Finding Text
Finding 2025-003 (Non-major program, reported in accordance with 2 CFR 200.516(a) (4)) Federal Agency: U.S. Department of Housing and Urban Development Federal Program Titles: Public Housing Capital Fund Program Federal Assistance Listing Numbers: 14.872 Noncompliance - B. Allowable Costs/Cost Principles Non Compliance Material to the Financial Statements: Yes Material Weakness in Internal Control over Compliance for Allowable Costs/Cost Principles Criteria: In accordance with 2 CFR Part 200, Subpart E – Cost Principles, costs charged to a federal award must be reasonable, necessary, allowable, and properly documented, and must be allocated and classified in accordance with applicable federal cost principles. The Authority is responsible for ensuring that expenditures charged to the Public Housing Capital Fund Program are allowable under program requirements and supported by adequate documentation in accordance with applicable federal regulations. In addition, capital assets acquired or constructed with federal funds must meet capitalization criteria in accordance with accounting principles generally accepted in the United States of America, including sufficient documentation to support the nature of the expenditure and its eligibility for capitalization rather than current period expense. Condition: The Authority recorded certain expenditures funded through the Public Housing Capital Fund Program as capital asset additions during the year ended March 31, 2025. These expenditures were not supported by sufficient documentation to demonstrate that they were allowable program costs and met the criteria for capitalization under applicable program requirements. As a result, audit adjustments were recorded to reclassify these amounts from capital assets to current period expense. This indicates that the costs initially charged to the Public Housing Capital Fund Program were not adequately supported at the time of recording to substantiate their eligibility and proper classification. Context: During our audit of the Authority’s Public Housing Capital Fund Program, expenditures for the year ended March 31, 2025, we identified expenditures of $763,370 that were initially recorded as capital asset additions. These expenditures were not adequately supported in accordance with applicable Public Housing Capital Fund Program requirements to substantiate their eligibility and proper classification. Known Questioned Costs: $763,370* * Represents expenditures charged to the Public Housing Capital Fund Program that lacked sufficient documentation to support allowability and/or proper classification as capital asset additions in accordance with program requirements and applicable cost principles. Cause: The Authority did not have adequate procedures in place to ensure that sufficient supporting documentation was obtained and evaluated to support both the allowability of the costs under program requirements and their classification as capital assets. Effect: As a result, capital assets, and net position were misstated and expenses were understated, as expenditures that did not meet capitalization criteria or were not sufficiently supported under program requirements were initially recorded as capital asset additions. This condition also increases the risk that expenditures charged to the Public Housing Capital Fund Program may not be properly supported or appropriately classified in accordance with applicable requirements. Recommendation: We recommend that the Authority strengthen its internal controls over Public Housing Capital Fund Program expenditures by enhancing its review process to ensure that all costs recorded as capital asset additions are properly supported and meet applicable program requirements.