FAC Explorer

Finding 1081561 (2023-006)

Material Weakness
Requirement
A
Questioned Costs
$1
Year
2023
Accepted
2024-11-08
Audit: 327788
Organization: City of Long Beach (CA)
Auditor: Kpmg LLP

AI Summary

  • Core Issue: The City incorrectly charged $86,163 in unallowable indirect costs to the HCV program, violating HUD regulations.
  • Impacted Requirements: Compliance with 24 CFR sections 982.151 and 982.152 regarding allowable expenses and internal control requirements under 2 CFR 200.303.
  • Recommended Follow-up: Implement a review process to ensure proper allocation of indirect costs and compliance with federal guidelines.

Finding Text

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.

Categories

Questioned Costs Allowable Costs / Cost Principles HUD Housing Programs Matching / Level of Effort / Earmarking Internal Control / Segregation of Duties

Other Findings in this Audit

  • 505102 2023-002
    Material Weakness Repeat
  • 505103 2023-002
    Material Weakness Repeat
  • 505104 2023-002
    Material Weakness Repeat
  • 505105 2023-002
    Material Weakness Repeat
  • 505106 2023-002
    Material Weakness Repeat
  • 505107 2023-003
    Material Weakness
  • 505108 2023-003
    Material Weakness
  • 505109 2023-003
    Material Weakness
  • 505110 2023-003
    Material Weakness
  • 505111 2023-003
    Material Weakness
  • 505112 2023-004
    Material Weakness
  • 505113 2023-004
    Material Weakness
  • 505114 2023-004
    Material Weakness
  • 505115 2023-004
    Material Weakness
  • 505116 2023-004
    Material Weakness
  • 505117 2023-005
    Material Weakness
  • 505118 2023-005
    Material Weakness
  • 505119 2023-006
    Material Weakness
  • 505120 2023-006
    Material Weakness
  • 505121 2023-007
    -
  • 505122 2023-007
    -
  • 505123 2023-008
    Material Weakness
  • 505124 2023-008
    Material Weakness
  • 505125 2023-009
    Material Weakness
  • 505126 2023-009
    Material Weakness
  • 505127 2023-010
    Material Weakness
  • 505128 2023-011
    Material Weakness
  • 1081544 2023-002
    Material Weakness Repeat
  • 1081545 2023-002
    Material Weakness Repeat
  • 1081546 2023-002
    Material Weakness Repeat
  • 1081547 2023-002
    Material Weakness Repeat
  • 1081548 2023-002
    Material Weakness Repeat
  • 1081549 2023-003
    Material Weakness
  • 1081550 2023-003
    Material Weakness
  • 1081551 2023-003
    Material Weakness
  • 1081552 2023-003
    Material Weakness
  • 1081553 2023-003
    Material Weakness
  • 1081554 2023-004
    Material Weakness
  • 1081555 2023-004
    Material Weakness
  • 1081556 2023-004
    Material Weakness
  • 1081557 2023-004
    Material Weakness
  • 1081558 2023-004
    Material Weakness
  • 1081559 2023-005
    Material Weakness
  • 1081560 2023-005
    Material Weakness
  • 1081562 2023-006
    Material Weakness
  • 1081563 2023-007
    -
  • 1081564 2023-007
    -
  • 1081565 2023-008
    Material Weakness
  • 1081566 2023-008
    Material Weakness
  • 1081567 2023-009
    Material Weakness
  • 1081568 2023-009
    Material Weakness
  • 1081569 2023-010
    Material Weakness
  • 1081570 2023-011
    Material Weakness

