Finding Text
Criteria:HUD requires housing authorities to prepare and electronically submit accurate and complete unaudited financial information through the Real Estate Assessment Center (REAC) Financial Assessment Subsystem within the required reporting deadlines. Effective internal controls should include adequate review procedures to ensure financial information submitted to REAC is complete, accurate, supported by the Authority’s accounting records, and filed timely. Condition: During our audit procedures, we noted deficiencies in the Housing Authority’s internal controls related to the preparation and filing of the unaudited REAC submission. Specifically: The prior year audit adjusting entries were not recorded in the general ledger. Equity was seemingly plugged in REAC to force the financial statements to balance rather than recording the audit adjusting entries in the general ledger. Cause: The deficiencies appear to result from inadequate supervisory review, insufficient formalized procedures over the REAC submission process, and limited segregation of duties related to the preparation and filing of financial information. Effect: Weak internal controls over the unaudited REAC submission process increase the risk that inaccurate or incomplete financial information may be submitted to HUD. Errors in submitted data could negatively impact HUD assessments, reporting compliance, and management decision-making. Recommendation: We recommend the Housing Authority strengthen internal controls over the preparation and filing of unaudited REAC submissions by implementing formal review and approval procedures, maintaining supporting documentation for all submitted amounts, and ensuring submitted financial information is reconciled to the Authority’s accounting records prior to filing. Management should also establish a documented review checklist to verify completeness and accuracy before submission. Management Response: Management agrees with the finding and will implement additional review procedures and documentation requirements to improve the accuracy and oversight of future REAC submissions.