Controls could allow for unallowable costs to be charged. Identification of Questioned Costs: None identified. Context: There were 101 cash disbursements and 25 were tested and it was found that 5 of the disbursements tested had receipts/invoices that were not legible or provided documentation that was not an invoice these 5 also did not include descriptions of what was purchased. The same 5 disbursements included payment of sales tax that was charged to the grant. This is not statistically valid sample. Repeat Finding: This is not a repeat finding. Recommendation: It is recommended that the Band implements internal control processes and procedures to ensure that they are following the criteria above. Views of Responsible Officials and Corrective Action Plan: Please see the Corrective Action Plan issued by the Houlton Band of Maliseet Indians.
2023-002 – Allowable Activities/Allowable Costs Federal Program Information: Department of Interior: CFDA - 93.600 - Head Start Cluster Criteria: Title 2 CFR 200.303 requires effective internal controls over Federal Award provide a reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal Statutes, regulations, terms and conditions of the award. Condition: During the audit procedures it was identified that the Band’s process to document approval over disbursements is not working effectively. Cause: Band does not have the necessary internal controls over compliance. Effect: Insufficient Controls could allow for unallowable costs to be charged. Identification of Questioned Costs: None identified. Context: There were 101 cash disbursements and 25 were tested and it was found that 5 of the disbursements tested had receipts/invoices that were not legible or provided documentation that was not an invoice these 5 also did not include descriptions of what was purchased. The same 5 disbursements included payment of sales tax that was charged to the grant. This is not statistically valid sample. Repeat Finding: This is not a repeat finding. Recommendation: It is recommended that the Band implements internal control processes and procedures to ensure that they are following the criteria above. Views of Responsible Officials and Corrective Action Plan: Please see the Corrective Action Plan issued by the Houlton Band of Maliseet Indians.
Finding: 2023-004-HC – Material Weakness in Internal Control over Compliance and Other Matter Federal agency: U.S. Department of Treasury Federal program title: Coronavirus State and Local Fiscal Recovery Funds Assistance Listing Number (ALN): 21.027 Pass-through agency: None Federal award number: 1505-0271 Federal Award Year: FY2021, FY2022, FY2023 Control Category: Activities Allowed or Unallowed, and Allowable Costs/Cost Principles Questioned Costs: FY2021 $197,448; FY2022 $487,891; FY2023 $657,937. Criteria or specific requirement: The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e. auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Additionally, pursuant to the compliance supplement for ALN 21.027, Activities Unallowed, include deposits into pension funds. Condition: During our review of a sample of FY23 expenditures, we discovered that pension costs were included as allowable costs determined by the program manager. We expanded our scope to include the entire grant reporting period, which included FY2021, FY2022, and FY2023. We discovered that pension costs were included for all three fiscal years. All reported pension costs are included above under Questioned Costs. Cause: Policies and procedures have not been designed and implemented to ensure compliance with Activities Allowed or Unallowed and Allowable Costs. Effect: This condition narrowly resulted in noncompliance with federal requirements and could have resulted in misstated reports and undetected errors. This could have led to the loss of federal funds to the County. Recommendation: We recommend that the County implement necessary internal controls to ensure its compliance with the requirements of the Uniform Guidance. The County has adequate costs under the standard allowance to substitute for the questioned costs, which should be substituted for other government services’ costs. Management’s Response: Management’s response is provided within the corrective action plan on page I-103.
Finding: 2023-005-HC –Significant Deficiency in Internal Control over Compliance and Other Matter Federal agency: U.S. Department of Treasury Federal program title: Coronavirus State and Local Fiscal Recovery Funds Assistance Listing Number (ALN): 21.027 Pass-through agency: None Federal award number: 1505-0271 Federal Award Year: FY2021, FY2022, FY2023 Control Category: Reporting Questioned Costs: Undetermined Criteria or specific requirement: The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e. auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Additionally, pursuant to the compliance supplement for ALN 21.027, Performance Reports are required to be submitted annually. Condition: During our review of the FY2023 performance report submitted by the County, we discovered that the reported grant expenditures did not match the underlying financial information. We expanded our scope to include the entire grant reporting period, which included FY2021, FY2022, and FY2023. We discovered that none of the (3) annual reports accurately reflected the expenditures reported on the Schedule of Expenditures of Federal Awards. Cause: Policies and procedures have not been designed and implemented to ensure accurate reporting of grant expenditures in accordance with Uniform Guidance. Effect: This condition results in inaccurate reporting of grant expenditures to the grantor and could result the loss of federal funds to the County. Recommendation: We recommend that the County implement necessary internal controls to ensure its compliance with the requirements of the Uniform Guidance. Management’s Response: Management’s response is provided within the corrective action plan on page I-103.
Criteria: Under 2 CFR 200.303, the City is required to establish and maintain effective internal controls over Federal awards that provide reasonable assurance that the City is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: Our audit procedures found that the City submitted drawdown requests to HUD for certain expenditures twice totaling $31,296. Cause: The City’s Community Development and Finance offices have experienced turnover in key positions responsible for reconciling and requesting the drawdowns during the fiscal year 2023. Training was needed for program and finance employees to fully understand the drawdown process. Effect: The City received excess funds totaling $31,296 for duplicate drawdown requests. Recommendation: We recommend that the City return the duplicate drawn funds to HUD. We recommend all drawdown requests are completed by appropriately trained employees and that all drawdowns are reviewed and approved by an appropriately personnel prior to submission to HUD. Views of Responsible Officials and Planned Corrective Action: The City agrees with this finding. The City will work with HUD to repay the duplicated funds and implement additional review and approval procedures for drawdown requests.
Information on the Federal Program: Federal Agency: U.S. Department of Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listing Number 21.027 Compliance Requirement: Subrecipient Monitoring Type of Finding: Material Weakness in Internal Controls over Compliance, Modified Opinion Criteria: Title 2 U.S. Code of Federal Regulations (CFR Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Section 200.332, Requirements for pass-through entities, states "All pass-through entities must: (a) ensure that every subaward is clearly identified to the subrecipient as a subaward and includes the following information at the time of the subaward; (b) evaluate each subrecipient's risk of noncompliance with federal statutes, regulations, and the terms and conditions of the subaward for purposes of determining the appropriate subrecipient monitoring; (c) consider imposing specific subaward conditions upon a subrecipient if appropriate as described in Section 200.208 (Specific conditions); (d) Monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved; (f) Verify that every subrecipient is audited as required by Subpart F of this part when it is expected that the subrecipient's Federal awards expended during the respective fiscal year equaled or exceeded the threshold set forth in Section 200.501. 2 CFR 200.303 states in part: "The non-Federal enity must (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award." Condition: The City received a total State and Local Fiscal Recovery Funds (SLFRF) allocation of $3,431,839. In its March, 2022, Project and Expenditures Report, the City elected to use the standard allowance for identifying revenue loss and reported its Revenue Loss Due to Covid-19 Public Health Emergency as $3,431,839. During fiscal year ended September 30, 2023, the City made payments from its SLFRF federal award, totaling $1,600,000, to another local government entity for materials used by the other government for a water line project. The payments were supported by an invoice from the other government, to which were attached copies of invoices submitted to the other government by its vendors. The City reported in its March, 2023, Project and Expenditures Report that the payments were made under the Infrastructure: Drinking water: Transmission & distribution Project Expenditure Category and Subcategory. The City also reported the transactions as a subaward, including identification of the subrecipient, and reported each of the payments to the subrecipient in the Expenditures section, in that Project and Expenditures Report. The City was unable to provide: a copy of the subaward agreement that clearly identified the subaward to the subrecipient as a subaward and that included the information required by Section 200.332(a); supporting documentation that the City evaluated the subrecipient's risk of noncompliance as required by Section 200.332(b); supporting documentation that the City monitored the activities of the subrecipient as required by Section 200.332 (d); and/or supporting documentation that the City verified that the subrecipient was audited as required by Subpart F. Cause: The City did not have adequate internal controls to ensure compliance with the Subrecipient Monitoring compliance requirement. The City's past federal awards experience did not involve or include subawards. Effect or Potential Effect: Noncompliance by the subrecipient may occur due to the subrecipient not being aware of the federal program's requirements and due to the City not sufficiently monitoring the subrecipient. Recommendation: We recommend that management of the City design and implement a comprehensive system of internal controls over federal award compliance, including development of policies and procedures to ensure compliance with the Subrecipient Monitoring compliance requirement. Views of Responsible Officials and Planned Corrective Actions: See Corrective Action Plan
Finding Number: 2023-001- Schedule of Expenditures of Federal Awards (SEFA) Preparation – Material Weakness Assistance Listing Numbers: 93.958 and 93.959 Federal Agency: U.S. Department of Health and Human Services Award Numbers: Unknown Award Year: October 1, 2022 – September 30, 2023 Pass-Through Entity: Care 1st Health Plan Criteria: Non-federal entities in receipt of federal funds must comply with the requirements of 2 CFR 200.303(a), which require an entity to establish and maintain effective internal control over the federal award to ensure compliance with federal statutes, regulations, and the terms and conditions of the federal award. This includes properly identifying all federal awards subject to the Uniform Guidance and fairly presenting the required information in the schedule of expenditures of federal awards. Condition: Subsequent to the issuance of the Audit Report on the Consolidated Financial Statements and Supplementary Information for the year ended September 30, 2023, it was discovered that there was an omission of two federal grants with expenditures totaling $1,591,715 from the schedule of expenditures of federal awards. Cause: The Organization did not communicate with Care 1st Health Plan regarding the details of certain contracts to determine the amounts were subject to the Uniform Guidance and were to be included on the schedule of expenditures of federal awards. In addition, Care 1st Health Plan became the Regional Behavioral Health Authority for the Northern Arizona region effective October 1, 2022. Due to this transition, various changes occurred causing uncertainties with classifications of certain types of federal awards as subrecipient awards versus as contractor payments. Effect: The schedule of expenditures of federal awards was understated by $1,591,715, which resulted in the restatement of the previously issued schedule of expenditures of federal awards to correct the omission. Questioned Costs: Not applicable. Recommendation: We recommend that all funding contracts are carefully reviewed to determine whether amounts awarded should be classified as contractor payments or as subrecipient payments. If there is any uncertainty, we recommend that the Organization contact the funding source for clarification. Views of responsible officials: The Organization concurs with the recommendations. See Corrective Action Plan.
Finding Number: 2023-001- Schedule of Expenditures of Federal Awards (SEFA) Preparation – Material Weakness Assistance Listing Numbers: 93.958 and 93.959 Federal Agency: U.S. Department of Health and Human Services Award Numbers: Unknown Award Year: October 1, 2022 – September 30, 2023 Pass-Through Entity: Care 1st Health Plan Criteria: Non-federal entities in receipt of federal funds must comply with the requirements of 2 CFR 200.303(a), which require an entity to establish and maintain effective internal control over the federal award to ensure compliance with federal statutes, regulations, and the terms and conditions of the federal award. This includes properly identifying all federal awards subject to the Uniform Guidance and fairly presenting the required information in the schedule of expenditures of federal awards. Condition: Subsequent to the issuance of the Audit Report on the Consolidated Financial Statements and Supplementary Information for the year ended September 30, 2023, it was discovered that there was an omission of two federal grants with expenditures totaling $1,591,715 from the schedule of expenditures of federal awards. Cause: The Organization did not communicate with Care 1st Health Plan regarding the details of certain contracts to determine the amounts were subject to the Uniform Guidance and were to be included on the schedule of expenditures of federal awards. In addition, Care 1st Health Plan became the Regional Behavioral Health Authority for the Northern Arizona region effective October 1, 2022. Due to this transition, various changes occurred causing uncertainties with classifications of certain types of federal awards as subrecipient awards versus as contractor payments. Effect: The schedule of expenditures of federal awards was understated by $1,591,715, which resulted in the restatement of the previously issued schedule of expenditures of federal awards to correct the omission. Questioned Costs: Not applicable. Recommendation: We recommend that all funding contracts are carefully reviewed to determine whether amounts awarded should be classified as contractor payments or as subrecipient payments. If there is any uncertainty, we recommend that the Organization contact the funding source for clarification. Views of responsible officials: The Organization concurs with the recommendations. See Corrective Action Plan.
Finding Number: 2023-001- Schedule of Expenditures of Federal Awards (SEFA) Preparation – Material Weakness Assistance Listing Numbers: 93.958 and 93.959 Federal Agency: U.S. Department of Health and Human Services Award Numbers: Unknown Award Year: October 1, 2022 – September 30, 2023 Pass-Through Entity: Care 1st Health Plan Criteria: Non-federal entities in receipt of federal funds must comply with the requirements of 2 CFR 200.303(a), which require an entity to establish and maintain effective internal control over the federal award to ensure compliance with federal statutes, regulations, and the terms and conditions of the federal award. This includes properly identifying all federal awards subject to the Uniform Guidance and fairly presenting the required information in the schedule of expenditures of federal awards. Condition: Subsequent to the issuance of the Audit Report on the Consolidated Financial Statements and Supplementary Information for the year ended September 30, 2023, it was discovered that there was an omission of two federal grants with expenditures totaling $1,591,715 from the schedule of expenditures of federal awards. Cause: The Organization did not communicate with Care 1st Health Plan regarding the details of certain contracts to determine the amounts were subject to the Uniform Guidance and were to be included on the schedule of expenditures of federal awards. In addition, Care 1st Health Plan became the Regional Behavioral Health Authority for the Northern Arizona region effective October 1, 2022. Due to this transition, various changes occurred causing uncertainties with classifications of certain types of federal awards as subrecipient awards versus as contractor payments. Effect: The schedule of expenditures of federal awards was understated by $1,591,715, which resulted in the restatement of the previously issued schedule of expenditures of federal awards to correct the omission. Questioned Costs: Not applicable. Recommendation: We recommend that all funding contracts are carefully reviewed to determine whether amounts awarded should be classified as contractor payments or as subrecipient payments. If there is any uncertainty, we recommend that the Organization contact the funding source for clarification. Views of responsible officials: The Organization concurs with the recommendations. See Corrective Action Plan.
Finding Number: 2023-001- Schedule of Expenditures of Federal Awards (SEFA) Preparation – Material Weakness Assistance Listing Numbers: 93.958 and 93.959 Federal Agency: U.S. Department of Health and Human Services Award Numbers: Unknown Award Year: October 1, 2022 – September 30, 2023 Pass-Through Entity: Care 1st Health Plan Criteria: Non-federal entities in receipt of federal funds must comply with the requirements of 2 CFR 200.303(a), which require an entity to establish and maintain effective internal control over the federal award to ensure compliance with federal statutes, regulations, and the terms and conditions of the federal award. This includes properly identifying all federal awards subject to the Uniform Guidance and fairly presenting the required information in the schedule of expenditures of federal awards. Condition: Subsequent to the issuance of the Audit Report on the Consolidated Financial Statements and Supplementary Information for the year ended September 30, 2023, it was discovered that there was an omission of two federal grants with expenditures totaling $1,591,715 from the schedule of expenditures of federal awards. Cause: The Organization did not communicate with Care 1st Health Plan regarding the details of certain contracts to determine the amounts were subject to the Uniform Guidance and were to be included on the schedule of expenditures of federal awards. In addition, Care 1st Health Plan became the Regional Behavioral Health Authority for the Northern Arizona region effective October 1, 2022. Due to this transition, various changes occurred causing uncertainties with classifications of certain types of federal awards as subrecipient awards versus as contractor payments. Effect: The schedule of expenditures of federal awards was understated by $1,591,715, which resulted in the restatement of the previously issued schedule of expenditures of federal awards to correct the omission. Questioned Costs: Not applicable. Recommendation: We recommend that all funding contracts are carefully reviewed to determine whether amounts awarded should be classified as contractor payments or as subrecipient payments. If there is any uncertainty, we recommend that the Organization contact the funding source for clarification. Views of responsible officials: The Organization concurs with the recommendations. See Corrective Action Plan.
Finding Number: 2023-001- Schedule of Expenditures of Federal Awards (SEFA) Preparation – Material Weakness Assistance Listing Numbers: 93.958 and 93.959 Federal Agency: U.S. Department of Health and Human Services Award Numbers: Unknown Award Year: October 1, 2022 – September 30, 2023 Pass-Through Entity: Care 1st Health Plan Criteria: Non-federal entities in receipt of federal funds must comply with the requirements of 2 CFR 200.303(a), which require an entity to establish and maintain effective internal control over the federal award to ensure compliance with federal statutes, regulations, and the terms and conditions of the federal award. This includes properly identifying all federal awards subject to the Uniform Guidance and fairly presenting the required information in the schedule of expenditures of federal awards. Condition: Subsequent to the issuance of the Audit Report on the Consolidated Financial Statements and Supplementary Information for the year ended September 30, 2023, it was discovered that there was an omission of two federal grants with expenditures totaling $1,591,715 from the schedule of expenditures of federal awards. Cause: The Organization did not communicate with Care 1st Health Plan regarding the details of certain contracts to determine the amounts were subject to the Uniform Guidance and were to be included on the schedule of expenditures of federal awards. In addition, Care 1st Health Plan became the Regional Behavioral Health Authority for the Northern Arizona region effective October 1, 2022. Due to this transition, various changes occurred causing uncertainties with classifications of certain types of federal awards as subrecipient awards versus as contractor payments. Effect: The schedule of expenditures of federal awards was understated by $1,591,715, which resulted in the restatement of the previously issued schedule of expenditures of federal awards to correct the omission. Questioned Costs: Not applicable. Recommendation: We recommend that all funding contracts are carefully reviewed to determine whether amounts awarded should be classified as contractor payments or as subrecipient payments. If there is any uncertainty, we recommend that the Organization contact the funding source for clarification. Views of responsible officials: The Organization concurs with the recommendations. See Corrective Action Plan.