Programs in Audit

ALN Program Name Expenditures
14.871 Section 8 Housing Choice Vouchers $109.58M
14.871 Covid-19 Section 8 Housing Choice Vouchers $9.90M
97.036 Disaster Grants - Public Assistance (presidentially Declared Disasters) $8.84M
21.023 Covid-19 Emergency Rental Assistance Program $6.76M
10.557 Wic Special Supplemental Nutrition Program for Women, Infants, and Children $4.81M
14.218 Community Development Block Grants/entitlement Grants $3.83M
93.391 Activities to Support State, Tribal, Local and Territorial (stlt) Health Department Response to Public Health Or Healthcare Crises $2.97M
14.231 Covid-19 Emergency Solutions Grant Program $2.63M
14.267 Continuum of Care Program $2.49M
17.259 Wioa Youth Activities $1.82M
93.354 Public Health Emergency Response: Cooperative Agreement for Emergency Response: Public Health Crisis Response $1.50M
21.027 Covid-19 Coronavirus State and Local Fiscal Recovery Funds $1.38M
20.106 Covid-19 Airport Improvement Program $1.34M
93.498 Covid-19 Provider Relief Fund and American Rescue Plan (arp) Rural Distribution $1.17M
93.917 Hiv Care Formula Grants $1.11M
93.086 Healthy Marriage Promotion and Responsible Fatherhood Grants $1.10M
15.514 Reclamation States Emergency Drought Relief $1.08M
10.561 State Administrative Matching Grants for the Supplemental Nutrition Assistance Program $1.03M
97.056 Port Security Grant Program $931,745
93.069 Public Health Emergency Preparedness $917,989
15.504 Title Xvi Water Reclamation and Reuse Program $850,412
14.900 Lead Hazard Reduction Grant Program $795,149
14.905 Lead Hazard Reduction Demonstration Grant Program $790,056
93.268 Immunization Cooperative Agreements $765,063
93.967 Centers for Disease Control and Prevention Collaboration with Academia to Strengthen Public Health $686,801
14.228 Community Development Block Grants/state's Program and Non-Entitlement Grants in Hawaii $645,239
93.323 Epidemiology and Laboratory Capacity for Infectious Diseases (elc) $424,261
97.067 Homeland Security Grant Program $369,977
16.825 Smart Prosecution Initiative $353,473
14.896 Family Self-Sufficiency Program $344,211
93.977 Sexually Transmitted Diseases (std) Prevention and Control Grants $321,057
15.916 Outdoor Recreation Acquisition, Development and Planning $310,615
20.205 Highway Planning and Construction $296,991
14.231 Emergency Solutions Grant Program $270,907
16.835 Body Worn Camera Policy and Implementation $252,470
14.239 Home Investment Partnerships Program $239,741
17.277 Wioa National Dislocated Worker Grants / Wia National Emergency Grants $236,914
20.106 Airport Improvement Program $227,664
16.738 Edward Byrne Memorial Justice Assistance Grant Program $212,696
10.559 Summer Food Service Program for Children $207,866
16.838 Comprehensive Opioid, Stimulant, and Other Substances Use Program $197,989
20.616 National Priority Safety Programs $179,047
16.560 National Institute of Justice Research, Evaluation, and Development Project Grants $151,117
93.994 Maternal and Child Health Services Block Grant to the States $150,165
20.600 State and Community Highway Safety $144,593
93.778 Medical Assistance Program $140,991
21.016 Equitable Sharing $133,000
15.557 Applied Science Grants $112,593
66.472 Beach Monitoring and Notification Program Implementation Grants $102,678
93.070 Environmental Public Health and Emergency Response $93,711
93.197 Childhood Lead Poisoning Prevention Projects, State and Local Childhood Lead Poisoning Prevention and Surveillance of Blood Lead Levels in Children $91,128
14.895 Jobs-Plus Pilot Initiative $87,063
97.042 Emergency Management Performance Grants $82,000
93.914 Hiv Emergency Relief Project Grants $69,207
93.558 Temporary Assistance for Needy Families $68,144
14.241 Housing Opportunities for Persons with Aids $57,714
93.940 Hiv Prevention Activities Health Department Based $51,943
97.106 Securing the Cities Program $37,947
93.354 Covid-19 Public Health Emergency Response: Cooperative Agreement for Emergency Response: Public Health Crisis Response $36,190
17.278 Wioa Dislocated Worker Formula Grants $34,027
93.421 Strengthening Public Health Systems and Services Through National Partnerships to Improve and Protect the Nation�s Health $25,000
16.742 Paul Coverdell Forensic Sciences Improvement Grant Program $16,009
93.116 Project Grants and Cooperative Agreements for Tuberculosis Control Programs $14,250
15.530 Water Conservation Field Services (wcfs) $14,069
93.008 Medical Reserve Corps Small Grant Program $10,000
14.256 Neighborhood Stabilization Program (recovery Act Funded) $6,429
97.042 Covid-19 Emergency Management Performance Grants $4,880
16.710 Public Safety Partnership and Community Policing Grants $3,968
17.258 Wioa Adult Program $3,890
97.024 Emergency Food and Shelter National Board Program $2,646
14.218 Covid-19 Community Development Block Grants/entitlement Grants $172