Finding Text
Finding 2023-003: Allowable Activities
Public Housing - 14.850, Housing Choice Voucher – 14.871
Material Weakness/Noncompliance – Activities Allowed or Unallowed
Repeat Finding: 2022-005.
Criteria: In the Public Housing program, transfers out of the operating fund can only occur in very limited circumstances. This would preclude the Authority from using operating funds to provide temporary loans to programs with the Authority. Interfund transactions indicate the existence of temporary loans.
In the Housing Choice Voucher program, the transfers of HAP, and associated administrative fees, even temporarily, to support another program or use are not allowed and could be considered a breach of the annual contributions contract.
Further, the Authority should have a documented system to allocate costs equitably between programs.
The Authority is responsible for establishing an effective internal control process to ensure the Authority complies with the requirements governing Public Housing and Housing Choice Voucher programs.
Condition: The Authority has historically allocated shared costs between Public Housing and the Housing Choice Voucher program 65%/35%, respectively. The Executive Director indicated this was done based on a time study but the percentage also closely matches the unit percentage between programs. On the supporting documents for expenses during the year ended June 30, 2023, the Authority continued to document the 65%/35% split. For the year ended June 30, 2023, the Authority had switched fee accountants. The current fee accountant switched the allocation to 93%/7% which is not reasonable and the Executive Director was not aware of this allocation until well after the June 30, 2023 year end was closed. When we inquired for the justification for the new allocation, it was based on total salaries per program which included maintenance salaries. Further, the allocation of the Executive Director’s wages did not appear reasonable as the Executive Director has had to spend more time with the Voucher program due to staff turnover. Further, it appears the allocation of “overhead” time was all allocated to Public Housing. The new allocation system resulted in the Housing Choice Voucher program having administrative profits of $43,792 which is highly unusual for program that averages 78 vouchers per month.
The Public Housing program pays all the bills and is to be reimbursed by the Voucher program for its portion. During our audit, we noted the Voucher program was not reimbursing timely or for the full amount. The balance Voucher owed Public Housing had increased from $10,780.32 at June 30, 2022 to $11,648.18 on June 30, 2023 and in reviewing the general ledger, the balance was not being paid back monthly and had remained consistent throughout the year.
Further, this past year, the Authority only consistently had two full-time administrative employees and a third position had been inconsistent. As a result, it made it difficult for the Authority to have controls beyond the Authority staff knowledge and compensating controls were not development to overcome the lack of segregation of duties. Specifically, we noted a lack of segregation of duties over allowable activities as the Executive Director had to handle many of the duties by herself without compensating controls.
Cause: The Authority was unaware of the allocation system being used to allocated shared expenses and the system used was not reasonable.
Effect or Potential Effect: It appears Public Housing program was overallocated administrative expenses that should have been allocated the Housing Choice Voucher program. Interprogram balances were not being repaid timely. Further, due to the lack of segregation of duties, the control deficiencies result in more than a reasonable possibility that material noncompliance with program requirements could occur and not be prevented or detected.
Recommendation: The Authority should review its allocation system and document the justification for it. The justification should be relevant to the expense being allocated.
View of the Responsible Officials of the Auditee: The auditee’s management agrees with the finding.