Prior Year Finding Number: 2022-002 Compliance Requirement: Allowable Costs/Cost Principles Program: Coronavirus State and Local Fiscal Recovery Fund (CSLFRF) Pass through Entity: District of Columbia Office of the Deputy Mayor for Education -Office of Out of School Times Grant and Youth Outcomes, District of Columbia Human Services Rehousing Stabilization Program - Safe Passage Safe Blocks, D.C. Office of the Deputy Mayor Office Victim Services and Justice Grants and Office of Victim Services and Justice Grants Successful Reentry Program CFDA #: 21.027 Award #: 2023-SPSB-011-CSC, 2023-CSC-04, CW1010626, and 2023-AARPA-2004 Award Year: 10/01/2022-09/30/2023! Criteria: The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e., auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statutes, regulations, and the terms and conditions of the federal award. In addition, 2 CFR 200.430 – Factors Affecting Allowability of Costs - Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the non-Federal entity. (d) Be accorded consistent treatment. A cost may not be assigned to a federal award as a direct cost if any other incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for state and local governments and Indian tribes only, as otherwise provided for in this part. (f) Not included as a cost or used to meet cost sharing or matching requirements of any other federally financed program in either the current or a prior period. (g) Be adequately documented. (h) Cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to §200.308(e)(3). The Personnel Section of the Executed Contract indicated specifies that: A. All staff, volunteers, and contractors, collectively called program personnel, who have regular unsupervised contact and direct interactions with youth, must possess the requisite training, qualifications, clearances, and competency to perform the duties to which they are assigned. B. All program personnel must have the following background checks in order to comply with the District of Columbia’s Criminal Background Checks for the Protection of Children Act of 2004. DC Code §§ 4-1501.01 – 4-1501.11 and other OST Office requirements: • DC Child and Family Services Agency (CFSA) Child Protection Registry (CPR); • Federal Bureau of Investigation (FBI) Criminal Background Check; • Metropolitan Police Department (MPD) Criminal Background Check; and • National Sex Offender Registry. C. Any program personnel with the following felony convictions are not permitted to work or volunteer with children and youth: 1. Murder, attempted murder, manslaughter or arson; 2. Assault, battery, assault and battery, assault with a dangerous weapon, mayhem, or threats to do bodily harm; 3. Burglary; 4. Robbery; 5. Kidnapping; 6. Illegal use or possession of a firearm; 7. Sexual offenses, including indecent exposure; promoting, procuring, compelling, soliciting, or engaging in prostitution; corrupting minors (sexual relations with children); molesting; voyeurism; committing sex acts in public; incest; rape; sexual assault; sexual battery; or sexual abuse; but excluding sodomy between consenting adults; 8. Child abuse or cruelty to children; or 9. Unlawful distribution or possession of or possession with intent to distribute, a controlled substance. Condition: We sampled 60 payroll expense transactions and noted the following: • Four (4) instances in which time charged to this program was not recorded in the timesheets reviewed for the periods tested. The total of these transactions were $12,087. • Six (6) payroll transactions did not satisfy the prohibited felony background requirements as specified in the Safe Passage Safe Block grant agreement for personnel hired under this award. The total of these transactions were $16,404. • Six (6) payroll transactions from the Safe Passage Safe Block award did not show evidence of clearance by the D.C. Child and Family Services Child Protection Registry (CPR) and 2 CPRs provided were outside of the period tested. In addition, 5 CPR and First Aid training documentation were not provided. The total of these transactions were $15,585. Two (2) files did not show evidence of Metropolitan Police Department (MPD) criminal background checks as a condition for employment. Eight (8) MPD files requested were not provided. The total of these transactions were $39,102. Twenty-two (22) National Sex Offenders Registry records were not provided for persons hired under the program. This registry was managed directly by a District Agency and was not submitted to CSC. The total of these transactions were $71,408. Questioned Costs: $154,586 Context: This is a condition identified per review of CSC’s compliance with the specified requirements using a statistically valid sample. The known amount of the payroll transactions totaled $154,586. Effect: CSC is not in compliance with the stated provisions of the grant awards. Failure to properly review and support expenses can result in noncompliance with laws and regulations along with loss of funding. Cause: CSC did not appear to have adequate policies and procedures in place to ensure compliance with the required stipulations regarding background. Recommendation: We recommend that CSC ensure that personnel hired under the grant meet all the background and other checks within the stipulated time frame outlined in the grant agreement. We also recommend that CSC improve internal controls to ensure adherence to Federal regulations related to the fiscal and administrative requirements for expending and accounting for expenses incurred and reported.
Prior Year Finding Number: 2022-002 Compliance Requirement: Allowable Costs/Cost Principles Program: Coronavirus State and Local Fiscal Recovery Fund (CSLFRF) Pass through Entity: District of Columbia Office of the Deputy Mayor for Education -Office of Out of School Times Grant and Youth Outcomes, District of Columbia Human Services Rehousing Stabilization Program - Safe Passage Safe Blocks, D.C. Office of the Deputy Mayor Office Victim Services and Justice Grants and Office of Victim Services and Justice Grants Successful Reentry Program CFDA #: 21.027 Award #: 2023-SPSB-011-CSC, 2023-CSC-04, CW1010626, and 2023-AARPA-2004 Award Year: 10/01/2022-09/30/2023! Criteria: The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e., auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statutes, regulations, and the terms and conditions of the federal award. In addition, 2 CFR 200.430 – Factors Affecting Allowability of Costs - Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the non-Federal entity. (d) Be accorded consistent treatment. A cost may not be assigned to a federal award as a direct cost if any other incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for state and local governments and Indian tribes only, as otherwise provided for in this part. (f) Not included as a cost or used to meet cost sharing or matching requirements of any other federally financed program in either the current or a prior period. (g) Be adequately documented. (h) Cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to §200.308(e)(3). The Personnel Section of the Executed Contract indicated specifies that: A. All staff, volunteers, and contractors, collectively called program personnel, who have regular unsupervised contact and direct interactions with youth, must possess the requisite training, qualifications, clearances, and competency to perform the duties to which they are assigned. B. All program personnel must have the following background checks in order to comply with the District of Columbia’s Criminal Background Checks for the Protection of Children Act of 2004. DC Code §§ 4-1501.01 – 4-1501.11 and other OST Office requirements: • DC Child and Family Services Agency (CFSA) Child Protection Registry (CPR); • Federal Bureau of Investigation (FBI) Criminal Background Check; • Metropolitan Police Department (MPD) Criminal Background Check; and • National Sex Offender Registry. C. Any program personnel with the following felony convictions are not permitted to work or volunteer with children and youth: 1. Murder, attempted murder, manslaughter or arson; 2. Assault, battery, assault and battery, assault with a dangerous weapon, mayhem, or threats to do bodily harm; 3. Burglary; 4. Robbery; 5. Kidnapping; 6. Illegal use or possession of a firearm; 7. Sexual offenses, including indecent exposure; promoting, procuring, compelling, soliciting, or engaging in prostitution; corrupting minors (sexual relations with children); molesting; voyeurism; committing sex acts in public; incest; rape; sexual assault; sexual battery; or sexual abuse; but excluding sodomy between consenting adults; 8. Child abuse or cruelty to children; or 9. Unlawful distribution or possession of or possession with intent to distribute, a controlled substance. Condition: We sampled 60 payroll expense transactions and noted the following: • Four (4) instances in which time charged to this program was not recorded in the timesheets reviewed for the periods tested. The total of these transactions were $12,087. • Six (6) payroll transactions did not satisfy the prohibited felony background requirements as specified in the Safe Passage Safe Block grant agreement for personnel hired under this award. The total of these transactions were $16,404. • Six (6) payroll transactions from the Safe Passage Safe Block award did not show evidence of clearance by the D.C. Child and Family Services Child Protection Registry (CPR) and 2 CPRs provided were outside of the period tested. In addition, 5 CPR and First Aid training documentation were not provided. The total of these transactions were $15,585. Two (2) files did not show evidence of Metropolitan Police Department (MPD) criminal background checks as a condition for employment. Eight (8) MPD files requested were not provided. The total of these transactions were $39,102. Twenty-two (22) National Sex Offenders Registry records were not provided for persons hired under the program. This registry was managed directly by a District Agency and was not submitted to CSC. The total of these transactions were $71,408. Questioned Costs: $154,586 Context: This is a condition identified per review of CSC’s compliance with the specified requirements using a statistically valid sample. The known amount of the payroll transactions totaled $154,586. Effect: CSC is not in compliance with the stated provisions of the grant awards. Failure to properly review and support expenses can result in noncompliance with laws and regulations along with loss of funding. Cause: CSC did not appear to have adequate policies and procedures in place to ensure compliance with the required stipulations regarding background. Recommendation: We recommend that CSC ensure that personnel hired under the grant meet all the background and other checks within the stipulated time frame outlined in the grant agreement. We also recommend that CSC improve internal controls to ensure adherence to Federal regulations related to the fiscal and administrative requirements for expending and accounting for expenses incurred and reported.
Prior Year Finding Number: 2022-002 Compliance Requirement: Allowable Costs/Cost Principles Program: Coronavirus State and Local Fiscal Recovery Fund (CSLFRF) Pass through Entity: District of Columbia Office of the Deputy Mayor for Education -Office of Out of School Times Grant and Youth Outcomes, District of Columbia Human Services Rehousing Stabilization Program - Safe Passage Safe Blocks, D.C. Office of the Deputy Mayor Office Victim Services and Justice Grants and Office of Victim Services and Justice Grants Successful Reentry Program CFDA #: 21.027 Award #: 2023-SPSB-011-CSC, 2023-CSC-04, CW1010626, and 2023-AARPA-2004 Award Year: 10/01/2022-09/30/2023! Criteria: The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e., auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statutes, regulations, and the terms and conditions of the federal award. In addition, 2 CFR 200.430 – Factors Affecting Allowability of Costs - Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the non-Federal entity. (d) Be accorded consistent treatment. A cost may not be assigned to a federal award as a direct cost if any other incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for state and local governments and Indian tribes only, as otherwise provided for in this part. (f) Not included as a cost or used to meet cost sharing or matching requirements of any other federally financed program in either the current or a prior period. (g) Be adequately documented. (h) Cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to §200.308(e)(3). The Personnel Section of the Executed Contract indicated specifies that: A. All staff, volunteers, and contractors, collectively called program personnel, who have regular unsupervised contact and direct interactions with youth, must possess the requisite training, qualifications, clearances, and competency to perform the duties to which they are assigned. B. All program personnel must have the following background checks in order to comply with the District of Columbia’s Criminal Background Checks for the Protection of Children Act of 2004. DC Code §§ 4-1501.01 – 4-1501.11 and other OST Office requirements: • DC Child and Family Services Agency (CFSA) Child Protection Registry (CPR); • Federal Bureau of Investigation (FBI) Criminal Background Check; • Metropolitan Police Department (MPD) Criminal Background Check; and • National Sex Offender Registry. C. Any program personnel with the following felony convictions are not permitted to work or volunteer with children and youth: 1. Murder, attempted murder, manslaughter or arson; 2. Assault, battery, assault and battery, assault with a dangerous weapon, mayhem, or threats to do bodily harm; 3. Burglary; 4. Robbery; 5. Kidnapping; 6. Illegal use or possession of a firearm; 7. Sexual offenses, including indecent exposure; promoting, procuring, compelling, soliciting, or engaging in prostitution; corrupting minors (sexual relations with children); molesting; voyeurism; committing sex acts in public; incest; rape; sexual assault; sexual battery; or sexual abuse; but excluding sodomy between consenting adults; 8. Child abuse or cruelty to children; or 9. Unlawful distribution or possession of or possession with intent to distribute, a controlled substance. Condition: We sampled 60 payroll expense transactions and noted the following: • Four (4) instances in which time charged to this program was not recorded in the timesheets reviewed for the periods tested. The total of these transactions were $12,087. • Six (6) payroll transactions did not satisfy the prohibited felony background requirements as specified in the Safe Passage Safe Block grant agreement for personnel hired under this award. The total of these transactions were $16,404. • Six (6) payroll transactions from the Safe Passage Safe Block award did not show evidence of clearance by the D.C. Child and Family Services Child Protection Registry (CPR) and 2 CPRs provided were outside of the period tested. In addition, 5 CPR and First Aid training documentation were not provided. The total of these transactions were $15,585. Two (2) files did not show evidence of Metropolitan Police Department (MPD) criminal background checks as a condition for employment. Eight (8) MPD files requested were not provided. The total of these transactions were $39,102. Twenty-two (22) National Sex Offenders Registry records were not provided for persons hired under the program. This registry was managed directly by a District Agency and was not submitted to CSC. The total of these transactions were $71,408. Questioned Costs: $154,586 Context: This is a condition identified per review of CSC’s compliance with the specified requirements using a statistically valid sample. The known amount of the payroll transactions totaled $154,586. Effect: CSC is not in compliance with the stated provisions of the grant awards. Failure to properly review and support expenses can result in noncompliance with laws and regulations along with loss of funding. Cause: CSC did not appear to have adequate policies and procedures in place to ensure compliance with the required stipulations regarding background. Recommendation: We recommend that CSC ensure that personnel hired under the grant meet all the background and other checks within the stipulated time frame outlined in the grant agreement. We also recommend that CSC improve internal controls to ensure adherence to Federal regulations related to the fiscal and administrative requirements for expending and accounting for expenses incurred and reported.
Prior Year Finding Number: 2022-002 Compliance Requirement: Allowable Costs/Cost Principles Program: Coronavirus State and Local Fiscal Recovery Fund (CSLFRF) Pass through Entity: District of Columbia Office of the Deputy Mayor for Education -Office of Out of School Times Grant and Youth Outcomes, District of Columbia Human Services Rehousing Stabilization Program - Safe Passage Safe Blocks, D.C. Office of the Deputy Mayor Office Victim Services and Justice Grants and Office of Victim Services and Justice Grants Successful Reentry Program CFDA #: 21.027 Award #: 2023-SPSB-011-CSC, 2023-CSC-04, CW1010626, and 2023-AARPA-2004 Award Year: 10/01/2022-09/30/2023! Criteria: The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e., auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statutes, regulations, and the terms and conditions of the federal award. In addition, 2 CFR 200.430 – Factors Affecting Allowability of Costs - Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the non-Federal entity. (d) Be accorded consistent treatment. A cost may not be assigned to a federal award as a direct cost if any other incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for state and local governments and Indian tribes only, as otherwise provided for in this part. (f) Not included as a cost or used to meet cost sharing or matching requirements of any other federally financed program in either the current or a prior period. (g) Be adequately documented. (h) Cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to §200.308(e)(3). The Personnel Section of the Executed Contract indicated specifies that: A. All staff, volunteers, and contractors, collectively called program personnel, who have regular unsupervised contact and direct interactions with youth, must possess the requisite training, qualifications, clearances, and competency to perform the duties to which they are assigned. B. All program personnel must have the following background checks in order to comply with the District of Columbia’s Criminal Background Checks for the Protection of Children Act of 2004. DC Code §§ 4-1501.01 – 4-1501.11 and other OST Office requirements: • DC Child and Family Services Agency (CFSA) Child Protection Registry (CPR); • Federal Bureau of Investigation (FBI) Criminal Background Check; • Metropolitan Police Department (MPD) Criminal Background Check; and • National Sex Offender Registry. C. Any program personnel with the following felony convictions are not permitted to work or volunteer with children and youth: 1. Murder, attempted murder, manslaughter or arson; 2. Assault, battery, assault and battery, assault with a dangerous weapon, mayhem, or threats to do bodily harm; 3. Burglary; 4. Robbery; 5. Kidnapping; 6. Illegal use or possession of a firearm; 7. Sexual offenses, including indecent exposure; promoting, procuring, compelling, soliciting, or engaging in prostitution; corrupting minors (sexual relations with children); molesting; voyeurism; committing sex acts in public; incest; rape; sexual assault; sexual battery; or sexual abuse; but excluding sodomy between consenting adults; 8. Child abuse or cruelty to children; or 9. Unlawful distribution or possession of or possession with intent to distribute, a controlled substance. Condition: We sampled 60 payroll expense transactions and noted the following: • Four (4) instances in which time charged to this program was not recorded in the timesheets reviewed for the periods tested. The total of these transactions were $12,087. • Six (6) payroll transactions did not satisfy the prohibited felony background requirements as specified in the Safe Passage Safe Block grant agreement for personnel hired under this award. The total of these transactions were $16,404. • Six (6) payroll transactions from the Safe Passage Safe Block award did not show evidence of clearance by the D.C. Child and Family Services Child Protection Registry (CPR) and 2 CPRs provided were outside of the period tested. In addition, 5 CPR and First Aid training documentation were not provided. The total of these transactions were $15,585. Two (2) files did not show evidence of Metropolitan Police Department (MPD) criminal background checks as a condition for employment. Eight (8) MPD files requested were not provided. The total of these transactions were $39,102. Twenty-two (22) National Sex Offenders Registry records were not provided for persons hired under the program. This registry was managed directly by a District Agency and was not submitted to CSC. The total of these transactions were $71,408. Questioned Costs: $154,586 Context: This is a condition identified per review of CSC’s compliance with the specified requirements using a statistically valid sample. The known amount of the payroll transactions totaled $154,586. Effect: CSC is not in compliance with the stated provisions of the grant awards. Failure to properly review and support expenses can result in noncompliance with laws and regulations along with loss of funding. Cause: CSC did not appear to have adequate policies and procedures in place to ensure compliance with the required stipulations regarding background. Recommendation: We recommend that CSC ensure that personnel hired under the grant meet all the background and other checks within the stipulated time frame outlined in the grant agreement. We also recommend that CSC improve internal controls to ensure adherence to Federal regulations related to the fiscal and administrative requirements for expending and accounting for expenses incurred and reported.
Prior Year Finding Number: 2022-002 Compliance Requirement: Allowable Costs/Cost Principles Program: Coronavirus State and Local Fiscal Recovery Fund (CSLFRF) Pass through Entity: District of Columbia Office of the Deputy Mayor for Education -Office of Out of School Times Grant and Youth Outcomes, District of Columbia Human Services Rehousing Stabilization Program - Safe Passage Safe Blocks, D.C. Office of the Deputy Mayor Office Victim Services and Justice Grants and Office of Victim Services and Justice Grants Successful Reentry Program CFDA #: 21.027 Award #: 2023-SPSB-011-CSC, 2023-CSC-04, CW1010626, and 2023-AARPA-2004 Award Year: 10/01/2022-09/30/2023! Criteria: The Uniform Guidance in 2 CFR Section 200.303, Internal Controls, requires that non-federal entities receiving Federal awards (i.e., auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statutes, regulations, and the terms and conditions of the federal award. In addition, 2 CFR 200.430 – Factors Affecting Allowability of Costs - Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the non-Federal entity. (d) Be accorded consistent treatment. A cost may not be assigned to a federal award as a direct cost if any other incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for state and local governments and Indian tribes only, as otherwise provided for in this part. (f) Not included as a cost or used to meet cost sharing or matching requirements of any other federally financed program in either the current or a prior period. (g) Be adequately documented. (h) Cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to §200.308(e)(3). The Personnel Section of the Executed Contract indicated specifies that: A. All staff, volunteers, and contractors, collectively called program personnel, who have regular unsupervised contact and direct interactions with youth, must possess the requisite training, qualifications, clearances, and competency to perform the duties to which they are assigned. B. All program personnel must have the following background checks in order to comply with the District of Columbia’s Criminal Background Checks for the Protection of Children Act of 2004. DC Code §§ 4-1501.01 – 4-1501.11 and other OST Office requirements: • DC Child and Family Services Agency (CFSA) Child Protection Registry (CPR); • Federal Bureau of Investigation (FBI) Criminal Background Check; • Metropolitan Police Department (MPD) Criminal Background Check; and • National Sex Offender Registry. C. Any program personnel with the following felony convictions are not permitted to work or volunteer with children and youth: 1. Murder, attempted murder, manslaughter or arson; 2. Assault, battery, assault and battery, assault with a dangerous weapon, mayhem, or threats to do bodily harm; 3. Burglary; 4. Robbery; 5. Kidnapping; 6. Illegal use or possession of a firearm; 7. Sexual offenses, including indecent exposure; promoting, procuring, compelling, soliciting, or engaging in prostitution; corrupting minors (sexual relations with children); molesting; voyeurism; committing sex acts in public; incest; rape; sexual assault; sexual battery; or sexual abuse; but excluding sodomy between consenting adults; 8. Child abuse or cruelty to children; or 9. Unlawful distribution or possession of or possession with intent to distribute, a controlled substance. Condition: We sampled 60 payroll expense transactions and noted the following: • Four (4) instances in which time charged to this program was not recorded in the timesheets reviewed for the periods tested. The total of these transactions were $12,087. • Six (6) payroll transactions did not satisfy the prohibited felony background requirements as specified in the Safe Passage Safe Block grant agreement for personnel hired under this award. The total of these transactions were $16,404. • Six (6) payroll transactions from the Safe Passage Safe Block award did not show evidence of clearance by the D.C. Child and Family Services Child Protection Registry (CPR) and 2 CPRs provided were outside of the period tested. In addition, 5 CPR and First Aid training documentation were not provided. The total of these transactions were $15,585. Two (2) files did not show evidence of Metropolitan Police Department (MPD) criminal background checks as a condition for employment. Eight (8) MPD files requested were not provided. The total of these transactions were $39,102. Twenty-two (22) National Sex Offenders Registry records were not provided for persons hired under the program. This registry was managed directly by a District Agency and was not submitted to CSC. The total of these transactions were $71,408. Questioned Costs: $154,586 Context: This is a condition identified per review of CSC’s compliance with the specified requirements using a statistically valid sample. The known amount of the payroll transactions totaled $154,586. Effect: CSC is not in compliance with the stated provisions of the grant awards. Failure to properly review and support expenses can result in noncompliance with laws and regulations along with loss of funding. Cause: CSC did not appear to have adequate policies and procedures in place to ensure compliance with the required stipulations regarding background. Recommendation: We recommend that CSC ensure that personnel hired under the grant meet all the background and other checks within the stipulated time frame outlined in the grant agreement. We also recommend that CSC improve internal controls to ensure adherence to Federal regulations related to the fiscal and administrative requirements for expending and accounting for expenses incurred and reported.
