Finding 1162121 (2024-002)

Material Weakness Repeat Finding
Requirement
N
Questioned Costs
$1
Year
2024
Accepted
2025-11-07
Audit: 371924
Organization: Benet Place (MN)

AI Summary

  • Core Issue: Payroll expenses were over-allocated and management fees exceeded HUD-approved rates, leading to unauthorized loans from project funds.
  • Impacted Requirements: Compliance with federal regulations regarding payroll and management fee allocations was not met, resulting in material weaknesses in internal controls.
  • Recommended Follow-Up: Implement a monthly review process for management fees and payroll allocations to ensure compliance with HUD guidelines and prevent future discrepancies.

Finding Text

Finding Number 2024-002 In Process Federal Agency U.S. Dept. of Housing and Urban Development Federal Program Name Section 202 Capital Advance Assistance Listing Number 14.157 Federal Award Identification Number and Year MN46S931002 - 1993 Award Period 2024 Compliance Requirement Affected G - Unauthorized Loans from Project Funds Type of Finding •Material Weakness in Internal Control over Compliance •Material Noncompliance (Qualified Opinion) Criteria Payroll expenses were over allocated to the property. In addition, management fees will be charged utilizing the HUD approved rate per the Management Agent's Certification Form HUD-9839-B. Condition During audit procedures, it was noted that payroll expenses from a shared employee allocated to the property exceeded the appropriate amount. Furthermore, the management fee charged exceeded the HUD-approved rate. These discrepancies resulted in a receivable from the management agent as of year-end. Questioned costs $23,289 Cause The transition in ownership and management on April 30th contributed to delays in fully understanding the Project’s requirements and properly configuring payroll allocations within the accounting system. Effect The Project was charged for payroll expenses exceeding the shared employee’s actual hours and for management fees above the approved rate during 2024. To correct these issues, a receivable was recorded at year-end, effectively resulting in an unauthorized loan to the management/ownership group. Repeat Finding No Recommendation Management should implement a monthly review process to ensure that management fees are billed in accordance with the terms of the management agreement. Additionally, payroll allocations should be reviewed monthly to confirm that only the appropriate share of expenses is charged to the Project. Views of Responsible Officials and Planned Corrective There is no disagreement with the audit finding. Management Response Management continues to review and establish month end and year end procedures to properly record management fees accordance with HUD approved rate. The payroll allocation issue arose due to a salary allocation being missed during the property management transition. Management continues to review and establish procedures related to payroll allocations to ensure correct expenses are allocated to the Project.

Corrective Action Plan

Material Weakness: Unauthorized Loan Recommendation: Management should implement a monthly review process to ensure that management fees are billed in accordance with the terms of the management agreement. Additionally, payroll allocations should be reviewed monthly to confirm that only the appropriate share of expenses is charged to the Project. Explanation of disagreement with audit finding: There is no disagreement with the audit finding. Action taken in response to finding: Management continues to review and establish month end and year end procedures to properly record management fees accordance with HUD approved rate. The payroll allocation issue arose due to a salary allocation being missed during the property management transition. Management continues to review and establish procedures related to payroll allocations to ensure correct expenses are allocated to the Project.

Categories

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

Other Findings in this Audit

  • 1162122 2024-003
    Material Weakness Repeat
  • 1162123 2024-004
    Material Weakness Repeat

Programs in Audit

ALN Program Name Expenditures
14.157 SUPPORTIVE HOUSING FOR THE ELDERLY $2.58M
14.182 LOWER INCOME HOUSING ASSISTANCE PROGRAM_SECTION 8 NEW CONSTRUCTION/SUBSTANTIAL REHABILITATION $327,405