Finding Text
Finding 2026-001: Lack of Formalized Compliance Monitoring and Documented Management Oversight Federal Program: Supportive Housing for Persons with Disabilities (Section 811), Assistance Listing 14.181, U.S. Department of Housing and Urban Development; Capital Advance No. 032-HD004 and PRAC No. DE26Q931001; year ended March 31, 2026 Compliance Requirements: Eligibility; Special Tests and Provisions Type of Finding: Material weakness in internal control over financial reporting and material weakness in internal control over compliance Repeat Finding: Yes, repeat of Finding 2025-001 Criteria: Government Auditing Standards, the Uniform Guidance, and the terms of the Project’s major federal program require the Project to maintain effective internal control over financial reporting and over compliance with its applicable program requirements. Effective internal control includes maintaining documented policies and procedures for monitoring compliance, routine supervisory review of accounting and compliance-related activities, and documentation sufficient to demonstrate that this oversight is occurring. Condition: The Project has not established a formalized compliance monitoring process. We were unable to identify documented evidence of routine supervisory review of accounting and compliance-related activities. Compliance processes and monitoring remain informal and are frequently undocumented. Tenant and subsidy receivable records were not reconciled to the general ledger, and compliance activities related to tenant certifications and replacement reserve deposits were not effectively monitored, as described in more detail in Findings 2026-002 and 2026-003. Context: The condition affects the Project’s accounting and compliance functions as a whole and was identified through our tests of controls, substantive procedures, and compliance testing. Cause: The Project’s compliance functions historically relied on the institutional knowledge and experience of long-tenured staff rather than on functioning internal controls. In recent years, the Project’s management agent has experienced significant personnel turnover, exacerbating this deficiency. Effect: Without documented compliance monitoring, errors or instances of noncompliance could occur and remain undetected. During the current year, these conditions contributed to material audit adjustments to the Project’s tenant receivables and to the noncompliance reported in Findings 2026-002 and 2026-003. These circumstances also limit the Project’s ability to demonstrate compliance to external parties. Questioned Costs: None Recommendations: Management should establish a documented compliance monitoring process, including defined roles and responsibilities, routine supervisory review with documentary evidence, periodic reconciliation of subsidiary records to the general ledger, and a periodic compliance checklist addressing the key requirements of the Project’s major program. Views of Responsible Officials: We concur with this finding. We are working to formalize our compliance procedures and to document supervisory review activities going forward. Note: Findings 2026-002 and 2026-003, which are also required to be reported as noncompliance under Government Auditing Standards, are presented in Section III.