Finding According to the Uniform Guidance, 2 CFR 200.303(a), non-Federal entities receiving Federal awards must establish and maintain effective internal controls over these awards. These controls must provide reasonable assurance that the entity manages the Federal award in compliance with applicable Federal statutes, regulations, and the terms and conditions of the award. The Uniform Guidance, 2 CFR Part 200, Appendix XI Compliance Supplement, May 2023, requires the Alabama Department of Labor to operate a Worker Profiling and Reemployment Services (WPRS) or Reemployment Services and Eligibility Assessments (RESEA) program. The Alabama Department of Labor operates a RESEA program. Under the RESEA program, Alabama Department of Labor staff must be promptly and appropriately notified of any eligibility issues identified during any review of a claimant’s information. Claimants are also required to attend appointments for reemployment to maintain their eligibility status. The Alabama Department of Labor has controls in place to provide notification of claimants who failed to report to scheduled RESEA appointments, however those controls were not operating as designed. While reviewing 25 claimant’s information, we noted that 8 claimants failed to report to their scheduled appointments for reemployment. These failures to appear are reported to staff at the Alabama Department of Labor and should prompt a stop of benefit payments; however, the Alabama Department of Labor did not stop payment on these 8 claimants which resulted in overpayments totaling $8,111.00. There was also one instance where Alabama Department of Labor could not provide documentation to support staff was appropriately notified of the eligibility status for a claimant. The Alabama Department of Labor’s policies and procedures did not operate as designed to prevent payments to ineligible claimants. Because the Alabama Department of Labor’s internal controls were not operating as designed, this caused benefits to be paid to ineligible claimants. Recommendation The Alabama Department of Labor should ensure internal controls are operating as designed to help ensure payments are not made to ineligible claimants. Views of Responsible Officials of the Auditee ADOL does not agree with this finding as explained in the Request for Views CAP letter, which is shown below and is included as part of its Corrective Action Plan. The vendor (GEOSOL) software service/system (AlabamaWorks!) used by ADOL Career Centers and other State agencies to record and report various employment services provided to individuals seeking jobs, training, and/or other services throughout the state experienced a cyberattack in June 2022. Because ADOL Employment Services uses this system to also record RESEA information for qualified applicants who are receiving unemployment benefits to confirm required job search activities, the referral of claimants to the Career Centers for profiling was suspended, temporarily, when the attack first occurred. GEOSOL was unable to correct issues as they first promised. ADOL mailed letters to unemployment recipients in June for July appointments at various Career Centers. Letters were also mailed in July for August appointments. The electronic file (FTR) received from AlabamaWorks! to update unemployment claimant records in the UI Benefits system (Data Station) was unable to be received during the time of the system outage. GEOSOL was not able to get their system back up until October 2022. Disqualifications for claimants was also suspended during the system downtime from June to October 2022. Although ADOL Unemployment Division was receiving some data from the Career Centers to continue processing claims, the AlabamaWorks! created more than 1700 (seventeen hundred) erroneous disqualifications when it was brought back online on October 4, 2022 and FTR files were transmitted to ADOL Unemployment system. A manual process to retrieve the correct data was implemented on October 5, 2022 between ADOL Unemployment and Employment Services staff. However, this was a tedious process and took time to review and manually update claims. Upon review of the sampling noted by the Examiner’s Office, the headers on the documentation spreadsheet provided appear to come from AlabamaWorks! not Data Station. After reviewing Data Station which is the system of record for benefit payments, we’d like to further clarify and notate additional information relating to the claims noted in the $8,884.00 cited as possible questioned costs. • Claimant [Burt] ($1,145.00) cited for Failure to Report (FTR) on 07/20/22 with payments being made on 08/05/22 and 08/09/22 and having two payments made on 07/10/23 but no overpayment reported – The payments made in July 2023 were not related to the claim associated with the FTR noted in AlabamaWorks! for July 2022. This was a different claim, and no overpayment for claimant has occurred. Therefore, ADOL disagrees with the questioned costs for this claim. • Claimant [Walker] ($275.00) cited for FTR 01/12/23 and payment made 02/09/23 and overpayment was established – As noted, overpayment was established. Claimant was not shown on FTR file received from GEOSOL to set the issue in January 2023. A later FTR received 4/26/23 indicated the appointment issue and overpayment was established on 4/27/23. • Claimant [Lolley] ($2,200.00) cited for having payments between August 2022 and September 2022 marked and classified as overpayments on 10/07/22 but payment in December 2022 not classified as overpayment – The issue with the GEOSOL system being down, profiling and disqualifications suspended, and FTR’s being erroneously reported caused some payments to be issued for August and September in error. As noted, overpayment was established on 10/07/22 shortly after FTR file received when system was back up. However, ADOL disagrees with the questioned costs associated with December 2022 payment. The payment in December was a different claim not associated with the claim payments made in August and September 2022 and was not an overpayment. • Claimant [Delbridge] ($585.00) cited for FTR 08/04/22 and overpayments established for 9 (nine) payments on 10/09/2022 – The issue with the GEOSOL system being down, profiling and disqualifications suspended, and FTR’s being erroneously reported caused some payments to be issued in error. As noted, overpayment was established on 10/09/22 shortly after FTR file received and system was back up. • Claimant [Parks] ($1,592.00) cited for FTR 12/14/22 and payments made after failure to report with no overpayment established - Claimant was not on FTR file received from GEOSOL in December to set the issue. Additionally, claimant has never been documented on future FTR files to indicate an issue be set to cause an overpayment to be established. • Claimant [Phillips] ($960.00) cited for FTR 12/14/22 and payments made after failure to report with overpayment established 3/17/23 – Claimant was not on FTR file received from GEOSOL in December to set the issue. When reviewed manually, overpayment was noted. • Claimant [Tyus] ($1,375.00) cited for FTR 8/31/22 and overpayment established - The issue with the GEOSOL system being down, profiling and disqualifications suspended, and FTR’s being erroneously reported caused some payments to be issued in error. As noted, overpayment was established on 10/11/22 shortly after FTR file received when system was back up. • Claimant [Pitts] ($752.00) cited for FTR 08/03/22 and overpayment established - The issue with the GEOSOL system being down, profiling and disqualifications suspended, and FTR’s being erroneously reported caused some payments to be issued in error. As noted, overpayment was established on 10/05/22 shortly after FTR file received when system was back up. • Claimant [Doster] not properly documented to indicate eligibility status – Claimant has never been reported on FTR file received to set issue. Therefore, there’s nothing to document. Examiners’ Concluding Remarks We have considered the reasons for the Department of Labor’s disagreement, specifically that the issues noted were mainly the result of cyberattacks on one of its vendors and systems; however, it is the Department of Labor’s responsibility to ensure compliance with all applicable program requirements even when the processing of the requirements has been delegated to its vendors, therefore we reaffirm our finding.
Finding: According to the Uniform Guidance, 2 CFR 200.303 (a), non-Federal entities receiving Federal awards must establish and maintain effective internal controls over these awards. These controls must provide reasonable assurance that the entity manages the Federal award in compliance with applicable Federal statutes, regulations, and the terms and conditions of the award. A fundamental objective of an effective internal control system is to ensure that information is accurate and reliable, which includes a thorough review and approval process. The Uniform Guidance, 2 CFR Part 200, Appendix XI Compliance Supplement, May 2023, requires the Alabama Department of Labor to ensure an employer’s experience rating is properly applied, as the employer’s “experience” with the unemployment of former employees is the dominant factor in the computation of the employer’s annual state Unemployment Insurance tax rate. The Alabama Department of Labor was unable to provide audit documentation to support their review and approval of employer experience rated tax rates. The Alabama Department of Labor did not have policies and procedures in place to document the review and approval of the employer experience rated tax rates. As a result, the employer experience related tax rates could be incorrect, resulting in potential overpayments or underpayments of taxes. Recommendation: The Alabama Department of Labor should develop and document internal controls over employer experience rated tax rates to help ensure they are accurate and properly applied. Views of Responsible Officials of the Auditee: ADOL does not agree with this finding as explained in the Request for Views CAP letter, which is shown below and is included as part of its Corrective Action Plan. ADOL Unemployment Division does have a process in place where staff in the Experience Rating Section verify the tax rates for employers that are generated by the system before employers are notified through electronic posting or notices mailed. This section receives a sampling of approximately 500 Tax Rate Notices. The sampling is distributed and reviewed by staff within this section to determine accuracy in computation compared to applicable schedules and legibility. Communication between the staff and the supervisor is performed to discuss or notate any discrepancies. Once the verification is completed, the section supervisor notifies the appropriate person to generate the final notice through the Unemployment system and notify employers. The documentation of the samplings was not kept only the email confirmation of accuracy and to issue notices between the supervisor and UI system responsible person was kept for this review. However, procedures have been noted for support document retention and implemented for upcoming and future reviews. Examiners’ Concluding Remarks: We have considered the reasons for the Department of Labor’s disagreement; however, we reaffirm our finding..
Criteria: According to 2 CFR 200.303, non-federal entities should establish and maintain effective internal control over a Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: During our single audit procedures over reporting compliance requirements for ARPA grants, we noted that grant expenditures in the Annual SLFR Compliance Report P&E 2024 were overstated by $56,850. Cause: Due to adjustments made throughout the fiscal year to address journal entries with incorrect general ledger codes, fund codes, etc., accounting reports provided by the finance department to grants department were not updated as of the date of ARPA reports submission. The grants department accidentally reported duplicate transactions for projects No. RC02 and No. GSP05. Per review of allowable expenses testwork, auditors verified transactions noted as duplicated in the general ledger detail were only paid once, and these expenditures were allowed under the program. Effect: Lack of proper expenditure reconciliation led to the City overstating reported expenses by $56,850. Failure to properly reconcile federal grants could result in misstatements in the financial statements, and non-compliance with federal grant requirements. Questioned costs: None. Recommendation: We recommend that management develop and implement a reconciliation process for ARPA grant expenditures. Reconciliation should be performed on a regular basis and be properly documented. Any discrepancies identified should be investigated and promptly resolved. We also recommend the City adjust and correct duplicate expenses for project RC02 and GSP05 when submitting its next required Annual Report to the U.S. Department of Treasury. Management’s response: Management agrees with auditor recommendation. Refer to Corrective Action Plan.
2023-004 Sufficiency of Documentation to Support Compliance to Allowable Cost Requirements (Repeat Finding 2022-003) Program Name: State Opioid Response Federal Assistance Listing No.: 93.788 Federal Agency: Department of Health and Human Services Federal Award Identification: Unknown Pass-Through Entity Number: Unknown Applicable Pass-Through Entity: Ohio Department of Mental Health and Addiction Services and Cuyahoga County, Ohio Type of Finding: Material Weakness Compliance Requirement: Allowable Costs/Cost Principles Criteria: Under Section 200.303 of the Uniform Guidance, a non-federal entity must establish effective internal controls to ensure compliance with Federal statutes, regulations, and award terms. Point of Freedom, receiving Federal Awards, must adhere to 2 CFR Part 200 Subpart E, which outlines cost principles. Adequate documentation is essential to ensure that costs are allowable, ensuring compliance, transparency, and accountability in fund utilization. Condition: We identified five (5) disbursements that lacked supporting documentation to verify the accuracy and allowability of the costs incurred. Additionally, three (3) of these transactions involved contractors for whom no partnership agreements were in place. Cause of Condition: The absence of formal monitoring for contractor charges and established documentation policies (i.e contractor invoices) indicates a control deficiency in compliance. Effect: Incomplete documentation hinders timely verification of accuracy, increasing the risk of improper disbursement of federal funds. Questioned Cost: $19,179 Context: Of the 714 disbursements, we examined 91 of which five (5) were identified with incomplete documentation and three (3) of these transactions involved contractors for whom no partnership agreements. In accordance with 2 CFR 200.516(a)(3), auditors are required to report known questioned costs when likely questioned costs are greater than $25,000. Although the sample uncovered five (5) transactions with incomplete documentation, resulting in $19,179 in questioned costs, extending the tests to the entire population projects questioned costs approximately $24,736 which is close to $25,000. Recommendation: We recommend that management should establish a document retention policy. This policy should define clear procedures for maintaining and organizing transaction documentation, which will support accurate verification and enhance overall internal controls. Views of Responsible Officials: As indicated in the 2022 POFCAP response to Finding 2022-003, and as reiterated herein, POF began to implement additional internal control procedures and practices effective July 1, 2024, to ensure that underlying cost documentation is adequate, reasonable, and complete in accordance with 2 CFR Part 200 Subpart E and other regulatory requirements. More specifically, vendor invoices as of that date and related supporting documents such as weekly meeting reports and sign-in sheets are being scanned and retained electronically. As in 2022, the contact information from the 2023 weekly reports was transmitted to either Wright State University or The Ohio State University for data mining purposes. On July 22, 20224, the POF Board of Directors unanimously adopted the POF Record Retention Policy, as recommended by the auditors. The Board also unanimously adopted a Code of Conduct along with Conflict of Interest, and Whistleblower policies as further evidence of their commitment to instituting policies and procedures designed to strengthen internal controls and comply with federal regulations. Questioned Cost Totaling $19,179 Effective July l, 2024, POF's new internal control policies, and procedures will eliminate or drastically reduce future discrepancies of this nature.
2023-005 2023-005 Accuracy over Federal Reporting Requirements (Repeat Finding 2022-004) Program Name: State Opioid Response Federal Assistance Listing No.: 93.788 Federal Agency: Department of Health and Human Services Federal Award Identification: Unknown Pass-Through Entity Number: Unknown Applicable Pass-Through Entity: Ohio Department of Mental Health and Addiction Services and Cuyahoga County, Ohio Type of Finding: Material Weakness Compliance Requirement: Reporting Criteria: Under Section 200.303 of the Uniform Guidance, a non-federal entity must maintain effective internal controls to ensure compliance with federal statutes, regulations, and award terms. Point of Freedom needs to establish and document policies and procedures to meet control objectives outlined in 2 CFR Section 200.1, particularly ensuring accurate recording and accounting of transactions for reliable financial statements and federal reports. Condition: Our federal reports testing revealed inaccuracies in the reports, with supporting documentation failing to corroborate the submitted information. Additionally, management has not provided adequate support to verify the accuracy of these reports. Cause of Condition: The Organization's lack of developed policies and procedures for compliance has led to the identified deficiencies in federal reports. Effect: Inadequate controls in this compliance area pose a significant risk that the Organization may fail to meet federal award reporting requirements. Questioned Cost: Not Quantifiable Context: We selected three months' worth of monthly reports for ADAMHS and one closeout report for OHMAS. Recommendation: We recommend that management develop and implement policies and procedures that address compliance requirements. Additionally, provide comprehensive training to employees on these policies and ensure consistent monitoring to maintain accuracy and timeliness in federal reporting. We also suggest a review process. Views of Responsible Officials: POF's initial and current exposure a few months later to Single Audit compliance requirements have sharpened its focus on the need to purposefully identify and maintain corroborating evidence regarding its timely submission and acceptance by each of the respective funding sources. While POF believes that all these reporting requirements were timely met and accepted by all funding sources, it did not consistently maintain either the report itself, or the related documentation such as copies of the emails sent or the associated read-receipts as evidence of these reports. Effective July 1, POF routinely and consistently accumulated and organized these documents as well as ancillary evidence of their transmission to, receipt by, and acknowledgement of acceptance by the federal agency. POF will be more diligent in its transmissions to funders. POF noted that the 2022 Closeout Report was inexplicably re-submitted instead of the correct 2023 Closeout Report. This is unacceptable, and POF will add a second set of reviews by a second person to improve quality control in this area. As necessary, POF will seek professional education and advice in implementing policies, practices, and procedures in addition to those already described herein.
Program: U.S. Department of Education; Passed through Alabama Department of Education; Title I Part A, Assistance Listing #84.010, for 10/1/2022 through 9/30/2023. Criteria: The Uniform Guidance in 2 CFR Section 200.303 requires that non-Federal entities receiving Federal Awards establish and maintain internal control designed to reasonably ensure compliance with Federal Statutes, regulations, and the terms and conditions of the Federal award. Condition: Certain timecards were not properly approved prior to payment of the payroll expenditure. Effect: Without adherence to controls in place to ensure costs are properly reviewed, the Board could request funds for costs or activities that are unallowable. Cause: Policies and procedures were not followed to ensure transactions are properly authorized. Repeat of a Prior-Year Finding: Yes, 2022-003 Recommendation: The Board should strengthen its policies and procedures over the review of appropriate authorization to ensure that expenditures are allowable costs and for allowable activities. The recommendation was completed prior to September 30, 2023. View of Responsible Officials: The Board and management agree with this finding.
