Finding 1115924 (2024-001)

Finding 2024-001 – Accounting Controls – Internal Controls over Financial Statement Preparation ALN 14.850 – Noncompliance and Material Weakness Criteria: Regulations at 2 CFR Part 200, Uniform Administrative Requirements, outline the internal control requirements for recipients of federal grant funds. Non-Federal entities must demonstrate, “Effective control over, and accountability for, all funds, property, and other assets.” A deficiency in internal control exists when the design or operation of a control does not allow management or its employees, in the normal course of operation, to detect or correct errors, fraud, or misstatements in a timely manner. The failure to properly implement internal control procedures can result in material misstatements of the account balances and noncompliance with grant oversight provisions. Condition and Cause: We discovered a number of deficiencies related to the maintenance and accuracy of accounting records and the underlying control deficiencies noted during our audit field work. We noted that management experienced a complete turnover of all personnel in the financial department for the year ended June 30, 2024. The following are areas of weakness that we believe should be disclosed: 1) Cash and Investments We encountered difficulties during the course of the audit in reconciling the cash and investment support to the general ledger. We determined that certain ledgers, were not included in the unaudited financial data schedule (FDS) submitted to HUD electronically. These ledgers contained a negative cash balance of approximately $273,000 which has been incorporated into the audited financial statements. These ledgers were allocation type ledgers whose figures have been adjusted into the Public Housing AMPs. These ledgers were distorting the cash and investment balances. We have proposed adjustments to correct this for the audited financial statements to report these accurately in all material respects. 2) Compensated Absences Liability not Adjusted The Housing Authority has not changed or reevaluated the compensated absences liability from the previous audit. We also noted that significant personnel retired or have ended their employment with the agency which resulted in large payouts of unused leave. We noted this as an internal control deficiency in the year end closing process and was not discovered until the audit field work. 3) Former Executive Director Separation Agreement The Housing Authority did not accrue a liability related to an employment contract and separation from the previous Executive Director. The Executive Director resigned on June 19, 2024 and subsequent to the end of the year a separation agreement was executed. According to GAAP requirements this accrual was necessary to properly reflect this obligation at the end of the fiscal year. 4) OPEB Valuation was not Conducted timely It was disclosed to us early in the audit process that the Housing Authority had not had an OPEB reevaluation, required by GASB 75, performed within the current year. Subsequent to the end of the year an evaluation was received that was included in the current audited financial statements. The OPEB liability and related outflows and inflows of resources were adjusted within the audited financial statements but were materially different from the unaudited FDS submitted to HUD. 5) SPLOST Tracking of Revenue and Costs We have examined the SPLOST draws and spending as it related to the North Downtown Athens Redevelopment. The client was unable to provide us with an accurate and up to date reconciliation of the draws vs costs as of June 30, 2024. We have attempted to recreate these with our examination of the SPLOST funding requests. We note that the client does have a SPLOST draw tracking spreadsheet but it did not agree to the balances reported on the general ledger. We noted numerous errors in our review of the tracking of these revenues and costs. The largest of which was a $2,386,931 adjustment to recognize unearned revenues in the prior year related to a note receivable with the ND Athens Redevelopment. Client had also not adjusted its payables or retention balances associated with vendor draw requests. The internal controls in this area as of June 2024 are insufficient and we assess the probability of misstatements in this area as likely. 6) Business Activities Notes Receivable The notes receivable associated with ND Athens had their interest accruals for the year recorded twice. There were also miscellaneous contributions included as notes that we have proposed adjustment to reclassify associated with ND Athens Phase II. 7) Other Adjustments  We note that the client has not provided an adjustment for accrued utilities. We have performed an estimated journal entry based upon prior year experience that we have included in the audited financial statements for consistency. These should be included in their year-end close process.  The Housing Authority did not post adjustments related to its GASB 87 lease liabilities in the Locally Owned and the COCC programs. We have provided these adjustments and they are included in the audited financial statements.  During our review of the Housing Authority payments in lieu of taxes (PILOT) calculation we noted several entries in the Public Housing AMPs that were posted in error. Total adjustment required to accurately state was $216,802. Effect: Improper balancing of accounts and accounting controls can result in misstated financial statements and improper financial information being communicated to management and to HUD. Also, as a result of these adjustments and errors made in the preparation of the unaudited FDS submitted to HUD, the revised Financial Indicator scores for Public Housing have been materially changed, which resulted in a deduction and penalty in its PHAS financial scoring. As a result of the reduction in points the agency may be financially troubled in the subsequent year and subject to increased oversight by the Department of Housing & Urban Development. Recommendation: Management will need to reassess the year-end process moving forward to ensure the accuracy and integrity of the financial statements. The Authority's recent appointment of key personnel after year-end is expected to support these efforts and help achieve these objectives. Questioned Costs: None Repeat Finding: No Was sampling statistically valid? Yes