Finding 1221247 (2025-002)

2025-002: Public Housing Capital Fund Program, Federal Assistance Listing #14.872. Authority internal controls over grant expenditures failed to obligate funds by the grant’s obligation end date (OED). Condition: The Authority did not maintain effective internal controls to ensure Capital Fund Program grant funds were obligated by the required Obligation End Date. We noted that only 85% of grant funds were obligated as of the OED for Capital Fund Grant No. KY36P02450121. As a result, the Authority did not comply with the program's obligation requirements. Criteria: Pursuant to HUD Capital Fund Program requirements, Public Housing Authorities must obligate Capital Fund grants within the required obligation period. Grant funds not obligated by the grant's Obligation End Date (OED) are subject to recapture by HUD and are not available for eligible program activities after that date. Cause: The Authority's grant monitoring controls were not designed or operating effectively to identify approaching obligation deadlines and monitor unobligated grant balances. Management did not perform timely reviews of grant activity to ensure all funds were obligated prior to the OED. Effect: Failure to obligate grant funds by the OED constitutes noncompliance with HUD program requirements and resulted in a sanction which reduced grant KY36P02450124 from $782,322 to $0. In addition, ineffective controls increase the risk that future grant deadlines will not be met. Questioned Costs: None. Recommendations: We recommend the Authority strengthen its internal controls over Capital Fund grant administration by maintaining a comprehensive grant tracking schedule which includes all obligation and expenditure deadlines; reviewing grant activity and unobligated balances at least quarterly; assigning responsibility for monitoring compliance with Capital Fund deadlines; implementing documented supervisory reviews of grant status reports before grant obligation deadlines and establishing procedures to identify and address delays in procurement or contract execution that could affect timely obligation of grant funds. Managment Response: Management concurs with the finding and will implement enhanced monitoring procedures to ensure future Capital Fund grants are obligated within HUD-required timeframes.