Finding Number: 2023-002 Program: HOME Investment Partnerships Program (HOME) ALN #: 14.239 Pass-through entity: NA – Direct Award Federal Agency: Department of Housing and Urban Development Federal Award Numbers: M14-MC060518, M15-MC060518, M16-MC060518, M17-MC060518, M18-MC060518, M19-MC060518, M21-MC060518, and M22-MC060518 Federal Award Year: 11/18/2015–09/01/2023, 01/19/2017–09/01/2024, 09/22/2017–09/01/2025, 09/12/2018- 09/01/2026, 09/04/2019–09/01/2027, 08/19/2021–09/01/2029, and 11/09/2022–09/01/2030 Compliance Requirement: Eligibility Criteria 24 CFR92.252 Qualification as affordable housing: Rental housing. (e) Periods of affordability. The HOME-assisted units must meet the affordability requirements for not less than the applicable period, beginning after project completion. (1) The affordability requirements: (i) Apply without regard to the term of any loan or mortgage, repayment of the HOME investment, or the transfer of ownership; (ii) Must be imposed by a deed restriction, a covenant running with the land, an agreement restricting the use of the property, or other mechanisms approved by HUD and must give the participating jurisdiction the right to require specific performance (except that the participating jurisdiction may provide that the affordability restrictions may terminate upon foreclosure or transfer in lieu of foreclosure); and (iii) Must be recorded in accordance with State recordation laws. (2) The participating jurisdiction may use purchase options, rights of first refusal or other preemptive rights to purchase the housing before foreclosure or deed in lieu of foreclosure in order to preserve affordability. (3) The affordability restrictions shall be revived according to the original terms if, during the original affordability period, the owner of record before the foreclosure, or deed in lieu of foreclosure, or any entity that includes the former owner or those with whom the former owner has or had family or business ties, obtains an ownership interest in the project or property. (4) The termination of the restrictions on the project does not terminate the participating jurisdiction’s repayment obligation under § 92.503(b). Rental housing activity (Minimum period of affordability - In years) Rehabilitation or acquisition of existing housing per unit amount of HOME funds: Under $15,000 (5) 15,000 to $14,000 (10) Over $40,000 or rehabilitation involving refinancing (15) New construction or acquisition of newly constructed housing (20) (h) Tenant income. The income of each tenant must be determined initially in accordance with §92.203(a)(1)(i). In addition, each year during the period of affordability the project owner must re-examine each tenant’s annual income in accordance with one of the options in § 92.203 selected by the participating jurisdiction. An owner of a multifamily project with an affordability period of ten years or more who re-examines tenant’s annual income through a statement and certification in accordance with § 92.203(b)(1)(ii), must examine the income of each tenant, in accordance with § 92.203(b)(1)(i), every sixth year of the affordability period, except that, for units that receive Federal or State project-based rental subsidy, the owner must accept the income determination pursuant to §92.203(a)(1). 24 CFR 92.203 Income determinations- (b) Required Documentation for Annual Income Calculations (1) For families who are tenants in HOME-assisted housing and not receiving HOME tenant-based rental assistance, the participating jurisdiction must initially determine annual income using the method in paragraph (b)(1)(i) of this section. For subsequent income determinations during the period of affordability, the participating jurisdiction may use any one of the following methods in accordance with § 92.252(h): (i) Examine at least two months of source documents evidencing annual income (e.g., wage statement, interest statement, and unemployment compensation statement) for the family. (ii) Obtain from the family a written statement of the amount of the family’s annual income and family size, along with a certification that the information is complete and accurate. The certification must state that the family will provide source documents upon request. (iii) Obtain a written statement from the administrator of a government program under which the family receives benefits and which examines each year the annual income of the family. The statement must indicate the tenant’s family size and state the amount of the family’s annual income; or alternatively, the statement must indicate the current dollar limit for very low- or low-income families for the family size of the tenant and state that the tenant’s annual income does not exceed this limit. Title 45 US Code of Federal Regulations Part 75 (45 CFR part 75), Uniform Administrative Requirements, Cost Principles, and Audit Requirements for HHS Awards, section 75.303 also states that nonfederal entities must establish and maintain effective internal control over the federal award that provides reasonable assurance that the nonfederal entity is managing the federal award in compliance with federal statutes, regulations and the terms and conditions of the federal award. Additionally, 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to reasonably ensure compliance with Federal laws, regulations and program compliance requirements. Effective internal controls should include procedures to ensure eligibility criteria are met and documented. Conditions Found The City was unable to collect documents from the property manager at the inspection site to ensure that individuals who occupied HOME - assisted units were eligible tenants. For 4 of 60 sample selections, which all related to the same development group, but different properties, the City did not complete the required eligibility procedures. Therefore, the City did not determine each family’s income to determine eligibility, did not ensure the family was low income or very low income, and that the rent did not exceed 30% of adjusted income of a family whose income equals 65% of the median income for the area. Additionally, for the same development group, the City was unable to determine if, for projects with five or more units, 20% of HOME units were occupied by very-low income families. Per discussion with the City, they were unable to collect eligibility documents related to any of the loans related to this developer. Per review of the City’s HOME loan rollforward, 21 out of 279 loans relate to this developer, which represent 6% of the total loan population. Additionally, the 21 loans represent $13.4M of $87.5M of total loans disbursed, or approximately 15% of the total population. Cause Per inquiry with the Housing Development Officer, for the four exceptions related to the same development group, there were multiple attempts between July 6, 2023 and January 26, 2024 to contact the property manager and retrieve income verification documentation for individuals occupying HOME assisted units. It was later determined that the project manager for the developer was no longer with the company. The City then provided a six-week extension to the development agency on January 26, 2024, in a last attempt for them to provide the documentation. No documents or further communication was made with the City. The City was ultimately unable to obtain the documents needed to determine eligibility. Effect Participants who do not meet income requirements could potentially cause the City to not be in compliance with HUD requirements. Questioned Costs Not applicable Repeat finding 2022-001 Statistical sampling The sample was not intended to be, and was not, a statistically valid sample. Recommendation We recommend the City continue working with the developer to ensure eligibility documents are gathered and within a timely manner. Views of Responsible Officials The Community Development Department continues to complete eligibility procedures and is diligently working to collect the required documents. As noted by KPMG, 4 out of 60 sample selections were all related to properties held by the same development group. It is inaccurate to state that the City has ceased attempts to obtain corrective action from the developer. Since granting the developer a six-week extension on January 26, 2024, the Community Development Department has continued to communicate with the developer to obtain the missing documentation. During a Teams call with a representative from KPMG on July 18, 2024, the City provided the auditor with evidence of continued correspondence with the developer, in the form of emails dated March 18, 2024, March 20, 2024, and, most recently, July 1, 2024. Issues with tenant income eligibility and other related matters with this particular developer have persisted for several years and are well known to the Community Development Department, the grantor, other relevant City departments, and external agencies related to the grantor.
Finding Number: 2023-002 Program: HOME Investment Partnerships Program (HOME) ALN #: 14.239 Pass-through entity: NA – Direct Award Federal Agency: Department of Housing and Urban Development Federal Award Numbers: M14-MC060518, M15-MC060518, M16-MC060518, M17-MC060518, M18-MC060518, M19-MC060518, M21-MC060518, and M22-MC060518 Federal Award Year: 11/18/2015–09/01/2023, 01/19/2017–09/01/2024, 09/22/2017–09/01/2025, 09/12/2018- 09/01/2026, 09/04/2019–09/01/2027, 08/19/2021–09/01/2029, and 11/09/2022–09/01/2030 Compliance Requirement: Eligibility Criteria 24 CFR92.252 Qualification as affordable housing: Rental housing. (e) Periods of affordability. The HOME-assisted units must meet the affordability requirements for not less than the applicable period, beginning after project completion. (1) The affordability requirements: (i) Apply without regard to the term of any loan or mortgage, repayment of the HOME investment, or the transfer of ownership; (ii) Must be imposed by a deed restriction, a covenant running with the land, an agreement restricting the use of the property, or other mechanisms approved by HUD and must give the participating jurisdiction the right to require specific performance (except that the participating jurisdiction may provide that the affordability restrictions may terminate upon foreclosure or transfer in lieu of foreclosure); and (iii) Must be recorded in accordance with State recordation laws. (2) The participating jurisdiction may use purchase options, rights of first refusal or other preemptive rights to purchase the housing before foreclosure or deed in lieu of foreclosure in order to preserve affordability. (3) The affordability restrictions shall be revived according to the original terms if, during the original affordability period, the owner of record before the foreclosure, or deed in lieu of foreclosure, or any entity that includes the former owner or those with whom the former owner has or had family or business ties, obtains an ownership interest in the project or property. (4) The termination of the restrictions on the project does not terminate the participating jurisdiction’s repayment obligation under § 92.503(b). Rental housing activity (Minimum period of affordability - In years) Rehabilitation or acquisition of existing housing per unit amount of HOME funds: Under $15,000 (5) 15,000 to $14,000 (10) Over $40,000 or rehabilitation involving refinancing (15) New construction or acquisition of newly constructed housing (20) (h) Tenant income. The income of each tenant must be determined initially in accordance with §92.203(a)(1)(i). In addition, each year during the period of affordability the project owner must re-examine each tenant’s annual income in accordance with one of the options in § 92.203 selected by the participating jurisdiction. An owner of a multifamily project with an affordability period of ten years or more who re-examines tenant’s annual income through a statement and certification in accordance with § 92.203(b)(1)(ii), must examine the income of each tenant, in accordance with § 92.203(b)(1)(i), every sixth year of the affordability period, except that, for units that receive Federal or State project-based rental subsidy, the owner must accept the income determination pursuant to §92.203(a)(1). 24 CFR 92.203 Income determinations- (b) Required Documentation for Annual Income Calculations (1) For families who are tenants in HOME-assisted housing and not receiving HOME tenant-based rental assistance, the participating jurisdiction must initially determine annual income using the method in paragraph (b)(1)(i) of this section. For subsequent income determinations during the period of affordability, the participating jurisdiction may use any one of the following methods in accordance with § 92.252(h): (i) Examine at least two months of source documents evidencing annual income (e.g., wage statement, interest statement, and unemployment compensation statement) for the family. (ii) Obtain from the family a written statement of the amount of the family’s annual income and family size, along with a certification that the information is complete and accurate. The certification must state that the family will provide source documents upon request. (iii) Obtain a written statement from the administrator of a government program under which the family receives benefits and which examines each year the annual income of the family. The statement must indicate the tenant’s family size and state the amount of the family’s annual income; or alternatively, the statement must indicate the current dollar limit for very low- or low-income families for the family size of the tenant and state that the tenant’s annual income does not exceed this limit. Title 45 US Code of Federal Regulations Part 75 (45 CFR part 75), Uniform Administrative Requirements, Cost Principles, and Audit Requirements for HHS Awards, section 75.303 also states that nonfederal entities must establish and maintain effective internal control over the federal award that provides reasonable assurance that the nonfederal entity is managing the federal award in compliance with federal statutes, regulations and the terms and conditions of the federal award. Additionally, 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to reasonably ensure compliance with Federal laws, regulations and program compliance requirements. Effective internal controls should include procedures to ensure eligibility criteria are met and documented. Conditions Found The City was unable to collect documents from the property manager at the inspection site to ensure that individuals who occupied HOME - assisted units were eligible tenants. For 4 of 60 sample selections, which all related to the same development group, but different properties, the City did not complete the required eligibility procedures. Therefore, the City did not determine each family’s income to determine eligibility, did not ensure the family was low income or very low income, and that the rent did not exceed 30% of adjusted income of a family whose income equals 65% of the median income for the area. Additionally, for the same development group, the City was unable to determine if, for projects with five or more units, 20% of HOME units were occupied by very-low income families. Per discussion with the City, they were unable to collect eligibility documents related to any of the loans related to this developer. Per review of the City’s HOME loan rollforward, 21 out of 279 loans relate to this developer, which represent 6% of the total loan population. Additionally, the 21 loans represent $13.4M of $87.5M of total loans disbursed, or approximately 15% of the total population. Cause Per inquiry with the Housing Development Officer, for the four exceptions related to the same development group, there were multiple attempts between July 6, 2023 and January 26, 2024 to contact the property manager and retrieve income verification documentation for individuals occupying HOME assisted units. It was later determined that the project manager for the developer was no longer with the company. The City then provided a six-week extension to the development agency on January 26, 2024, in a last attempt for them to provide the documentation. No documents or further communication was made with the City. The City was ultimately unable to obtain the documents needed to determine eligibility. Effect Participants who do not meet income requirements could potentially cause the City to not be in compliance with HUD requirements. Questioned Costs Not applicable Repeat finding 2022-001 Statistical sampling The sample was not intended to be, and was not, a statistically valid sample. Recommendation We recommend the City continue working with the developer to ensure eligibility documents are gathered and within a timely manner. Views of Responsible Officials The Community Development Department continues to complete eligibility procedures and is diligently working to collect the required documents. As noted by KPMG, 4 out of 60 sample selections were all related to properties held by the same development group. It is inaccurate to state that the City has ceased attempts to obtain corrective action from the developer. Since granting the developer a six-week extension on January 26, 2024, the Community Development Department has continued to communicate with the developer to obtain the missing documentation. During a Teams call with a representative from KPMG on July 18, 2024, the City provided the auditor with evidence of continued correspondence with the developer, in the form of emails dated March 18, 2024, March 20, 2024, and, most recently, July 1, 2024. Issues with tenant income eligibility and other related matters with this particular developer have persisted for several years and are well known to the Community Development Department, the grantor, other relevant City departments, and external agencies related to the grantor.
Finding Number: 2023-002 Program: HOME Investment Partnerships Program (HOME) ALN #: 14.239 Pass-through entity: NA – Direct Award Federal Agency: Department of Housing and Urban Development Federal Award Numbers: M14-MC060518, M15-MC060518, M16-MC060518, M17-MC060518, M18-MC060518, M19-MC060518, M21-MC060518, and M22-MC060518 Federal Award Year: 11/18/2015–09/01/2023, 01/19/2017–09/01/2024, 09/22/2017–09/01/2025, 09/12/2018- 09/01/2026, 09/04/2019–09/01/2027, 08/19/2021–09/01/2029, and 11/09/2022–09/01/2030 Compliance Requirement: Eligibility Criteria 24 CFR92.252 Qualification as affordable housing: Rental housing. (e) Periods of affordability. The HOME-assisted units must meet the affordability requirements for not less than the applicable period, beginning after project completion. (1) The affordability requirements: (i) Apply without regard to the term of any loan or mortgage, repayment of the HOME investment, or the transfer of ownership; (ii) Must be imposed by a deed restriction, a covenant running with the land, an agreement restricting the use of the property, or other mechanisms approved by HUD and must give the participating jurisdiction the right to require specific performance (except that the participating jurisdiction may provide that the affordability restrictions may terminate upon foreclosure or transfer in lieu of foreclosure); and (iii) Must be recorded in accordance with State recordation laws. (2) The participating jurisdiction may use purchase options, rights of first refusal or other preemptive rights to purchase the housing before foreclosure or deed in lieu of foreclosure in order to preserve affordability. (3) The affordability restrictions shall be revived according to the original terms if, during the original affordability period, the owner of record before the foreclosure, or deed in lieu of foreclosure, or any entity that includes the former owner or those with whom the former owner has or had family or business ties, obtains an ownership interest in the project or property. (4) The termination of the restrictions on the project does not terminate the participating jurisdiction’s repayment obligation under § 92.503(b). Rental housing activity (Minimum period of affordability - In years) Rehabilitation or acquisition of existing housing per unit amount of HOME funds: Under $15,000 (5) 15,000 to $14,000 (10) Over $40,000 or rehabilitation involving refinancing (15) New construction or acquisition of newly constructed housing (20) (h) Tenant income. The income of each tenant must be determined initially in accordance with §92.203(a)(1)(i). In addition, each year during the period of affordability the project owner must re-examine each tenant’s annual income in accordance with one of the options in § 92.203 selected by the participating jurisdiction. An owner of a multifamily project with an affordability period of ten years or more who re-examines tenant’s annual income through a statement and certification in accordance with § 92.203(b)(1)(ii), must examine the income of each tenant, in accordance with § 92.203(b)(1)(i), every sixth year of the affordability period, except that, for units that receive Federal or State project-based rental subsidy, the owner must accept the income determination pursuant to §92.203(a)(1). 24 CFR 92.203 Income determinations- (b) Required Documentation for Annual Income Calculations (1) For families who are tenants in HOME-assisted housing and not receiving HOME tenant-based rental assistance, the participating jurisdiction must initially determine annual income using the method in paragraph (b)(1)(i) of this section. For subsequent income determinations during the period of affordability, the participating jurisdiction may use any one of the following methods in accordance with § 92.252(h): (i) Examine at least two months of source documents evidencing annual income (e.g., wage statement, interest statement, and unemployment compensation statement) for the family. (ii) Obtain from the family a written statement of the amount of the family’s annual income and family size, along with a certification that the information is complete and accurate. The certification must state that the family will provide source documents upon request. (iii) Obtain a written statement from the administrator of a government program under which the family receives benefits and which examines each year the annual income of the family. The statement must indicate the tenant’s family size and state the amount of the family’s annual income; or alternatively, the statement must indicate the current dollar limit for very low- or low-income families for the family size of the tenant and state that the tenant’s annual income does not exceed this limit. Title 45 US Code of Federal Regulations Part 75 (45 CFR part 75), Uniform Administrative Requirements, Cost Principles, and Audit Requirements for HHS Awards, section 75.303 also states that nonfederal entities must establish and maintain effective internal control over the federal award that provides reasonable assurance that the nonfederal entity is managing the federal award in compliance with federal statutes, regulations and the terms and conditions of the federal award. Additionally, 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to reasonably ensure compliance with Federal laws, regulations and program compliance requirements. Effective internal controls should include procedures to ensure eligibility criteria are met and documented. Conditions Found The City was unable to collect documents from the property manager at the inspection site to ensure that individuals who occupied HOME - assisted units were eligible tenants. For 4 of 60 sample selections, which all related to the same development group, but different properties, the City did not complete the required eligibility procedures. Therefore, the City did not determine each family’s income to determine eligibility, did not ensure the family was low income or very low income, and that the rent did not exceed 30% of adjusted income of a family whose income equals 65% of the median income for the area. Additionally, for the same development group, the City was unable to determine if, for projects with five or more units, 20% of HOME units were occupied by very-low income families. Per discussion with the City, they were unable to collect eligibility documents related to any of the loans related to this developer. Per review of the City’s HOME loan rollforward, 21 out of 279 loans relate to this developer, which represent 6% of the total loan population. Additionally, the 21 loans represent $13.4M of $87.5M of total loans disbursed, or approximately 15% of the total population. Cause Per inquiry with the Housing Development Officer, for the four exceptions related to the same development group, there were multiple attempts between July 6, 2023 and January 26, 2024 to contact the property manager and retrieve income verification documentation for individuals occupying HOME assisted units. It was later determined that the project manager for the developer was no longer with the company. The City then provided a six-week extension to the development agency on January 26, 2024, in a last attempt for them to provide the documentation. No documents or further communication was made with the City. The City was ultimately unable to obtain the documents needed to determine eligibility. Effect Participants who do not meet income requirements could potentially cause the City to not be in compliance with HUD requirements. Questioned Costs Not applicable Repeat finding 2022-001 Statistical sampling The sample was not intended to be, and was not, a statistically valid sample. Recommendation We recommend the City continue working with the developer to ensure eligibility documents are gathered and within a timely manner. Views of Responsible Officials The Community Development Department continues to complete eligibility procedures and is diligently working to collect the required documents. As noted by KPMG, 4 out of 60 sample selections were all related to properties held by the same development group. It is inaccurate to state that the City has ceased attempts to obtain corrective action from the developer. Since granting the developer a six-week extension on January 26, 2024, the Community Development Department has continued to communicate with the developer to obtain the missing documentation. During a Teams call with a representative from KPMG on July 18, 2024, the City provided the auditor with evidence of continued correspondence with the developer, in the form of emails dated March 18, 2024, March 20, 2024, and, most recently, July 1, 2024. Issues with tenant income eligibility and other related matters with this particular developer have persisted for several years and are well known to the Community Development Department, the grantor, other relevant City departments, and external agencies related to the grantor.
