Finding Text
III. FINDINGS – FEDERAL AWARDS PROGRAMS AUDITS UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT S3800-010: Finding Reference Number 2025-001 S3800-011: Title and Assistance Listing Number of Federal Program: 14.856 Lower Income Housing Assistance Program (Section 8 Moderate Rehabilitation) S3800-015: Type of Finding: Federal Award Finding S3800-016: Finding Resolution Status: In Process S3800-017: Information on Universe Population Size - Sixty-one (61) rental units S3800-018: Sample Size Information - Twelve (12) rental units S3800-019: Identification of Repeat Finding and Finding Reference Number - 2024-001 S3800-020: Criteria: The COSO Framework (Committee of Sponsoring Organizations of the Treadway Commission) is a widely used model for establishing, assessing, and improving internal controls within an organization. It provides a comprehensive structure for managing risks and ensuring reliable financial reporting, operational effectiveness, and compliance with laws and regulations. The COSO framework is broken down into five interrelated components, which together help organizations build a robust internal control system. Control Activities is one of the five components of the COSO Framework. Control Activities are the policies and procedures put in place to mitigate risks and achieve the organization’s objectives. Control Activities can be preventative, detective, or corrective. S3800-030: Statement of Condition: Management designed Control Activities to ensure compliance with the Eligibility requirement with respect to tenant eligibility. Those Control Activities include verification and review of tenant files by an independent contractor prior to finalization of tenant income certifications and new tenant move-in files. However, during our testing, we noted four (4) move-in files out of four (4) move-in files tested where tenants were approved for move-in prior to review and approval by the independent contractor, circumventing the control. In addition, there was no evidence of approvals of tenant income certifications in the tenant files prior to billing of rental assistance for eleven (11) out of twelve (12) tenant files tested. S3800-032: Cause: The cause of this condition is due to inadequate enforcement of internal control policies and/or insufficient monitoring of compliance procedures. There appears to be a gap in oversight to ensure that all required tenant eligibility files are reviewed and approved prior to final move-in or billing of rental assistance in accordance with the established internal controls and regulatory requirements. S3800-033: Effect or Potential Effect: By processing tenant certification files without the necessary review and approval, there is an increased risk of housing ineligible tenants with incorrect computations or incomplete files, potentially resulting in non-compliance with eligibility requirements and improper use of program funds. This could lead to penalties, and a loss of funding under federal programs, as well as undermine the integrity of the compliance processes. S3800-035: Auditor Noncompliance Code: S – Internal Control Deficiencies S3800-040: Questioned Costs: $0 S3800-037: FHA Contract Number: 127-11114 S3800-038: Questioned Costs: $0 S3800-045: Reporting Views of Responsible Officials: Management has reviewed the policies and procedures with the property manager, who also serves as the compliance specialist. The property manager was instructed that no tenants are to be granted occupancy and no billing of rental assistance based on tenant income certifications should be billed until the file has been approved by the independent contractor conducting the compliance review. S3800-050: Context: Four (4) move-in files out of the four (4) move-in files tested where tenants were approved for move-in prior to review and approval by the independent contractor, circumventing the control. In addition, there was no evidence of review approvals of certifications in the tenant files prior to billing of rental assistance for eleven (11) out of twelve (12) tenant files tested. S3800-080: Auditor Recommendation: We recommend that the client immediately implement corrective actions to ensure compliance with internal control procedures. Specifically: 1. The compliance specialist should be required to wait for proper approval of tenant eligibility files before processing them. 2. Review and reinforce the approval process through additional training for staff to ensure they understand the critical importance of obtaining necessary approvals before proceeding. 3. Implement stronger oversight and monitoring mechanisms to ensure that files are not processed before approval. S3800-090: Auditor’s Summary of the Auditee’s Comments on the Findings and Recommendations: Management has reviewed the policies and procedures with the property manager, who also serves as the compliance specialist. The property manager was instructed that no tenants are to be granted occupancy and no billings based on certifications should occur until the file has been approved by the independent contractor conducting the compliance review. S3800-130: Response Indicator: Agree S3800-150: Response: Management agrees with the recommendation of the auditor and plans to take corrective actions as noted in S3800-045 above.