Finding 1164328 (2025-001)

Finding 2025-001 – Internal Control Over Maintenance Inventory (Allowable Costs) – ALN 14.850 Public and Indian Housing – Subsidy – Noncompliance & Significant Deficiency Condition & Cause: Our analytic procedures alerted us to the increase in maintenance materials inventory carried on the balance sheet. When we inquired of staff, it was relayed to us that existing internal controls in this area are not functioning as intended. Inventory is being added into the accounting system without being removed. We have confirmed a large increase in inventory starting during the FY 2023 audit period and increasing every year since. It was also confirmed by management that an inventory count has not been done in a number of years. The Authority has hired an inventory clerk as a step to address this weakness in internal control but the issue is ongoing and will take time to address properly. We have provided audit adjustments to recognize an allowance for accounts relating to this increase in materials balance. These adjustments have been accepted by management and are incorporated into the audited financial statements. Criteria: A deficiency in the internal control environment 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. The failure to properly implement internal control procedures can result in material misstatements of the account balances. Effect: The control deficiency resulted in a material adjustment to the financial statements. Oversight over the operations of the agency are not as effective when using information that contains material errors. Recommendation: The Housing Authority should be conducting an annual count of inventory as an internal control relating to the financial statements and as a safeguard against fraud and the misappropriation of assets. The Housing Authority should review its inventory process when purchasing goods and the subsequent removal of the inventory following a work order. Periodic review of this process should be done to ensure that the control activity is being followed and maintained. Questioned Costs: None Repeat Finding: No Was sampling statistically valid? Yes