Finding Number: 2023-002 Program: HOME Investment Partnerships Program (HOME) ALN #: 14.239 Pass-through entity: NA – Direct Award Federal Agency: Department of Housing and Urban Development Federal Award Numbers: M14-MC060518, M15-MC060518, M16-MC060518, M17-MC060518, M18-MC060518, M19-MC060518, M21-MC060518, and M22-MC060518 Federal Award Year: 11/18/2015–09/01/2023, 01/19/2017–09/01/2024, 09/22/2017–09/01/2025, 09/12/2018- 09/01/2026, 09/04/2019–09/01/2027, 08/19/2021–09/01/2029, and 11/09/2022–09/01/2030 Compliance Requirement: Eligibility Criteria 24 CFR92.252 Qualification as affordable housing: Rental housing. (e) Periods of affordability. The HOME-assisted units must meet the affordability requirements for not less than the applicable period, beginning after project completion. (1) The affordability requirements: (i) Apply without regard to the term of any loan or mortgage, repayment of the HOME investment, or the transfer of ownership; (ii) Must be imposed by a deed restriction, a covenant running with the land, an agreement restricting the use of the property, or other mechanisms approved by HUD and must give the participating jurisdiction the right to require specific performance (except that the participating jurisdiction may provide that the affordability restrictions may terminate upon foreclosure or transfer in lieu of foreclosure); and (iii) Must be recorded in accordance with State recordation laws. (2) The participating jurisdiction may use purchase options, rights of first refusal or other preemptive rights to purchase the housing before foreclosure or deed in lieu of foreclosure in order to preserve affordability. (3) The affordability restrictions shall be revived according to the original terms if, during the original affordability period, the owner of record before the foreclosure, or deed in lieu of foreclosure, or any entity that includes the former owner or those with whom the former owner has or had family or business ties, obtains an ownership interest in the project or property. (4) The termination of the restrictions on the project does not terminate the participating jurisdiction’s repayment obligation under § 92.503(b). Rental housing activity (Minimum period of affordability - In years) Rehabilitation or acquisition of existing housing per unit amount of HOME funds: Under $15,000 (5) 15,000 to $14,000 (10) Over $40,000 or rehabilitation involving refinancing (15) New construction or acquisition of newly constructed housing (20) (h) Tenant income. The income of each tenant must be determined initially in accordance with §92.203(a)(1)(i). In addition, each year during the period of affordability the project owner must re-examine each tenant’s annual income in accordance with one of the options in § 92.203 selected by the participating jurisdiction. An owner of a multifamily project with an affordability period of ten years or more who re-examines tenant’s annual income through a statement and certification in accordance with § 92.203(b)(1)(ii), must examine the income of each tenant, in accordance with § 92.203(b)(1)(i), every sixth year of the affordability period, except that, for units that receive Federal or State project-based rental subsidy, the owner must accept the income determination pursuant to §92.203(a)(1). 24 CFR 92.203 Income determinations- (b) Required Documentation for Annual Income Calculations (1) For families who are tenants in HOME-assisted housing and not receiving HOME tenant-based rental assistance, the participating jurisdiction must initially determine annual income using the method in paragraph (b)(1)(i) of this section. For subsequent income determinations during the period of affordability, the participating jurisdiction may use any one of the following methods in accordance with § 92.252(h): (i) Examine at least two months of source documents evidencing annual income (e.g., wage statement, interest statement, and unemployment compensation statement) for the family. (ii) Obtain from the family a written statement of the amount of the family’s annual income and family size, along with a certification that the information is complete and accurate. The certification must state that the family will provide source documents upon request. (iii) Obtain a written statement from the administrator of a government program under which the family receives benefits and which examines each year the annual income of the family. The statement must indicate the tenant’s family size and state the amount of the family’s annual income; or alternatively, the statement must indicate the current dollar limit for very low- or low-income families for the family size of the tenant and state that the tenant’s annual income does not exceed this limit. Title 45 US Code of Federal Regulations Part 75 (45 CFR part 75), Uniform Administrative Requirements, Cost Principles, and Audit Requirements for HHS Awards, section 75.303 also states that nonfederal entities must establish and maintain effective internal control over the federal award that provides reasonable assurance that the nonfederal entity is managing the federal award in compliance with federal statutes, regulations and the terms and conditions of the federal award. Additionally, 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to reasonably ensure compliance with Federal laws, regulations and program compliance requirements. Effective internal controls should include procedures to ensure eligibility criteria are met and documented. Conditions Found The City was unable to collect documents from the property manager at the inspection site to ensure that individuals who occupied HOME - assisted units were eligible tenants. For 4 of 60 sample selections, which all related to the same development group, but different properties, the City did not complete the required eligibility procedures. Therefore, the City did not determine each family’s income to determine eligibility, did not ensure the family was low income or very low income, and that the rent did not exceed 30% of adjusted income of a family whose income equals 65% of the median income for the area. Additionally, for the same development group, the City was unable to determine if, for projects with five or more units, 20% of HOME units were occupied by very-low income families. Per discussion with the City, they were unable to collect eligibility documents related to any of the loans related to this developer. Per review of the City’s HOME loan rollforward, 21 out of 279 loans relate to this developer, which represent 6% of the total loan population. Additionally, the 21 loans represent $13.4M of $87.5M of total loans disbursed, or approximately 15% of the total population. Cause Per inquiry with the Housing Development Officer, for the four exceptions related to the same development group, there were multiple attempts between July 6, 2023 and January 26, 2024 to contact the property manager and retrieve income verification documentation for individuals occupying HOME assisted units. It was later determined that the project manager for the developer was no longer with the company. The City then provided a six-week extension to the development agency on January 26, 2024, in a last attempt for them to provide the documentation. No documents or further communication was made with the City. The City was ultimately unable to obtain the documents needed to determine eligibility. Effect Participants who do not meet income requirements could potentially cause the City to not be in compliance with HUD requirements. Questioned Costs Not applicable Repeat finding 2022-001 Statistical sampling The sample was not intended to be, and was not, a statistically valid sample. Recommendation We recommend the City continue working with the developer to ensure eligibility documents are gathered and within a timely manner. Views of Responsible Officials The Community Development Department continues to complete eligibility procedures and is diligently working to collect the required documents. As noted by KPMG, 4 out of 60 sample selections were all related to properties held by the same development group. It is inaccurate to state that the City has ceased attempts to obtain corrective action from the developer. Since granting the developer a six-week extension on January 26, 2024, the Community Development Department has continued to communicate with the developer to obtain the missing documentation. During a Teams call with a representative from KPMG on July 18, 2024, the City provided the auditor with evidence of continued correspondence with the developer, in the form of emails dated March 18, 2024, March 20, 2024, and, most recently, July 1, 2024. Issues with tenant income eligibility and other related matters with this particular developer have persisted for several years and are well known to the Community Development Department, the grantor, other relevant City departments, and external agencies related to the grantor.
Finding Number: 2023-002 Program: HOME Investment Partnerships Program (HOME) ALN #: 14.239 Pass-through entity: NA – Direct Award Federal Agency: Department of Housing and Urban Development Federal Award Numbers: M14-MC060518, M15-MC060518, M16-MC060518, M17-MC060518, M18-MC060518, M19-MC060518, M21-MC060518, and M22-MC060518 Federal Award Year: 11/18/2015–09/01/2023, 01/19/2017–09/01/2024, 09/22/2017–09/01/2025, 09/12/2018- 09/01/2026, 09/04/2019–09/01/2027, 08/19/2021–09/01/2029, and 11/09/2022–09/01/2030 Compliance Requirement: Eligibility Criteria 24 CFR92.252 Qualification as affordable housing: Rental housing. (e) Periods of affordability. The HOME-assisted units must meet the affordability requirements for not less than the applicable period, beginning after project completion. (1) The affordability requirements: (i) Apply without regard to the term of any loan or mortgage, repayment of the HOME investment, or the transfer of ownership; (ii) Must be imposed by a deed restriction, a covenant running with the land, an agreement restricting the use of the property, or other mechanisms approved by HUD and must give the participating jurisdiction the right to require specific performance (except that the participating jurisdiction may provide that the affordability restrictions may terminate upon foreclosure or transfer in lieu of foreclosure); and (iii) Must be recorded in accordance with State recordation laws. (2) The participating jurisdiction may use purchase options, rights of first refusal or other preemptive rights to purchase the housing before foreclosure or deed in lieu of foreclosure in order to preserve affordability. (3) The affordability restrictions shall be revived according to the original terms if, during the original affordability period, the owner of record before the foreclosure, or deed in lieu of foreclosure, or any entity that includes the former owner or those with whom the former owner has or had family or business ties, obtains an ownership interest in the project or property. (4) The termination of the restrictions on the project does not terminate the participating jurisdiction’s repayment obligation under § 92.503(b). Rental housing activity (Minimum period of affordability - In years) Rehabilitation or acquisition of existing housing per unit amount of HOME funds: Under $15,000 (5) 15,000 to $14,000 (10) Over $40,000 or rehabilitation involving refinancing (15) New construction or acquisition of newly constructed housing (20) (h) Tenant income. The income of each tenant must be determined initially in accordance with §92.203(a)(1)(i). In addition, each year during the period of affordability the project owner must re-examine each tenant’s annual income in accordance with one of the options in § 92.203 selected by the participating jurisdiction. An owner of a multifamily project with an affordability period of ten years or more who re-examines tenant’s annual income through a statement and certification in accordance with § 92.203(b)(1)(ii), must examine the income of each tenant, in accordance with § 92.203(b)(1)(i), every sixth year of the affordability period, except that, for units that receive Federal or State project-based rental subsidy, the owner must accept the income determination pursuant to §92.203(a)(1). 24 CFR 92.203 Income determinations- (b) Required Documentation for Annual Income Calculations (1) For families who are tenants in HOME-assisted housing and not receiving HOME tenant-based rental assistance, the participating jurisdiction must initially determine annual income using the method in paragraph (b)(1)(i) of this section. For subsequent income determinations during the period of affordability, the participating jurisdiction may use any one of the following methods in accordance with § 92.252(h): (i) Examine at least two months of source documents evidencing annual income (e.g., wage statement, interest statement, and unemployment compensation statement) for the family. (ii) Obtain from the family a written statement of the amount of the family’s annual income and family size, along with a certification that the information is complete and accurate. The certification must state that the family will provide source documents upon request. (iii) Obtain a written statement from the administrator of a government program under which the family receives benefits and which examines each year the annual income of the family. The statement must indicate the tenant’s family size and state the amount of the family’s annual income; or alternatively, the statement must indicate the current dollar limit for very low- or low-income families for the family size of the tenant and state that the tenant’s annual income does not exceed this limit. Title 45 US Code of Federal Regulations Part 75 (45 CFR part 75), Uniform Administrative Requirements, Cost Principles, and Audit Requirements for HHS Awards, section 75.303 also states that nonfederal entities must establish and maintain effective internal control over the federal award that provides reasonable assurance that the nonfederal entity is managing the federal award in compliance with federal statutes, regulations and the terms and conditions of the federal award. Additionally, 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to reasonably ensure compliance with Federal laws, regulations and program compliance requirements. Effective internal controls should include procedures to ensure eligibility criteria are met and documented. Conditions Found The City was unable to collect documents from the property manager at the inspection site to ensure that individuals who occupied HOME - assisted units were eligible tenants. For 4 of 60 sample selections, which all related to the same development group, but different properties, the City did not complete the required eligibility procedures. Therefore, the City did not determine each family’s income to determine eligibility, did not ensure the family was low income or very low income, and that the rent did not exceed 30% of adjusted income of a family whose income equals 65% of the median income for the area. Additionally, for the same development group, the City was unable to determine if, for projects with five or more units, 20% of HOME units were occupied by very-low income families. Per discussion with the City, they were unable to collect eligibility documents related to any of the loans related to this developer. Per review of the City’s HOME loan rollforward, 21 out of 279 loans relate to this developer, which represent 6% of the total loan population. Additionally, the 21 loans represent $13.4M of $87.5M of total loans disbursed, or approximately 15% of the total population. Cause Per inquiry with the Housing Development Officer, for the four exceptions related to the same development group, there were multiple attempts between July 6, 2023 and January 26, 2024 to contact the property manager and retrieve income verification documentation for individuals occupying HOME assisted units. It was later determined that the project manager for the developer was no longer with the company. The City then provided a six-week extension to the development agency on January 26, 2024, in a last attempt for them to provide the documentation. No documents or further communication was made with the City. The City was ultimately unable to obtain the documents needed to determine eligibility. Effect Participants who do not meet income requirements could potentially cause the City to not be in compliance with HUD requirements. Questioned Costs Not applicable Repeat finding 2022-001 Statistical sampling The sample was not intended to be, and was not, a statistically valid sample. Recommendation We recommend the City continue working with the developer to ensure eligibility documents are gathered and within a timely manner. Views of Responsible Officials The Community Development Department continues to complete eligibility procedures and is diligently working to collect the required documents. As noted by KPMG, 4 out of 60 sample selections were all related to properties held by the same development group. It is inaccurate to state that the City has ceased attempts to obtain corrective action from the developer. Since granting the developer a six-week extension on January 26, 2024, the Community Development Department has continued to communicate with the developer to obtain the missing documentation. During a Teams call with a representative from KPMG on July 18, 2024, the City provided the auditor with evidence of continued correspondence with the developer, in the form of emails dated March 18, 2024, March 20, 2024, and, most recently, July 1, 2024. Issues with tenant income eligibility and other related matters with this particular developer have persisted for several years and are well known to the Community Development Department, the grantor, other relevant City departments, and external agencies related to the grantor.
Finding Number: 2023-003 Program: HOME Investment Partnerships Program (HOME) ALN #: 14.239 Pass-through entity: NA – Direct Award Federal Agency: Department of Housing and Urban Development Federal Award Numbers: M14-MC060518, M15-MC060518, M16-MC060518, M17-MC060518, M18-MC060518, M19-MC060518, M21-MC060518, and M22-MC060518 Federal Award Year: 11/18/2015–09/01/2023, 01/19/2017–09/01/2024, 09/22/2017–09/01/2025, 09/12/2018–09/01/2026, 09/04/2019–09/01/2027, 08/19/2021–09/01/2029, and 11/09/2022–09/01/2030 Compliance Requirement: Special Tests- Housing Quality Standards Criteria During the period of affordability (i.e., the period for which the nonfederal entity must maintain subsidized housing) for HOME-assisted rental housing, the participating jurisdiction must perform on-site inspections to determine compliance with property standards and verify the information submitted by the owners no less than (a) every three years for projects containing 1 to 4 units, (b) every two years for projects containing 5 to 25 units, and (c) every year for projects containing 26 or more units. The participating jurisdiction must perform on-site inspections of rental housing occupied by tenants receiving HOME/HOME-ARP-assisted tenant-based rental assistance to determine compliance with housing quality standards (24 CFR sections 92.209(i), 92.251(f), and 92.504(d)). Additionally, per 24 CFR 92.504(d)(1)(D), inspections must be based on a statistically valid sample of units appropriate for the size of the HOME-assisted project, as set forth by HUD through a document published in the Federal Register. For projects with one to four HOME-assisted units, a participating jurisdiction must inspect all of the HOME-assisted units and all inspectable areas for each building with HOME-assisted units. However, per the HUD 2013 final rule, not less than 20% of the units can be inspected. Additionally, 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to reasonably ensure compliance with Federal laws, regulations, and program compliance requirements. Effective internal controls should include procedures to ensure housing quality standards are appropriately performed and documented. Conditions Found The City failed to complete inspections on the required number of HOME-assisted units and within the time period required. During our testwork we noted that 4 of the 11 property selections had less than 20% of the units inspected. Additionally, we noted that 5 of the 11 inspections did not occur within the required one-, two-, or three-year time period since the previous inspection date. The City maintains a log that indicates the property, address, minimum number of inspections required, number of units, the responsible monitor, and if the inspection passed or failed. However, the log is unable to detect that at least 20% of HOME-assisted units per project are selected for inspection. The log calculates a minimum of 15% of HOME units inspected per property/project. Additionally, per HUD regulations, the City must make a statistical sample of HOME-assisted units within a project. The log is not indicative of a statistical sample. Lastly, the log does not track all HOME projects, thus, the City is not able to demonstrate its compliance with the frequency of inspection of all sites. Cause Due to staffing constraints and the number of required inspections, the City was not able to inspect at least 20% of the units within all projects and within the required time. Further, the City’s log is not designed to include all the required elements for frequency and number of inspections. Effect Not inspecting the proper number of units and within the correct time period could cause the City to be non-compliant with HUD requirements. Questioned Costs Not applicable Repeat finding A similar finding was not reported in the prior year. Statistical sampling The sample was not intended to be, and was not, a statistically valid sample. Recommendation We recommend the City update the internal tracker to ensure that 20% of HOME units are inspected, inspections are based on a statistical sample, and that all inspections occur within the required time. Additionally, the City should track all projects to ensure they are in compliance with all HOME-assisted projects. Views of Responsible Officials The Community Development Department has faced challenges in meeting its inspection goals, primarily due to resource limitations, staff redeployment and the impact of COVID-19. It is taking steps to address these issues by forming an in-house inspection team and adopting elements from HUD’s yet-to-be-released NSPIRE system. For example, three full-time positions have been filled as of May 2024 to assist with the Housing Quality Standards (HQS) efforts. While HUD guidelines have stated an acceptable rate of 15-20% in their own HQS guidelines, the City set its goal at 20%. Therefore, it is important to note that this finding is not indicative of a failure to meet the regulatory standard, but rather to meet an internal one. Furthermore, the testing shows that the standard was met when the universe of projects and inspections is examined. The Community Development Department aimed to complete 20% of inspections and achieved a completion rate of 19.65% during the fiscal year under audit. The City maintains that the intent of the regulation was met through this standard and this finding has been issued, because the inspections were uneven across individual projects. This can be attributed to resource limitations, reliance on the Housing Authority’s inspection system, and COVID-19 delays, which led to significant backlogs from prior years when access was limited. The Community Development Department is now taking more systematic, proactive measures to improve the inspection process, particularly through filled vacancies, in-house inspections conducted by department staff, and an active log indicating inspection targets. As a result, during the current fiscal year, there has been a smoother, more data-driven, systematic approach to meeting HQS requirements, as evidenced by the substantial decrease in backlog. The Department is on track to ensure that every project will meet an inspection target that meets the NSPIRE standards (as currently drafted). Response to Views of Responsible Officials As noted in the criteria section above, 24 CFR 92.504(d)(1)(D) states, inspections must be based on a statistically valid sample of units appropriate for the size of the HOME-assisted project, as set forth by HUD through a document published in the Federal Register. For projects with one to four HOME-assisted units, a participating jurisdiction must inspect all of the HOME-assisted units and all inspectable areas for each building with HOME-assisted units. However, per the HUD 2013 final rule, not less than 20% of the units can be inspected. Therefore, 20% of units are required to be inspected at each property. The 20% is not calculated based on total number of loans or HOME assisted units at the City, as indicated in Management’s response. Additionally, the City was unable to demonstrate that inspections were based on a statistically valid sample.
