Finding Text
Finding No. 2022-002: Accounting for Debt (Material Weakness) Allowable costs Activities allowed or unallowed During the year ended June 30, 2022, principle, accrued interest, and interest expense on the HUD Section 202 Direct Loan (mortgage payable) and Community Development Block Grant (the residual receipts note payable) were not properly recorded, which resulted in the Schedule being inaccurately stated during the year. Criteria The Organization is required to have controls and procedures in place in order to properly account for principle, accrued interest, and interest expense on debt, as well as to properly and accurately present the Schedule. Cause The monthly payments of $2,661 on the HUD Section 202 Direct Loan (mortgage payable) are withheld by HUD from the monthly HAP contract rental assistance payments receipts. Management did not properly apply the withholding against interest for the year ended June 30, 2022. The HUD Community Development Block Grant (the residual receipts note payable) bears interest at a rate of 3% per annum and is payable from the residual receipts balance held by the Organization in connection with Section 202 HUD Direct Loan. At the end of each year, any unpaid, accrued interest on the note is converted to note principal. Management failed to convert the unpaid, accrued interest to principal and therefore did not record interest expense and accrued interest on the appropriate principal balance for the year ended June 30, 2022. Effect Management did not have sufficient controls and procedures in place in order to properly account for interest expense, accrued interest and interest payments on debt. The Schedule could be inaccurately reported to the federal government and HUD. Recommendation Management should review and enhance its controls and procedures for recording principle, accrued interest, and interest expense on the Organization's debt and therefore properly stating the Schedule. Identification of repeat finding The finding is a repeat of Finding No. 2021-002. Auditor non-compliance code S - Internal control deficiencies Questioned costs None Finding resolution status In process Reporting views of responsible officials and planned corrective actions Management will put in place controls and procedures to ensure principle, accrued interest, and interest expense on debt is properly accounted for and reported