Finding 3025 (2023-001)

ALN 14.850 – Public & Indian Housing – Operating Subsidy and Utilities Expense Level Calculation Condition and Criteria: During our audit, it was determined that significant deficiencies in internal controls existed over the Authority’s Public & Indian Housing operating subsidy and utility expense level calculation process being compliant with HUD regulatory requirements. Per 24 CFR § 990.170, a Public Housing Agency (PHA) must calculate Utilities Expense Level (UEL) based on its consumption for each utility, the applicable rates for each utility, and an applicable inflation factor. The UEL for a given funding period is the product of the utility rate multiplied by the payable consumption level multiplied by the inflation factor. The UEL is expressed in terms of Per Unit Month (PUM) costs. The utility rate for each type of utility will be the actual average rate from the most recent 12-month period that ended June 30th prior to the beginning of the applicable funding period. The rate will be calculated by dividing the actual utility cost by the actual utility consumption, with consideration for pass-through costs (e.g., state and local utility taxes, tariffs) for the time period specified in this paragraph. During our testing of HUD forms 52722 and 52723 (Calculation of Operating Subsidy and Utilities Expense Level), it was determined that the PHA failed to correctly include sewer and water costs in the FY2022 and 2023 UEL calculation. This omission was not detected prior to our audit, which indicates deficiencies in the PHA’s monitoring of the calculation of utilities expense level. Amount of Questioned Costs: None Context: In testing the Authority’s Calculation of Operating Subsidy and Calculation of Utilities Expense Level, we noted that the calculation for the fiscal years ended March 31, 2022 and March 31, 2023 respectively omitted costs related to water and sewer consumption. The Authority’s procedures related to the monitoring of compliance with HUD regulatory requirements did not detect this prior to our audit. Cause: The Authority’s internal controls over the Public & Indian Housing Operating Subsidy and Utilities Expense Level calculation process that were in place lacked the necessary controls over monitoring of related HUD regulatory requirements. Effect: The Authority could be receiving subsidy amounts that are smaller than the Authority needs to operate on an annual basis. The Authority may not detect errors to the calculation of operating subsidy and utilities expense level in a timely manner. Auditor’s Recommendation: Implement procedures to monitor compliance with HUD regulatory requirements related to the Authority’s calculation of operating subsidy and utilities expense level. Management should implement some form of supervisory review process to ensure that operating subsidy and utilities expense level calculations are complete and accurate. Grantee Response: Management acknowledges the finding and will follow the auditor’s recommendation.