Finding Number: 2023-003 Program: HOME Investment Partnerships Program (HOME) ALN #: 14.239 Pass-through entity: NA – Direct Award Federal Agency: Department of Housing and Urban Development Federal Award Numbers: M14-MC060518, M15-MC060518, M16-MC060518, M17-MC060518, M18-MC060518, M19-MC060518, M21-MC060518, and M22-MC060518 Federal Award Year: 11/18/2015–09/01/2023, 01/19/2017–09/01/2024, 09/22/2017–09/01/2025, 09/12/2018–09/01/2026, 09/04/2019–09/01/2027, 08/19/2021–09/01/2029, and 11/09/2022–09/01/2030 Compliance Requirement: Special Tests- Housing Quality Standards Criteria During the period of affordability (i.e., the period for which the nonfederal entity must maintain subsidized housing) for HOME-assisted rental housing, the participating jurisdiction must perform on-site inspections to determine compliance with property standards and verify the information submitted by the owners no less than (a) every three years for projects containing 1 to 4 units, (b) every two years for projects containing 5 to 25 units, and (c) every year for projects containing 26 or more units. The participating jurisdiction must perform on-site inspections of rental housing occupied by tenants receiving HOME/HOME-ARP-assisted tenant-based rental assistance to determine compliance with housing quality standards (24 CFR sections 92.209(i), 92.251(f), and 92.504(d)). Additionally, per 24 CFR 92.504(d)(1)(D), inspections must be based on a statistically valid sample of units appropriate for the size of the HOME-assisted project, as set forth by HUD through a document published in the Federal Register. For projects with one to four HOME-assisted units, a participating jurisdiction must inspect all of the HOME-assisted units and all inspectable areas for each building with HOME-assisted units. However, per the HUD 2013 final rule, not less than 20% of the units can be inspected. Additionally, 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to reasonably ensure compliance with Federal laws, regulations, and program compliance requirements. Effective internal controls should include procedures to ensure housing quality standards are appropriately performed and documented. Conditions Found The City failed to complete inspections on the required number of HOME-assisted units and within the time period required. During our testwork we noted that 4 of the 11 property selections had less than 20% of the units inspected. Additionally, we noted that 5 of the 11 inspections did not occur within the required one-, two-, or three-year time period since the previous inspection date. The City maintains a log that indicates the property, address, minimum number of inspections required, number of units, the responsible monitor, and if the inspection passed or failed. However, the log is unable to detect that at least 20% of HOME-assisted units per project are selected for inspection. The log calculates a minimum of 15% of HOME units inspected per property/project. Additionally, per HUD regulations, the City must make a statistical sample of HOME-assisted units within a project. The log is not indicative of a statistical sample. Lastly, the log does not track all HOME projects, thus, the City is not able to demonstrate its compliance with the frequency of inspection of all sites. Cause Due to staffing constraints and the number of required inspections, the City was not able to inspect at least 20% of the units within all projects and within the required time. Further, the City’s log is not designed to include all the required elements for frequency and number of inspections. Effect Not inspecting the proper number of units and within the correct time period could cause the City to be non-compliant with HUD requirements. Questioned Costs Not applicable Repeat finding A similar finding was not reported in the prior year. Statistical sampling The sample was not intended to be, and was not, a statistically valid sample. Recommendation We recommend the City update the internal tracker to ensure that 20% of HOME units are inspected, inspections are based on a statistical sample, and that all inspections occur within the required time. Additionally, the City should track all projects to ensure they are in compliance with all HOME-assisted projects. Views of Responsible Officials The Community Development Department has faced challenges in meeting its inspection goals, primarily due to resource limitations, staff redeployment and the impact of COVID-19. It is taking steps to address these issues by forming an in-house inspection team and adopting elements from HUD’s yet-to-be-released NSPIRE system. For example, three full-time positions have been filled as of May 2024 to assist with the Housing Quality Standards (HQS) efforts. While HUD guidelines have stated an acceptable rate of 15-20% in their own HQS guidelines, the City set its goal at 20%. Therefore, it is important to note that this finding is not indicative of a failure to meet the regulatory standard, but rather to meet an internal one. Furthermore, the testing shows that the standard was met when the universe of projects and inspections is examined. The Community Development Department aimed to complete 20% of inspections and achieved a completion rate of 19.65% during the fiscal year under audit. The City maintains that the intent of the regulation was met through this standard and this finding has been issued, because the inspections were uneven across individual projects. This can be attributed to resource limitations, reliance on the Housing Authority’s inspection system, and COVID-19 delays, which led to significant backlogs from prior years when access was limited. The Community Development Department is now taking more systematic, proactive measures to improve the inspection process, particularly through filled vacancies, in-house inspections conducted by department staff, and an active log indicating inspection targets. As a result, during the current fiscal year, there has been a smoother, more data-driven, systematic approach to meeting HQS requirements, as evidenced by the substantial decrease in backlog. The Department is on track to ensure that every project will meet an inspection target that meets the NSPIRE standards (as currently drafted). Response to Views of Responsible Officials As noted in the criteria section above, 24 CFR 92.504(d)(1)(D) states, inspections must be based on a statistically valid sample of units appropriate for the size of the HOME-assisted project, as set forth by HUD through a document published in the Federal Register. For projects with one to four HOME-assisted units, a participating jurisdiction must inspect all of the HOME-assisted units and all inspectable areas for each building with HOME-assisted units. However, per the HUD 2013 final rule, not less than 20% of the units can be inspected. Therefore, 20% of units are required to be inspected at each property. The 20% is not calculated based on total number of loans or HOME assisted units at the City, as indicated in Management’s response. Additionally, the City was unable to demonstrate that inspections were based on a statistically valid sample.
Finding Number: 2023-003 Program: HOME Investment Partnerships Program (HOME) ALN #: 14.239 Pass-through entity: NA – Direct Award Federal Agency: Department of Housing and Urban Development Federal Award Numbers: M14-MC060518, M15-MC060518, M16-MC060518, M17-MC060518, M18-MC060518, M19-MC060518, M21-MC060518, and M22-MC060518 Federal Award Year: 11/18/2015–09/01/2023, 01/19/2017–09/01/2024, 09/22/2017–09/01/2025, 09/12/2018–09/01/2026, 09/04/2019–09/01/2027, 08/19/2021–09/01/2029, and 11/09/2022–09/01/2030 Compliance Requirement: Special Tests- Housing Quality Standards Criteria During the period of affordability (i.e., the period for which the nonfederal entity must maintain subsidized housing) for HOME-assisted rental housing, the participating jurisdiction must perform on-site inspections to determine compliance with property standards and verify the information submitted by the owners no less than (a) every three years for projects containing 1 to 4 units, (b) every two years for projects containing 5 to 25 units, and (c) every year for projects containing 26 or more units. The participating jurisdiction must perform on-site inspections of rental housing occupied by tenants receiving HOME/HOME-ARP-assisted tenant-based rental assistance to determine compliance with housing quality standards (24 CFR sections 92.209(i), 92.251(f), and 92.504(d)). Additionally, per 24 CFR 92.504(d)(1)(D), inspections must be based on a statistically valid sample of units appropriate for the size of the HOME-assisted project, as set forth by HUD through a document published in the Federal Register. For projects with one to four HOME-assisted units, a participating jurisdiction must inspect all of the HOME-assisted units and all inspectable areas for each building with HOME-assisted units. However, per the HUD 2013 final rule, not less than 20% of the units can be inspected. Additionally, 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to reasonably ensure compliance with Federal laws, regulations, and program compliance requirements. Effective internal controls should include procedures to ensure housing quality standards are appropriately performed and documented. Conditions Found The City failed to complete inspections on the required number of HOME-assisted units and within the time period required. During our testwork we noted that 4 of the 11 property selections had less than 20% of the units inspected. Additionally, we noted that 5 of the 11 inspections did not occur within the required one-, two-, or three-year time period since the previous inspection date. The City maintains a log that indicates the property, address, minimum number of inspections required, number of units, the responsible monitor, and if the inspection passed or failed. However, the log is unable to detect that at least 20% of HOME-assisted units per project are selected for inspection. The log calculates a minimum of 15% of HOME units inspected per property/project. Additionally, per HUD regulations, the City must make a statistical sample of HOME-assisted units within a project. The log is not indicative of a statistical sample. Lastly, the log does not track all HOME projects, thus, the City is not able to demonstrate its compliance with the frequency of inspection of all sites. Cause Due to staffing constraints and the number of required inspections, the City was not able to inspect at least 20% of the units within all projects and within the required time. Further, the City’s log is not designed to include all the required elements for frequency and number of inspections. Effect Not inspecting the proper number of units and within the correct time period could cause the City to be non-compliant with HUD requirements. Questioned Costs Not applicable Repeat finding A similar finding was not reported in the prior year. Statistical sampling The sample was not intended to be, and was not, a statistically valid sample. Recommendation We recommend the City update the internal tracker to ensure that 20% of HOME units are inspected, inspections are based on a statistical sample, and that all inspections occur within the required time. Additionally, the City should track all projects to ensure they are in compliance with all HOME-assisted projects. Views of Responsible Officials The Community Development Department has faced challenges in meeting its inspection goals, primarily due to resource limitations, staff redeployment and the impact of COVID-19. It is taking steps to address these issues by forming an in-house inspection team and adopting elements from HUD’s yet-to-be-released NSPIRE system. For example, three full-time positions have been filled as of May 2024 to assist with the Housing Quality Standards (HQS) efforts. While HUD guidelines have stated an acceptable rate of 15-20% in their own HQS guidelines, the City set its goal at 20%. Therefore, it is important to note that this finding is not indicative of a failure to meet the regulatory standard, but rather to meet an internal one. Furthermore, the testing shows that the standard was met when the universe of projects and inspections is examined. The Community Development Department aimed to complete 20% of inspections and achieved a completion rate of 19.65% during the fiscal year under audit. The City maintains that the intent of the regulation was met through this standard and this finding has been issued, because the inspections were uneven across individual projects. This can be attributed to resource limitations, reliance on the Housing Authority’s inspection system, and COVID-19 delays, which led to significant backlogs from prior years when access was limited. The Community Development Department is now taking more systematic, proactive measures to improve the inspection process, particularly through filled vacancies, in-house inspections conducted by department staff, and an active log indicating inspection targets. As a result, during the current fiscal year, there has been a smoother, more data-driven, systematic approach to meeting HQS requirements, as evidenced by the substantial decrease in backlog. The Department is on track to ensure that every project will meet an inspection target that meets the NSPIRE standards (as currently drafted). Response to Views of Responsible Officials As noted in the criteria section above, 24 CFR 92.504(d)(1)(D) states, inspections must be based on a statistically valid sample of units appropriate for the size of the HOME-assisted project, as set forth by HUD through a document published in the Federal Register. For projects with one to four HOME-assisted units, a participating jurisdiction must inspect all of the HOME-assisted units and all inspectable areas for each building with HOME-assisted units. However, per the HUD 2013 final rule, not less than 20% of the units can be inspected. Therefore, 20% of units are required to be inspected at each property. The 20% is not calculated based on total number of loans or HOME assisted units at the City, as indicated in Management’s response. Additionally, the City was unable to demonstrate that inspections were based on a statistically valid sample.
Finding Number: 2023-003 Program: HOME Investment Partnerships Program (HOME) ALN #: 14.239 Pass-through entity: NA – Direct Award Federal Agency: Department of Housing and Urban Development Federal Award Numbers: M14-MC060518, M15-MC060518, M16-MC060518, M17-MC060518, M18-MC060518, M19-MC060518, M21-MC060518, and M22-MC060518 Federal Award Year: 11/18/2015–09/01/2023, 01/19/2017–09/01/2024, 09/22/2017–09/01/2025, 09/12/2018–09/01/2026, 09/04/2019–09/01/2027, 08/19/2021–09/01/2029, and 11/09/2022–09/01/2030 Compliance Requirement: Special Tests- Housing Quality Standards Criteria During the period of affordability (i.e., the period for which the nonfederal entity must maintain subsidized housing) for HOME-assisted rental housing, the participating jurisdiction must perform on-site inspections to determine compliance with property standards and verify the information submitted by the owners no less than (a) every three years for projects containing 1 to 4 units, (b) every two years for projects containing 5 to 25 units, and (c) every year for projects containing 26 or more units. The participating jurisdiction must perform on-site inspections of rental housing occupied by tenants receiving HOME/HOME-ARP-assisted tenant-based rental assistance to determine compliance with housing quality standards (24 CFR sections 92.209(i), 92.251(f), and 92.504(d)). Additionally, per 24 CFR 92.504(d)(1)(D), inspections must be based on a statistically valid sample of units appropriate for the size of the HOME-assisted project, as set forth by HUD through a document published in the Federal Register. For projects with one to four HOME-assisted units, a participating jurisdiction must inspect all of the HOME-assisted units and all inspectable areas for each building with HOME-assisted units. However, per the HUD 2013 final rule, not less than 20% of the units can be inspected. Additionally, 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to reasonably ensure compliance with Federal laws, regulations, and program compliance requirements. Effective internal controls should include procedures to ensure housing quality standards are appropriately performed and documented. Conditions Found The City failed to complete inspections on the required number of HOME-assisted units and within the time period required. During our testwork we noted that 4 of the 11 property selections had less than 20% of the units inspected. Additionally, we noted that 5 of the 11 inspections did not occur within the required one-, two-, or three-year time period since the previous inspection date. The City maintains a log that indicates the property, address, minimum number of inspections required, number of units, the responsible monitor, and if the inspection passed or failed. However, the log is unable to detect that at least 20% of HOME-assisted units per project are selected for inspection. The log calculates a minimum of 15% of HOME units inspected per property/project. Additionally, per HUD regulations, the City must make a statistical sample of HOME-assisted units within a project. The log is not indicative of a statistical sample. Lastly, the log does not track all HOME projects, thus, the City is not able to demonstrate its compliance with the frequency of inspection of all sites. Cause Due to staffing constraints and the number of required inspections, the City was not able to inspect at least 20% of the units within all projects and within the required time. Further, the City’s log is not designed to include all the required elements for frequency and number of inspections. Effect Not inspecting the proper number of units and within the correct time period could cause the City to be non-compliant with HUD requirements. Questioned Costs Not applicable Repeat finding A similar finding was not reported in the prior year. Statistical sampling The sample was not intended to be, and was not, a statistically valid sample. Recommendation We recommend the City update the internal tracker to ensure that 20% of HOME units are inspected, inspections are based on a statistical sample, and that all inspections occur within the required time. Additionally, the City should track all projects to ensure they are in compliance with all HOME-assisted projects. Views of Responsible Officials The Community Development Department has faced challenges in meeting its inspection goals, primarily due to resource limitations, staff redeployment and the impact of COVID-19. It is taking steps to address these issues by forming an in-house inspection team and adopting elements from HUD’s yet-to-be-released NSPIRE system. For example, three full-time positions have been filled as of May 2024 to assist with the Housing Quality Standards (HQS) efforts. While HUD guidelines have stated an acceptable rate of 15-20% in their own HQS guidelines, the City set its goal at 20%. Therefore, it is important to note that this finding is not indicative of a failure to meet the regulatory standard, but rather to meet an internal one. Furthermore, the testing shows that the standard was met when the universe of projects and inspections is examined. The Community Development Department aimed to complete 20% of inspections and achieved a completion rate of 19.65% during the fiscal year under audit. The City maintains that the intent of the regulation was met through this standard and this finding has been issued, because the inspections were uneven across individual projects. This can be attributed to resource limitations, reliance on the Housing Authority’s inspection system, and COVID-19 delays, which led to significant backlogs from prior years when access was limited. The Community Development Department is now taking more systematic, proactive measures to improve the inspection process, particularly through filled vacancies, in-house inspections conducted by department staff, and an active log indicating inspection targets. As a result, during the current fiscal year, there has been a smoother, more data-driven, systematic approach to meeting HQS requirements, as evidenced by the substantial decrease in backlog. The Department is on track to ensure that every project will meet an inspection target that meets the NSPIRE standards (as currently drafted). Response to Views of Responsible Officials As noted in the criteria section above, 24 CFR 92.504(d)(1)(D) states, inspections must be based on a statistically valid sample of units appropriate for the size of the HOME-assisted project, as set forth by HUD through a document published in the Federal Register. For projects with one to four HOME-assisted units, a participating jurisdiction must inspect all of the HOME-assisted units and all inspectable areas for each building with HOME-assisted units. However, per the HUD 2013 final rule, not less than 20% of the units can be inspected. Therefore, 20% of units are required to be inspected at each property. The 20% is not calculated based on total number of loans or HOME assisted units at the City, as indicated in Management’s response. Additionally, the City was unable to demonstrate that inspections were based on a statistically valid sample.
Finding Number: 2023-003 Program: HOME Investment Partnerships Program (HOME) ALN #: 14.239 Pass-through entity: NA – Direct Award Federal Agency: Department of Housing and Urban Development Federal Award Numbers: M14-MC060518, M15-MC060518, M16-MC060518, M17-MC060518, M18-MC060518, M19-MC060518, M21-MC060518, and M22-MC060518 Federal Award Year: 11/18/2015–09/01/2023, 01/19/2017–09/01/2024, 09/22/2017–09/01/2025, 09/12/2018–09/01/2026, 09/04/2019–09/01/2027, 08/19/2021–09/01/2029, and 11/09/2022–09/01/2030 Compliance Requirement: Special Tests- Housing Quality Standards Criteria During the period of affordability (i.e., the period for which the nonfederal entity must maintain subsidized housing) for HOME-assisted rental housing, the participating jurisdiction must perform on-site inspections to determine compliance with property standards and verify the information submitted by the owners no less than (a) every three years for projects containing 1 to 4 units, (b) every two years for projects containing 5 to 25 units, and (c) every year for projects containing 26 or more units. The participating jurisdiction must perform on-site inspections of rental housing occupied by tenants receiving HOME/HOME-ARP-assisted tenant-based rental assistance to determine compliance with housing quality standards (24 CFR sections 92.209(i), 92.251(f), and 92.504(d)). Additionally, per 24 CFR 92.504(d)(1)(D), inspections must be based on a statistically valid sample of units appropriate for the size of the HOME-assisted project, as set forth by HUD through a document published in the Federal Register. For projects with one to four HOME-assisted units, a participating jurisdiction must inspect all of the HOME-assisted units and all inspectable areas for each building with HOME-assisted units. However, per the HUD 2013 final rule, not less than 20% of the units can be inspected. Additionally, 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to reasonably ensure compliance with Federal laws, regulations, and program compliance requirements. Effective internal controls should include procedures to ensure housing quality standards are appropriately performed and documented. Conditions Found The City failed to complete inspections on the required number of HOME-assisted units and within the time period required. During our testwork we noted that 4 of the 11 property selections had less than 20% of the units inspected. Additionally, we noted that 5 of the 11 inspections did not occur within the required one-, two-, or three-year time period since the previous inspection date. The City maintains a log that indicates the property, address, minimum number of inspections required, number of units, the responsible monitor, and if the inspection passed or failed. However, the log is unable to detect that at least 20% of HOME-assisted units per project are selected for inspection. The log calculates a minimum of 15% of HOME units inspected per property/project. Additionally, per HUD regulations, the City must make a statistical sample of HOME-assisted units within a project. The log is not indicative of a statistical sample. Lastly, the log does not track all HOME projects, thus, the City is not able to demonstrate its compliance with the frequency of inspection of all sites. Cause Due to staffing constraints and the number of required inspections, the City was not able to inspect at least 20% of the units within all projects and within the required time. Further, the City’s log is not designed to include all the required elements for frequency and number of inspections. Effect Not inspecting the proper number of units and within the correct time period could cause the City to be non-compliant with HUD requirements. Questioned Costs Not applicable Repeat finding A similar finding was not reported in the prior year. Statistical sampling The sample was not intended to be, and was not, a statistically valid sample. Recommendation We recommend the City update the internal tracker to ensure that 20% of HOME units are inspected, inspections are based on a statistical sample, and that all inspections occur within the required time. Additionally, the City should track all projects to ensure they are in compliance with all HOME-assisted projects. Views of Responsible Officials The Community Development Department has faced challenges in meeting its inspection goals, primarily due to resource limitations, staff redeployment and the impact of COVID-19. It is taking steps to address these issues by forming an in-house inspection team and adopting elements from HUD’s yet-to-be-released NSPIRE system. For example, three full-time positions have been filled as of May 2024 to assist with the Housing Quality Standards (HQS) efforts. While HUD guidelines have stated an acceptable rate of 15-20% in their own HQS guidelines, the City set its goal at 20%. Therefore, it is important to note that this finding is not indicative of a failure to meet the regulatory standard, but rather to meet an internal one. Furthermore, the testing shows that the standard was met when the universe of projects and inspections is examined. The Community Development Department aimed to complete 20% of inspections and achieved a completion rate of 19.65% during the fiscal year under audit. The City maintains that the intent of the regulation was met through this standard and this finding has been issued, because the inspections were uneven across individual projects. This can be attributed to resource limitations, reliance on the Housing Authority’s inspection system, and COVID-19 delays, which led to significant backlogs from prior years when access was limited. The Community Development Department is now taking more systematic, proactive measures to improve the inspection process, particularly through filled vacancies, in-house inspections conducted by department staff, and an active log indicating inspection targets. As a result, during the current fiscal year, there has been a smoother, more data-driven, systematic approach to meeting HQS requirements, as evidenced by the substantial decrease in backlog. The Department is on track to ensure that every project will meet an inspection target that meets the NSPIRE standards (as currently drafted). Response to Views of Responsible Officials As noted in the criteria section above, 24 CFR 92.504(d)(1)(D) states, inspections must be based on a statistically valid sample of units appropriate for the size of the HOME-assisted project, as set forth by HUD through a document published in the Federal Register. For projects with one to four HOME-assisted units, a participating jurisdiction must inspect all of the HOME-assisted units and all inspectable areas for each building with HOME-assisted units. However, per the HUD 2013 final rule, not less than 20% of the units can be inspected. Therefore, 20% of units are required to be inspected at each property. The 20% is not calculated based on total number of loans or HOME assisted units at the City, as indicated in Management’s response. Additionally, the City was unable to demonstrate that inspections were based on a statistically valid sample.
