Finding Text
2024-001 – Reporting - Preparation of the Schedule of Expenditures of Federal Awards
Identification of the Federal Program – Department of Housing and Urban Development - 14.128 Mortgage Insurance Hospitals - FHA Section 242 Mortgage Insurance Program Loan
Criteria – CFR Section §200.510(b) states in part: “The auditee must also prepare a schedule of expenditures of Federal awards (Schedule) for the period covered by the auditee's financial statements which must include the total Federal awards expended as determined in accordance with §200.502”. Also, in accordance with CFR Section §200.302, a non-Federal entity's financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award.
Condition – We noted that there were adjustments needed to the Schedule to include initial debt issuance costs incurred and drawn during the period in connection with the new HUD mortgage secured during January 2024.
Cause – Internal controls over review of the completeness of the Schedule were not properly implemented during the period of additional mortgages secured. Such internal controls were designed to require timely review of the completeness of the Schedule by appropriate personnel.
Effect – The Schedule for the year ended June 30, 2024 inappropriately excluded $845,273 of related expenditures against the latest HUD mortgage established during January 2024.
Questioned costs – none
Context – Internal controls did not operate as intended to ensure the Schedule captured nonrecurring expenditures. In connection with securing the January 2024 HUD mortgage, certain debt issuance costs were charged against the mortgage upon closing. These expenditures were not part of the routine expenditure and draw processes and controls in place at the Authority due to their unique nature and infrequency. Therefore, management did not identify such initial closing costs for capture on the Schedule.
Repeat finding – No
Recommendation – We recommend the Schedule to be reviewed timely and with sufficient precision by the appropriate level of personnel and reconciliation of new HUD mortgage closing documents.
View of Responsible Officials - Management agrees with the Federal Award Finding regarding the determination of when a Federal award is expended. As part of the Corrective Action Plan, management will validate mortgage activity against HUD mortgage provided information.