Section 8 Housing Choice Voucher Program-CDFA#14.871, Low Rent Program-CDFA#14.850, Capital Fund Program-CDFA#14.872 The Executive Director for the audit year was terminated October 31, 2024. The current Executive Director was hired December 4, 2024. 2024-001-Inadequate Accounting and Documentation-Allowable Costs/Principles and Reporting Criteria and Specific Requirement Internal controls should exist that allow the production and retention of accounting information that is properly recorded in accordance with generally accepted accounting practices. Disbursements should be properly authorized. Supporting data for each disbursement should be sufficient and available for third party review. (a)-Federal regulations require that certain financial data required by REAC be supported and documented (b)-Various CFPs, CARES Act, and other grants should be properly classified and accounted for (c)-Sufficient information should be submitted to the outside employed fee accountant to allow the latter to complete a year-end documentary checklist that all points considered by the fee accountant have been adequately addressed Condition Found The outside fee accountant delivered a letter dated November 30, 2024 that outlined the significant issues that management needed to address before the fee accountant could sign off on their year- end checklist regarding the unaudited financial statements. The fee accountant never received the information that would allow them to sign this checklist. With the accompanying daily operational issues the new Executive Director encountered, he was unable to give sufficient attention to the issues noted by the fee accountant, as outlined in their November letter. The financial statements were misstated, including the following: (a)-The Housing Check Voucher operating bank statement reflects an overdraft of $195,295, which includes approximately $252,818 of outstanding checks. These checks were dated from February 1, 2022 through September 1, 2024. Only $45,768 of these checks were dated from July 20, 2024 forward. (b)-The accounting records reflect an account payable of $255,086 for the General Fund- Low Rent program, owed to the HCV Program. $ 88,324 of this amount consists of Ross Grant funds received by the Low Rent program that should have been utilized by the Housing Choice Voucher (HCV) Program. The accounting records reflect that the remaining balance is owed to the HCV Program for various expenses, principally $76,700 for payroll and $39,500 for software. This $255,086 is incorrectly reflected as accounts payable, instead of interfund due to the HCV Program. The HCV program incorrectly shows an accounts receivable of $42,859, which is coded as only part of the $88,324 (see above), owed to HCV by the Low Rent Program. Instead of payables and receivables, these amounts due to HCV Program by the Low Rent program should be reflected as interfund receivables and payables, and the amount should equal. (c)-At September 30, 2024, the Authority had fully expended recent Ross Grants of $39,045 and $57,394. On September 23, 2024 the bank statement reflected a deposit of $41,144 labeled “HUD ROSS.” Management has been unable to give us a copy of the original grant agreement or other details of this grant. (d)-The HCV Program paid $3,131,825 in electronic payments. The Low Rent Program, via the General Fund, paid $15,009 in electronic payments. It appears the type of written second approval that we have recommended for multiple years was not used. Only the Executive Director appears to have initiated and completed these purchases. We were unable to review the supporting detail such as invoices or statements, except for 9 of 296 transactions in the HCV Program that totaled $1,721 and 16 of 78 in the Low Rent program that totaled $5,310. We note that almost all Authority expenses were paid in this manner. This includes payroll, HAP payments, and utilities. We noted payments coded mainly to Contract Materials that were paid to Walmart, Amazon, Sam’s Club, and Pilot. Travel expenses appear to be unusually high for a small, financially trouble Authority. (e)-Government Accounting Standards Bulletin (GASB) 96, a relatively new pronouncement, addresses subscription-based technology arrangements. The Authority utilizes a subscription software that performs various functions related to tenant files, waiting lists, and various reports to HUD. Since the Authority’s current agreement is for multiple years, a significant accounting adjustment should have been recorded on the general ledger, but was not. (f)-As detailed in Note 11 of the financial statements, the Authority participates in a Simplified Pension Plan (SEP). We have requested in prior years from management a copy of the board resolution, or some other documentation, that details the percentage to be contributed. We have still not received that documentation. Prior management claimed this percentage to be 8%. (g)-The fee accountant in their November 2024 letter requested clarification of $126,982 of deferred CARES Act funds. We believe this deferred amount is in error on the financial statements. In our opinion, $60,964 should have been reported as Admin and Tenant Services salaries for the audit year September 30, 2020. The remaining CARES Act funding of $66,018 should been reported as Tenant Services salaries for the years ended September 30, 2020 and 2021. Cause The lack of due diligence by prior management appears to be the principal reason. Effect Various accounts are misstated. Recommendation In our opinion, all of the following should be done before the unaudited financial statements are submitted to REAC for the year ended September 30, 2025. Our recommendations to the various subparts are as follows: (a)-Using the most recent bank reconciliation, all of the outstanding checks dated before audit year end, September 30, 2024, should be voided. In addition, management should consider voiding any checks older than six months, again using the most recent bank reconciliation. If from a scan, management believes some of the old outstanding checks are valid, the vendors should be promptly contacted. If management subsequently is contacted by a vendor for which an old outstanding check was voided, if the paperwork shows the vendor is properly owed its claim, a new check should be promptly issued. We recommend that the fee accountant consider a prior period adjustment for any checks written off dated on or before September 30, 2024. For charges in the current year, for voided checks, the charges should be reversed. (b)-The unaudited accounting information showed only an aggregate figure that approximated the ending payable of $255,096 owed by the Low Rent Program, but without any detail. We were able to detail this amount ourselves to a $924 unreconciled balance. Management should review this detail again. The amount should be reclassified to interfund due HCV. If the amount is still deemed materially correct, the fee accountant should consider adjusting the reclassifying the $42,859 accounts receivable to interfund, and adjusting the interfund balance to the same amount reflected by Low Rent. In our opinion, a prior period adjustment should be considered. Cash should be transferred if possible between the programs, and the interfund should be reduced as much as possible. (c)-Management should contact HUD if necessary to obtain the grant information for the $41,144 Ross grant deposit. (d)-If the authority chooses to continue electronic payments, an approval form should be co-signed by a second party, as we have recommended in prior years. A copy of the invoice must be retained, available for not only the co-approval person, but also for third parties. All HCV Programs have a similar process for determining each month’s HAP checks. This involves, starting with the prior month list, then adding and deleting, including possible abatements. A second person should document their review of the HAP list before it is finalized. (e)-Management should contract with the fee accountant to make the necessary adjusting journal entries, to reflect proper compliance with GASB 96. (f)-If the terms of contribution to the SEP are not found in writing my management (or even if they are), management should note by board resolution what the percentage of contribution of the Authority will be in the future. (g)-It appears that no future action is needed. View of Responsible Official I am Louis Alfaro, Executive Director and Designated Person to answer these findings. We will comply with the auditor’s recommendation. As noted above, I did not become Executive Director until after this audit period.