Finding Number: 2023-004 Program: HOME Investment Partnerships Program (HOME) ALN #: 14.239 Pass-through entity: NA – Direct Award Federal Agency: Department of Housing and Urban Development Federal Award Numbers: M14-MC060518, M15-MC060518, M16-MC060518, M17-MC060518, M18-MC060518, M19-MC060518, M21-MC060518, and M22-MC060518 Federal Award Year: 11/18/2015–09/01/2023, 01/19/2017–09/01/2024, 09/22/2017–09/01/2025, 09/12/2018–09/01/2026, 09/04/2019–09/01/2027, 08/19/2021–09/01/2029, and 11/09/2022–09/01/2030 Compliance Requirement: Special Tests- Housing Quality Standards Criteria During the period of affordability (i.e., the period for which the nonfederal entity must maintain subsidized housing) for HOME-assisted rental housing, the participating jurisdiction must perform on-site inspections to determine compliance with property standards and verify the information submitted by the owners no less than (a) every three years for projects containing one to four units, (b) every two years for projects containing five to 25 units, and (c) every year for projects containing 26 or more units. The participating jurisdiction must perform on-site inspections of rental housing occupied by tenants receiving HOME/HOME-ARP-assisted tenant-based rental assistance to determine compliance with housing quality standards (24 CFR sections 92.209(i), 92.251(f), and 92.504(d)). As stated in 24 CFR 92.251(f) part 4, the participating jurisdiction must have procedures for ensuring that timely corrective and remedial actions are taken by the project owner to address identified deficiencies. It is further outlined in HUD’s 2013 final rule that, if any deficiencies are identified for any inspectable items (as established in the PJ’s inspection procedures), a follow-up on-site inspection is required within 12 months. For non-hazardous deficiencies, the PJ can either conduct an on-site inspection or accept third party documentation (such as a paid invoice for work completed). Health and safety deficiencies identified during inspections must be corrected immediately. The PJ must adopt a more frequent inspection schedule for these properties. The City’s procedures outline a 30 day requirement for deficiencies to be completed. Additionally, 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to reasonably ensure compliance with Federal laws, regulations and program compliance requirements. Effective internal controls should include procedures to ensure housing quality standards are appropriately performed and documented. Conditions Found During our testwork we noted that repairs/deficiencies that were identified during the initial on-site inspection were not completed timely, as set forth in the City’s policies and procedures. For 3 of 11 sample selections, we noted that repairs were documented and completed after the 30-day window. Additionally, the City does not have a control to ensure deficiencies noted during the initial inspection are remediated within 30 days. Cause Due to staffing constraints and the number of required repairs, the City was not able to ensure repairs were completed within 30 days. Effect Not performing procedures to ensure that deficiencies were remediated, will cause the City to be out of compliance with HUD requirements. Questioned Costs Not applicable Repeat finding A similar finding was not reported in the prior year. Statistical sample The sample was not intended to be, and was not, a statistically valid sample. Recommendation We recommend the City implement a control to ensure that deficiencies are remediated within 30 days. Views of Responsible Officials This issue is related to Finding 2023-003, and should be considered in the context of that response. Housing Quality Inspection times were impacted in 2023 due to staff shortages and the need to address a significant backlog that occurred as a result of the COVID-19 pandemic. Despite these challenges, the City remained committed to ensuring the health and safety of affordable housing by maintaining an overall inspection rate of 19.65% in Fiscal Year 2023. Furthermore, the Community Development Department is taking comprehensive measures to address the needed maintenance completion timeframe following the required inspection, and the goal is to ensure repairs are completed within thirty days. For context, it’s important to note that KPMG mentioned three repair delays. Although 3 of the 11 samples were outside the City’s stated goal of a thirty-day repair turnover, none faced material delays. One of them was delayed by two days (32 days to complete), while the other two repairs were completed within 34 and 46 days, respectively. This condition has been addressed by implementation of the corrections itemized in Finding 2023-003.
Finding Number: 2023-004 Program: HOME Investment Partnerships Program (HOME) ALN #: 14.239 Pass-through entity: NA – Direct Award Federal Agency: Department of Housing and Urban Development Federal Award Numbers: M14-MC060518, M15-MC060518, M16-MC060518, M17-MC060518, M18-MC060518, M19-MC060518, M21-MC060518, and M22-MC060518 Federal Award Year: 11/18/2015–09/01/2023, 01/19/2017–09/01/2024, 09/22/2017–09/01/2025, 09/12/2018–09/01/2026, 09/04/2019–09/01/2027, 08/19/2021–09/01/2029, and 11/09/2022–09/01/2030 Compliance Requirement: Special Tests- Housing Quality Standards Criteria During the period of affordability (i.e., the period for which the nonfederal entity must maintain subsidized housing) for HOME-assisted rental housing, the participating jurisdiction must perform on-site inspections to determine compliance with property standards and verify the information submitted by the owners no less than (a) every three years for projects containing one to four units, (b) every two years for projects containing five to 25 units, and (c) every year for projects containing 26 or more units. The participating jurisdiction must perform on-site inspections of rental housing occupied by tenants receiving HOME/HOME-ARP-assisted tenant-based rental assistance to determine compliance with housing quality standards (24 CFR sections 92.209(i), 92.251(f), and 92.504(d)). As stated in 24 CFR 92.251(f) part 4, the participating jurisdiction must have procedures for ensuring that timely corrective and remedial actions are taken by the project owner to address identified deficiencies. It is further outlined in HUD’s 2013 final rule that, if any deficiencies are identified for any inspectable items (as established in the PJ’s inspection procedures), a follow-up on-site inspection is required within 12 months. For non-hazardous deficiencies, the PJ can either conduct an on-site inspection or accept third party documentation (such as a paid invoice for work completed). Health and safety deficiencies identified during inspections must be corrected immediately. The PJ must adopt a more frequent inspection schedule for these properties. The City’s procedures outline a 30 day requirement for deficiencies to be completed. Additionally, 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to reasonably ensure compliance with Federal laws, regulations and program compliance requirements. Effective internal controls should include procedures to ensure housing quality standards are appropriately performed and documented. Conditions Found During our testwork we noted that repairs/deficiencies that were identified during the initial on-site inspection were not completed timely, as set forth in the City’s policies and procedures. For 3 of 11 sample selections, we noted that repairs were documented and completed after the 30-day window. Additionally, the City does not have a control to ensure deficiencies noted during the initial inspection are remediated within 30 days. Cause Due to staffing constraints and the number of required repairs, the City was not able to ensure repairs were completed within 30 days. Effect Not performing procedures to ensure that deficiencies were remediated, will cause the City to be out of compliance with HUD requirements. Questioned Costs Not applicable Repeat finding A similar finding was not reported in the prior year. Statistical sample The sample was not intended to be, and was not, a statistically valid sample. Recommendation We recommend the City implement a control to ensure that deficiencies are remediated within 30 days. Views of Responsible Officials This issue is related to Finding 2023-003, and should be considered in the context of that response. Housing Quality Inspection times were impacted in 2023 due to staff shortages and the need to address a significant backlog that occurred as a result of the COVID-19 pandemic. Despite these challenges, the City remained committed to ensuring the health and safety of affordable housing by maintaining an overall inspection rate of 19.65% in Fiscal Year 2023. Furthermore, the Community Development Department is taking comprehensive measures to address the needed maintenance completion timeframe following the required inspection, and the goal is to ensure repairs are completed within thirty days. For context, it’s important to note that KPMG mentioned three repair delays. Although 3 of the 11 samples were outside the City’s stated goal of a thirty-day repair turnover, none faced material delays. One of them was delayed by two days (32 days to complete), while the other two repairs were completed within 34 and 46 days, respectively. This condition has been addressed by implementation of the corrections itemized in Finding 2023-003.
Finding Number: 2023-004 Program: HOME Investment Partnerships Program (HOME) ALN #: 14.239 Pass-through entity: NA – Direct Award Federal Agency: Department of Housing and Urban Development Federal Award Numbers: M14-MC060518, M15-MC060518, M16-MC060518, M17-MC060518, M18-MC060518, M19-MC060518, M21-MC060518, and M22-MC060518 Federal Award Year: 11/18/2015–09/01/2023, 01/19/2017–09/01/2024, 09/22/2017–09/01/2025, 09/12/2018–09/01/2026, 09/04/2019–09/01/2027, 08/19/2021–09/01/2029, and 11/09/2022–09/01/2030 Compliance Requirement: Special Tests- Housing Quality Standards Criteria During the period of affordability (i.e., the period for which the nonfederal entity must maintain subsidized housing) for HOME-assisted rental housing, the participating jurisdiction must perform on-site inspections to determine compliance with property standards and verify the information submitted by the owners no less than (a) every three years for projects containing one to four units, (b) every two years for projects containing five to 25 units, and (c) every year for projects containing 26 or more units. The participating jurisdiction must perform on-site inspections of rental housing occupied by tenants receiving HOME/HOME-ARP-assisted tenant-based rental assistance to determine compliance with housing quality standards (24 CFR sections 92.209(i), 92.251(f), and 92.504(d)). As stated in 24 CFR 92.251(f) part 4, the participating jurisdiction must have procedures for ensuring that timely corrective and remedial actions are taken by the project owner to address identified deficiencies. It is further outlined in HUD’s 2013 final rule that, if any deficiencies are identified for any inspectable items (as established in the PJ’s inspection procedures), a follow-up on-site inspection is required within 12 months. For non-hazardous deficiencies, the PJ can either conduct an on-site inspection or accept third party documentation (such as a paid invoice for work completed). Health and safety deficiencies identified during inspections must be corrected immediately. The PJ must adopt a more frequent inspection schedule for these properties. The City’s procedures outline a 30 day requirement for deficiencies to be completed. Additionally, 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to reasonably ensure compliance with Federal laws, regulations and program compliance requirements. Effective internal controls should include procedures to ensure housing quality standards are appropriately performed and documented. Conditions Found During our testwork we noted that repairs/deficiencies that were identified during the initial on-site inspection were not completed timely, as set forth in the City’s policies and procedures. For 3 of 11 sample selections, we noted that repairs were documented and completed after the 30-day window. Additionally, the City does not have a control to ensure deficiencies noted during the initial inspection are remediated within 30 days. Cause Due to staffing constraints and the number of required repairs, the City was not able to ensure repairs were completed within 30 days. Effect Not performing procedures to ensure that deficiencies were remediated, will cause the City to be out of compliance with HUD requirements. Questioned Costs Not applicable Repeat finding A similar finding was not reported in the prior year. Statistical sample The sample was not intended to be, and was not, a statistically valid sample. Recommendation We recommend the City implement a control to ensure that deficiencies are remediated within 30 days. Views of Responsible Officials This issue is related to Finding 2023-003, and should be considered in the context of that response. Housing Quality Inspection times were impacted in 2023 due to staff shortages and the need to address a significant backlog that occurred as a result of the COVID-19 pandemic. Despite these challenges, the City remained committed to ensuring the health and safety of affordable housing by maintaining an overall inspection rate of 19.65% in Fiscal Year 2023. Furthermore, the Community Development Department is taking comprehensive measures to address the needed maintenance completion timeframe following the required inspection, and the goal is to ensure repairs are completed within thirty days. For context, it’s important to note that KPMG mentioned three repair delays. Although 3 of the 11 samples were outside the City’s stated goal of a thirty-day repair turnover, none faced material delays. One of them was delayed by two days (32 days to complete), while the other two repairs were completed within 34 and 46 days, respectively. This condition has been addressed by implementation of the corrections itemized in Finding 2023-003.
Finding Number: 2023-004 Program: HOME Investment Partnerships Program (HOME) ALN #: 14.239 Pass-through entity: NA – Direct Award Federal Agency: Department of Housing and Urban Development Federal Award Numbers: M14-MC060518, M15-MC060518, M16-MC060518, M17-MC060518, M18-MC060518, M19-MC060518, M21-MC060518, and M22-MC060518 Federal Award Year: 11/18/2015–09/01/2023, 01/19/2017–09/01/2024, 09/22/2017–09/01/2025, 09/12/2018–09/01/2026, 09/04/2019–09/01/2027, 08/19/2021–09/01/2029, and 11/09/2022–09/01/2030 Compliance Requirement: Special Tests- Housing Quality Standards Criteria During the period of affordability (i.e., the period for which the nonfederal entity must maintain subsidized housing) for HOME-assisted rental housing, the participating jurisdiction must perform on-site inspections to determine compliance with property standards and verify the information submitted by the owners no less than (a) every three years for projects containing one to four units, (b) every two years for projects containing five to 25 units, and (c) every year for projects containing 26 or more units. The participating jurisdiction must perform on-site inspections of rental housing occupied by tenants receiving HOME/HOME-ARP-assisted tenant-based rental assistance to determine compliance with housing quality standards (24 CFR sections 92.209(i), 92.251(f), and 92.504(d)). As stated in 24 CFR 92.251(f) part 4, the participating jurisdiction must have procedures for ensuring that timely corrective and remedial actions are taken by the project owner to address identified deficiencies. It is further outlined in HUD’s 2013 final rule that, if any deficiencies are identified for any inspectable items (as established in the PJ’s inspection procedures), a follow-up on-site inspection is required within 12 months. For non-hazardous deficiencies, the PJ can either conduct an on-site inspection or accept third party documentation (such as a paid invoice for work completed). Health and safety deficiencies identified during inspections must be corrected immediately. The PJ must adopt a more frequent inspection schedule for these properties. The City’s procedures outline a 30 day requirement for deficiencies to be completed. Additionally, 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to reasonably ensure compliance with Federal laws, regulations and program compliance requirements. Effective internal controls should include procedures to ensure housing quality standards are appropriately performed and documented. Conditions Found During our testwork we noted that repairs/deficiencies that were identified during the initial on-site inspection were not completed timely, as set forth in the City’s policies and procedures. For 3 of 11 sample selections, we noted that repairs were documented and completed after the 30-day window. Additionally, the City does not have a control to ensure deficiencies noted during the initial inspection are remediated within 30 days. Cause Due to staffing constraints and the number of required repairs, the City was not able to ensure repairs were completed within 30 days. Effect Not performing procedures to ensure that deficiencies were remediated, will cause the City to be out of compliance with HUD requirements. Questioned Costs Not applicable Repeat finding A similar finding was not reported in the prior year. Statistical sample The sample was not intended to be, and was not, a statistically valid sample. Recommendation We recommend the City implement a control to ensure that deficiencies are remediated within 30 days. Views of Responsible Officials This issue is related to Finding 2023-003, and should be considered in the context of that response. Housing Quality Inspection times were impacted in 2023 due to staff shortages and the need to address a significant backlog that occurred as a result of the COVID-19 pandemic. Despite these challenges, the City remained committed to ensuring the health and safety of affordable housing by maintaining an overall inspection rate of 19.65% in Fiscal Year 2023. Furthermore, the Community Development Department is taking comprehensive measures to address the needed maintenance completion timeframe following the required inspection, and the goal is to ensure repairs are completed within thirty days. For context, it’s important to note that KPMG mentioned three repair delays. Although 3 of the 11 samples were outside the City’s stated goal of a thirty-day repair turnover, none faced material delays. One of them was delayed by two days (32 days to complete), while the other two repairs were completed within 34 and 46 days, respectively. This condition has been addressed by implementation of the corrections itemized in Finding 2023-003.
Finding Number: 2023-004 Program: HOME Investment Partnerships Program (HOME) ALN #: 14.239 Pass-through entity: NA – Direct Award Federal Agency: Department of Housing and Urban Development Federal Award Numbers: M14-MC060518, M15-MC060518, M16-MC060518, M17-MC060518, M18-MC060518, M19-MC060518, M21-MC060518, and M22-MC060518 Federal Award Year: 11/18/2015–09/01/2023, 01/19/2017–09/01/2024, 09/22/2017–09/01/2025, 09/12/2018–09/01/2026, 09/04/2019–09/01/2027, 08/19/2021–09/01/2029, and 11/09/2022–09/01/2030 Compliance Requirement: Special Tests- Housing Quality Standards Criteria During the period of affordability (i.e., the period for which the nonfederal entity must maintain subsidized housing) for HOME-assisted rental housing, the participating jurisdiction must perform on-site inspections to determine compliance with property standards and verify the information submitted by the owners no less than (a) every three years for projects containing one to four units, (b) every two years for projects containing five to 25 units, and (c) every year for projects containing 26 or more units. The participating jurisdiction must perform on-site inspections of rental housing occupied by tenants receiving HOME/HOME-ARP-assisted tenant-based rental assistance to determine compliance with housing quality standards (24 CFR sections 92.209(i), 92.251(f), and 92.504(d)). As stated in 24 CFR 92.251(f) part 4, the participating jurisdiction must have procedures for ensuring that timely corrective and remedial actions are taken by the project owner to address identified deficiencies. It is further outlined in HUD’s 2013 final rule that, if any deficiencies are identified for any inspectable items (as established in the PJ’s inspection procedures), a follow-up on-site inspection is required within 12 months. For non-hazardous deficiencies, the PJ can either conduct an on-site inspection or accept third party documentation (such as a paid invoice for work completed). Health and safety deficiencies identified during inspections must be corrected immediately. The PJ must adopt a more frequent inspection schedule for these properties. The City’s procedures outline a 30 day requirement for deficiencies to be completed. Additionally, 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to reasonably ensure compliance with Federal laws, regulations and program compliance requirements. Effective internal controls should include procedures to ensure housing quality standards are appropriately performed and documented. Conditions Found During our testwork we noted that repairs/deficiencies that were identified during the initial on-site inspection were not completed timely, as set forth in the City’s policies and procedures. For 3 of 11 sample selections, we noted that repairs were documented and completed after the 30-day window. Additionally, the City does not have a control to ensure deficiencies noted during the initial inspection are remediated within 30 days. Cause Due to staffing constraints and the number of required repairs, the City was not able to ensure repairs were completed within 30 days. Effect Not performing procedures to ensure that deficiencies were remediated, will cause the City to be out of compliance with HUD requirements. Questioned Costs Not applicable Repeat finding A similar finding was not reported in the prior year. Statistical sample The sample was not intended to be, and was not, a statistically valid sample. Recommendation We recommend the City implement a control to ensure that deficiencies are remediated within 30 days. Views of Responsible Officials This issue is related to Finding 2023-003, and should be considered in the context of that response. Housing Quality Inspection times were impacted in 2023 due to staff shortages and the need to address a significant backlog that occurred as a result of the COVID-19 pandemic. Despite these challenges, the City remained committed to ensuring the health and safety of affordable housing by maintaining an overall inspection rate of 19.65% in Fiscal Year 2023. Furthermore, the Community Development Department is taking comprehensive measures to address the needed maintenance completion timeframe following the required inspection, and the goal is to ensure repairs are completed within thirty days. For context, it’s important to note that KPMG mentioned three repair delays. Although 3 of the 11 samples were outside the City’s stated goal of a thirty-day repair turnover, none faced material delays. One of them was delayed by two days (32 days to complete), while the other two repairs were completed within 34 and 46 days, respectively. This condition has been addressed by implementation of the corrections itemized in Finding 2023-003.
