Finding Text
Finding 2025-002: Allowable Costs/Cost Principles (Repeat Finding) Public Housing Program, Assistance Listing #14.850 Material Weakness Criteria: A properly designed internal control structure relies greatly on a proper segregation of duties between several individuals. The duties related to initiating, authorizing, recording, processing and reporting financial data would be segregated so there is less likelihood that a misstatement of the entity’s financial statements would occur. In addition, the controls over the significant areas should be documented in order to determine that the controls are functioning. In addition, duties related to program compliance should be segregated so that material noncompliance would be prevented or detected. Condition: The Agency consists of limited employees and as a result the Agency has not completed an internal control analysis to see where controls can be implemented and certain significant internal controls that have not been documented or performed to ensure there is a proper segregation of duties in the internal control process including compliance requirements. The controls relate to all significant processes but we noted the following areas of specific weakness: • Cash – During our audit of bank reconciliations and bank statements, we noted the Director prepares the monthly bank reconciliations; however, there is no documented review or approval of the reconciliations by another individual, such as a Board member or other independent reviewer. Without an independent review, errors, unauthorized transactions, or unusual reconciling items may not be identified and resolved timely. A documented review would help strengthen controls over cash and provide evidence that bank activity and reconciliations are being monitored. • Dual Signatures and Approval of Disbursements – The Agency’s control process over disbursements is not sufficient to ensure adequate review and approval of transactions. The Director approves invoices and reviews bank statements, and although the prior-year issue related to the Director being the sole check signer has been corrected by requiring a Board member to also sign checks, there is still no independent review of disbursements for allowability or consistency with Agency policy. Board members are provided a listing of disbursements at Board meetings; however, this review does not appear to include a documented review of supporting transactions or approval for compliance with Agency policy. Cause: The Agency has an “Internal Control Monetary Policy” but it merely described the processing of information with no controls to prevent errors or misuse of funds. The Agency has not formally performed a risk assessment to analyze the risks that are relevant to compliance requirements of federal programs. Effect or Potential Effect: The lack of controls over the categories above could result in questioned costs and misstatements in the financial statements in the future. Recommendation: The Agency needs to review and re-evaluate its internal control procedures over the significant areas of its internal control structure and make sure the controls are well documented to ensure the controls are identifiable and traceable during the audit process. View of Responsible Official: Management agrees with the Finding.