Finding 1140380 (2024-001)

Statement of condition During the year ended December 31, 2024, those charged with governance of the auditee were made aware of embezzlement by an employee of the management agent during the year ended December 31, 2023. Criteria The auditee is required to report material noncompliance with any HUD requirement of regulations, which result in material question or disallowed cost and/or, deficiencies in internal control, instances of fraud or illegal acts, or contract violations that were disclosed during the audit process. Cause In July 2023, it was discovered by the management agent that one of their employees was fraudulently disbursing funds from the cash account of the Corporation and another related entity. Effect During the last two and half years the employee was the bookkeeper for the management agent, the employee embezzled $48,200 from the auditee’s cash account. Questioned costs Total fraudulent disbursements were $48,200. Recommendation The auditee and management agent should establish policies and controls for the proper review of operational and financial information on at least a monthly basis by those charged with governance of the auditee (i.e., Board of Directors) and those responsible for operations of the project (i.e., Executive Director). Finding resolution status Resolved Views of responsible officials and corrective actions taken The management agent pressed charges and prosecuted the employee and recovered $48,200 from the auditee’s insurance company in total (less $2,500 deductible). The management agent implemented additional internal control procedures over the processing and review of the auditee’s cash account and cash reconciliations by their employees. Those charged with governance of the auditee also retained the services of a different auditing firm to conduct the 2024 audit of the Corporation. In addition, those charged with governance have requested the Executive Director to perform more stringent review of the operational and financial activity and reports provided by the management agent monthly.