Finding Number: 2023-005 Program: COVID-19 Section 8 Housing Choice Vouchers ALN #: 14.871 Pass-through Entity: N/A – Direct Award Federal Agency: Department of Housing and Urban Development (HUD) Federal Award Numbers: Multiple – City receives incremental funding throughout the year. Federal Award Year: 2023 Compliance Requirement: Eligibility, Special Tests – Selections from Waiting List Criteria Most PHAs devise their own application forms that are filled out by the PHA staff during an interview with the tenant. The head of the household signs (a) one or more release forms to allow the PHA to obtain information from third parties; (b) a federally prescribed general release form for employment information; and (c) a privacy notice. Under some circumstances, other members of the family are required to sign these forms (24 CFR sections 5.212 and 5.230). The PHA must do the following: (1) As a condition of admission or continued occupancy, require the tenant and other family members to provide necessary information, documentation, and releases for the PHA to verify income eligibility (24 CFR sections 5.230, 5.609, and 982.516). (2) For both family income examinations and reexaminations, obtain and document in the family file third-party verification of (a) reported family annual income; (b) the value of assets; (c) expenses related to deductions from annual income; and (d) other factors that affect the determination of adjusted income or income-based rent (24 CFR section 982.516). (3) Determine income eligibility and calculate the tenant’s rent payment using the documentation from third-party verification in accordance with 24 CFR Part 5 Subpart F (24 CFR section 5.601 et seq.) (24 CFR sections 982.201, 982.515, and 982.516). (4) Select tenants from the HCVP waiting list (see III.N.1, “Special Tests and Provisions – Selection from the Waiting List”) (24 CFR sections 982.202 through 982.207). (5) Reexamine family income and composition at least once every 12 months and adjust the tenant rent and housing assistance payment as necessary using the documentation from third-party verification (24 CFR section 982.516). Title 45 US Code of Federal Regulations Part 75 (45 CFR part 75), Uniform Administrative Requirements, Cost Principles, and Audit Requirements for HHS Awards, section 75.303 also states that nonfederal entities must establish and maintain effective internal control over the federal award that provides reasonable assurance that the nonfederal entity is managing the federal award in compliance with federal statutes, regulations and the terms and conditions of the federal award. Additionally, 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to reasonably ensure compliance with Federal laws, regulations and program compliance requirements. Effective internal controls should include procedures to ensure eligibility criteria are met and documented. Conditions Found For 3 of 40 samples, the City did not re-examine eligible participants during the period ending September 30, 2023 or within the 12-month requirement, as noted above. Per discussion with the City and review of its policies and procedures over the eligibility process, the Housing Assistance Coordinator reviews and approves the re-examination sheets and supporting eligibility workpapers for each participant to ensure they continue to be eligible under the HCV program. For 40 of 40 sample selections, we noted that there was no evidence of this control being performed. Additionally, as part of the eligibility process and selecting individuals from the waiting list in accordance with policies, the City completes an intake form, which is reviewed and approved by a Housing Assistance Coordinator. Evidence of this control is noted at the end of the slip with a signature by the Housing Assistance Coordinator who completed the review. During our testing of this control, there were 14 of 40 samples where the intake route slip was not reviewed by the Housing Assistance Coordinator. Cause For the participants whose income was not re-examined during the fiscal year, it is due to the volume of participants within the City’s HCV program and the Housing Authority being understaffed. There are more than 7,000 participants of the HCV program and approximately 76 employees at the Housing Authority whose salaries are charged to the HCV grant. Due to the volume of new participants and active participants during the fiscal year ended September 30, 2023, the Housing Assistance Coordinator did not have the capacity to sign off on each individual’s eligibility package or review all intake forms upon initial pull from the waiting list. Effect Not properly reviewing participant’s eligibility status each 12 month period and upon initial selection, could cause the City to not be in compliance with HUD regulations. Additionally, it could cause the City to be providing assistance to ineligible participants, which would result in unallowable costs to the program. Questioned Costs Not applicable Repeat finding A similar finding was not reported in the prior year. Statistical sample The sample was not intended to be, and was not, a statistically valid sample. Recommendation We recommend the City continue reviewing each participant’s eligibility status once every 12 months and upon initial acceptance into the program. The City should implement a plan to ensure all participants are reviewed. Lastly, the Housing Assistance Coordinator who reviews the eligibility documents for each participant should evidence the review by signing or initialing the reexamination sheets. View of Responsible Officials While KPMG has opined that three out of the forty samples were not reexamined for eligibility within the 12-month requirement, on the contrary, HUD considers reexaminations being late if it has been fourteen months since the last reexamination (www.hud.gov/sites/dfiles/PIH/documents/Reexamination_Report_Instructions.pdf). For one of those three referenced samples, the annual reexamination was effective September 1, 2023, and it was completed on October 4, 2023. Therefore, the Housing Authority of the City of Long Beach (HACLB) disagrees with the finding for this particular sample, while it agrees that the other two samples were not reexamined timely. Due to staffing shortages experienced during the fiscal year and the high volume of participants in the City’s HCV program, HACLB had annual recertifications that were overdue, exceeding twelve months since the last recertification. Moreover, a significant amount of staff time was spent in training on Housing Opportunity Through Modernization Act (HOTMA) regulations that were continually revised and ultimately delayed, which reduced the amount of time that staff could have utilized for certification processes. The continuously changing regulations created ambiguity for existing and new staff. To address delays in recertification processes, HACLB has contracted with an agency to assist in processing the overdue recertifications, and HACLB has submitted recruiting requisitions to its Human Resources department to hire additional housing specialists to improve upon its management of the high volume of HCV program participants, documentation and processes, and comply with various deadlines. Regarding the Intake forms, HUD does not require an Intake/Eligibility sheet be completed. However, HACLB has typically included an Intake/Eligibility sheet to help ensure quality control. Recently, this was not consistently done, due to staffing shortages. To maintain this internal control in the process, staff will be reminded to ensure that an approved Intake/Eligibility sheet is included in the participant’s file. Response to Views of Responsible Officials Per HUD guidance and the OMB compliance supplement, which is outlined in the criteria section of this finding, a reexamination is required to be completed every 12 months. KPMG notes that the three samples outlined in the conditions found section of this finding had reexaminations that occurred outside the 12 month requirement. Further, the City communicated verbally and in writing, through process narrative understanding documents, that an intake form is completed for each new participant that is selected from the waiting list. Written process narratives were provided to KPMG on June 5, 2024.
Finding Number: 2023-005 Program: COVID-19 Section 8 Housing Choice Vouchers ALN #: 14.871 Pass-through Entity: N/A – Direct Award Federal Agency: Department of Housing and Urban Development (HUD) Federal Award Numbers: Multiple – City receives incremental funding throughout the year. Federal Award Year: 2023 Compliance Requirement: Eligibility, Special Tests – Selections from Waiting List Criteria Most PHAs devise their own application forms that are filled out by the PHA staff during an interview with the tenant. The head of the household signs (a) one or more release forms to allow the PHA to obtain information from third parties; (b) a federally prescribed general release form for employment information; and (c) a privacy notice. Under some circumstances, other members of the family are required to sign these forms (24 CFR sections 5.212 and 5.230). The PHA must do the following: (1) As a condition of admission or continued occupancy, require the tenant and other family members to provide necessary information, documentation, and releases for the PHA to verify income eligibility (24 CFR sections 5.230, 5.609, and 982.516). (2) For both family income examinations and reexaminations, obtain and document in the family file third-party verification of (a) reported family annual income; (b) the value of assets; (c) expenses related to deductions from annual income; and (d) other factors that affect the determination of adjusted income or income-based rent (24 CFR section 982.516). (3) Determine income eligibility and calculate the tenant’s rent payment using the documentation from third-party verification in accordance with 24 CFR Part 5 Subpart F (24 CFR section 5.601 et seq.) (24 CFR sections 982.201, 982.515, and 982.516). (4) Select tenants from the HCVP waiting list (see III.N.1, “Special Tests and Provisions – Selection from the Waiting List”) (24 CFR sections 982.202 through 982.207). (5) Reexamine family income and composition at least once every 12 months and adjust the tenant rent and housing assistance payment as necessary using the documentation from third-party verification (24 CFR section 982.516). Title 45 US Code of Federal Regulations Part 75 (45 CFR part 75), Uniform Administrative Requirements, Cost Principles, and Audit Requirements for HHS Awards, section 75.303 also states that nonfederal entities must establish and maintain effective internal control over the federal award that provides reasonable assurance that the nonfederal entity is managing the federal award in compliance with federal statutes, regulations and the terms and conditions of the federal award. Additionally, 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to reasonably ensure compliance with Federal laws, regulations and program compliance requirements. Effective internal controls should include procedures to ensure eligibility criteria are met and documented. Conditions Found For 3 of 40 samples, the City did not re-examine eligible participants during the period ending September 30, 2023 or within the 12-month requirement, as noted above. Per discussion with the City and review of its policies and procedures over the eligibility process, the Housing Assistance Coordinator reviews and approves the re-examination sheets and supporting eligibility workpapers for each participant to ensure they continue to be eligible under the HCV program. For 40 of 40 sample selections, we noted that there was no evidence of this control being performed. Additionally, as part of the eligibility process and selecting individuals from the waiting list in accordance with policies, the City completes an intake form, which is reviewed and approved by a Housing Assistance Coordinator. Evidence of this control is noted at the end of the slip with a signature by the Housing Assistance Coordinator who completed the review. During our testing of this control, there were 14 of 40 samples where the intake route slip was not reviewed by the Housing Assistance Coordinator. Cause For the participants whose income was not re-examined during the fiscal year, it is due to the volume of participants within the City’s HCV program and the Housing Authority being understaffed. There are more than 7,000 participants of the HCV program and approximately 76 employees at the Housing Authority whose salaries are charged to the HCV grant. Due to the volume of new participants and active participants during the fiscal year ended September 30, 2023, the Housing Assistance Coordinator did not have the capacity to sign off on each individual’s eligibility package or review all intake forms upon initial pull from the waiting list. Effect Not properly reviewing participant’s eligibility status each 12 month period and upon initial selection, could cause the City to not be in compliance with HUD regulations. Additionally, it could cause the City to be providing assistance to ineligible participants, which would result in unallowable costs to the program. Questioned Costs Not applicable Repeat finding A similar finding was not reported in the prior year. Statistical sample The sample was not intended to be, and was not, a statistically valid sample. Recommendation We recommend the City continue reviewing each participant’s eligibility status once every 12 months and upon initial acceptance into the program. The City should implement a plan to ensure all participants are reviewed. Lastly, the Housing Assistance Coordinator who reviews the eligibility documents for each participant should evidence the review by signing or initialing the reexamination sheets. View of Responsible Officials While KPMG has opined that three out of the forty samples were not reexamined for eligibility within the 12-month requirement, on the contrary, HUD considers reexaminations being late if it has been fourteen months since the last reexamination (www.hud.gov/sites/dfiles/PIH/documents/Reexamination_Report_Instructions.pdf). For one of those three referenced samples, the annual reexamination was effective September 1, 2023, and it was completed on October 4, 2023. Therefore, the Housing Authority of the City of Long Beach (HACLB) disagrees with the finding for this particular sample, while it agrees that the other two samples were not reexamined timely. Due to staffing shortages experienced during the fiscal year and the high volume of participants in the City’s HCV program, HACLB had annual recertifications that were overdue, exceeding twelve months since the last recertification. Moreover, a significant amount of staff time was spent in training on Housing Opportunity Through Modernization Act (HOTMA) regulations that were continually revised and ultimately delayed, which reduced the amount of time that staff could have utilized for certification processes. The continuously changing regulations created ambiguity for existing and new staff. To address delays in recertification processes, HACLB has contracted with an agency to assist in processing the overdue recertifications, and HACLB has submitted recruiting requisitions to its Human Resources department to hire additional housing specialists to improve upon its management of the high volume of HCV program participants, documentation and processes, and comply with various deadlines. Regarding the Intake forms, HUD does not require an Intake/Eligibility sheet be completed. However, HACLB has typically included an Intake/Eligibility sheet to help ensure quality control. Recently, this was not consistently done, due to staffing shortages. To maintain this internal control in the process, staff will be reminded to ensure that an approved Intake/Eligibility sheet is included in the participant’s file. Response to Views of Responsible Officials Per HUD guidance and the OMB compliance supplement, which is outlined in the criteria section of this finding, a reexamination is required to be completed every 12 months. KPMG notes that the three samples outlined in the conditions found section of this finding had reexaminations that occurred outside the 12 month requirement. Further, the City communicated verbally and in writing, through process narrative understanding documents, that an intake form is completed for each new participant that is selected from the waiting list. Written process narratives were provided to KPMG on June 5, 2024.
Finding Number: 2023-006 Program: Section 8 Housing Choice Vouchers ALN #: 14.871 Pass-through Entity: N/A – Direct Award Federal Agency: Department of Housing and Urban Development (HUD) Federal Award Numbers: Multiple – City receives incremental funding throughout the year. Federal Award Year: 2023 Compliance Requirement: Allowability Criteria PHAs may use HCVP and MV funds only for HAPs to participating owners, and for associated administrative fees (24 CFR sections 982.151 and 982.152). Accumulated administrative fees prior to fiscal year 2004, may be used for any housing-related purpose. Unspent administrative fees accumulated post fiscal year 2003 (i.e., fees from fiscal year 2004 and later funding, see III.L.1.e.(4)(a), “Financial Reporting – Financial Reports”) may be used only to support the HCVP. These funds still are considered to be administrative fee reserves and are subject to all of the requirements applicable to administrative fee reserves including, but not limited to, those in 24 CFR section 982.155. The fees accumulated from fiscal year 2004 and later funding must be used for activities related to the provision of tenant-based rental assistance authorized under Section 8 of the United States Housing Act of 1937, including related development activities. PHAs must maintain and report balances for both funding sources (see notice PIH 2015-17 (HA) dated October 6, 2015) (Division I, Title II, Section (5) of Consolidated Appropriations Act, 2005, Pub. L. No. 108-447, 118 Stat. 3296, and subsequent appropriations acts; see Section 5 of Notice PIH 2005-01; 24 CFR section 982.155). Title 45 US Code of Federal Regulations Part 75 (45 CFR part 75), Uniform Administrative Requirements, Cost Principles, and Audit Requirements for HHS Awards, section 75.303 also states that nonfederal entities must establish and maintain effective internal control over the federal award that provides reasonable assurance that the nonfederal entity is managing the federal award in compliance with federal statutes, regulations and the terms and conditions of the federal award. Additionally, 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to reasonably ensure compliance with Federal laws, regulations and program compliance requirements. Effective internal controls should include procedures to ensure eligibility criteria are met and documented. Conditions Found Based on the cost allocation plan that is prepared by the City annually, we recalculated the indirect costs that should have been charged to the HCV program. Based on an approved rate of 18.85%, we identified that there was an additional $86,163 of indirect expenses that were incorrectly charged to the program. We further note that there is no control over the review of the expenses that are applied to the indirect cost rate. Cause Per discussion with management, costs associated with the project string ‘FSS to HCV’ of $79,369 were inappropriately applied to the HCV grant/indirect cost calculation. Additionally, $6,794 was also inappropriately applied to the indirect cost calculation due to a City accountant incorrectly applying reclass and transfer amounts to the HCV program. Effect Not applying the proper expenses to the indirect cost rate has caused the City to charge unallowable costs to the HCV program and not to be in compliance with HUD regulations. Questioned Costs $86,163 – The difference between the indirect costs that should have been charged to the HCV program and what was applied. Repeat finding A similar finding was not reported in the prior year. Statistical sample The sample was not intended to be, and was not, a statistically valid sample. Recommendation We recommend the City implement a review process to ensure the indirect cost allocation rate is being applied to the proper expenses and, thus, properly being charged to the grant. View of Responsible Officials The Health and Human Services Department prepares an indirect cost allocation plan that has historically been used to allocate indirect cost charges to the HACLB. As part of the process to allocate indirect costs, a journal entry was processed for the transfer by fiscal year-end. The calculation method used the City’s legacy and current financial systems’ generated labor reports, capturing the labor cost amounts by legacy system index codes as the basis for the allocation calculation. One of the index codes had pointed to aFamily Self-Sufficiency program’s general ledger account that was later determined to be questionable by the auditor for inclusion under the HCV program. The Family Self-Sufficiency program does have an association with Housing Choice Vouchers, but was considered by KPMG as not having a direct relationship, and therefore should be excluded from the calculation basis. This amount that was in disagreement represented a majority of the calculated difference between that which was originally posted and the calculated HCV expenditures costs basis calculated by KPMG. The much smaller difference in the total costs basis resulted from later re-classed labor costs out of the HCV general ledger accounts, not reflected in the labor costs reports, and thus not accounted for. To ensure appropriate indirect cost charges going forward, costs will be taken from general ledger account balances near fiscal year-end, instead of only considering labor reports. HACLB does have a multi-step review and approval process for the processing and posting of journal entries and their support documentation, but an improved method of capturing final costs can be implemented in the analysis process. Furthermore, for upcoming fiscal years, the City has changed its indirect costs allocation methodology, in that the City will be directly charging HACLB’s funds its share of overhead costs thereby eliminating the Health and Human Services Department indirect cost allocation plan and related indirect cost charges. The $86,163 that was inappropriately charged to the Housing Fund was repaid by the Health Operating Fund, as of September 30, 2024. Response to Views of Responsible Officials The City provided the labor cost reports that were used to calculate the indirect costs that were charged to the program. KPMG compared the calculation the City completed, based on these labor reports, to what was actually charged to the program for payroll and fringe benefits. There was a difference of $86,163 between the actual costs charged and what the City initially calculated from the labor reports. When discussing the difference with the City, it was communicated in writing on August 20, 2024 that an additional $86,163 was inappropriately charged, and should have been excluded from the HCV program due to an oversight in the accounting department.