Finding Text
Criteria: Under 24 CFR § 905.306, Capital Fund Program grant funds are made available to a Public Housing Authority through an Annual Statement/Budget that is subject to HUD review and approval. Until HUD approval is obtained, the Authority is not authorized to obligate or expend grant funds. Additionally, 2 CFR § 200.302(b)(6) requires recipients to maintain records that adequately identify the source and application of federally funded activities, and financial reporting must accurately reflect the status of federal awards. Condition: During our audit, we noted that the Authority recorded a Capital Fund Program accounts receivable and recognized related grant revenue for a Capital Fund grant year that had not received HUD approval of the Annual Statement/Budget as of fiscal year-end. Because the budget had not been approved, the Authority was not authorized to access or obligate the funding, and the receivable and revenue recognition were premature. Context: Prior to the audit, the Authority recorded $412,400 in revenue related to 2026 CFP. As of fiscal year-end, the 2026 Capital Fund Program budget had not been approved by HUD, and the final grant award amount was unknown. Therefore, the Authority had not established an entitlement to the funding, and the related revenue and receivable were improperly recognized. Cause: Management did not have adequate procedures in place to verify HUD approval of Capital Fund budgets prior to recording related receivables and revenue in the general ledger. Effect: As a result, Capital Fund grant revenue were overstated by approximately $338,062 at fiscal year-end. This resulted in a misstatement of the Authority's financial statements and did not accurately reflect the status of available federal funding. Recommendations: We recommend that management implement procedures to verify HUD approval of Capital Fund Program Annual Statements/Budgets prior to recording related receivables and revenue. Grant revenue and receivables should only be recognized when the Authority has met all applicable requirements establishing its entitlement to the funding. Questioned Costs: $338,062. Management Views: The auditee acknowledges the deficiency in enforcing Housing Quality Standards (HQS) as highlighted in the finding. In response to this issue, the management commits to implementing a comprehensive Corrective Action Plan.