Finding Text
FINDING 2022-003
Subject: CDBG - Entitlement Grants Cluster - Program Income
Federal Agency: Department of Housing and Urban Development
Federal Program: Community Development Block Grants/Entitlement Grants
Assistance Listings Number: 14.218
Federal Award Numbers and Years (or Other Identifying Numbers): B-11-UN-18-0002, B-17-UC-18-0016,
B-18-UC-18-0016, B-19-UC-18-0016,
B-20-UC-18-0016, B-21-UC-18-0016
Compliance Requirement: Program Income
Audit Findings: Material Weakness, Modified Opinion
Condition and Context
The County received program income through various loan programs it offered to qualifying
individuals. Once the County received a loan payment, the receipt was posted into the financial accounting
system of the County and recorded in a grant fund. The amount received was also to be recorded in the
Department of Housing and Urban Development's (HUD) Integrated Disbursement and Information System
(IDIS) website. The recorded program income in the IDIS would then appear on the Drawdown Report by
Voucher Number report (PR07).
One individual was responsible for notifying the County Auditor's office when program income
money was received, so it could be receipted in the County's financial accounting system. The same
individual was also responsible for reporting the information on the IDIS site. No internal controls were
established to ensure the program income that was recorded in the financial accounting system was also
reported on the IDIS site and the PR07 report.
Four receipts totaling $38,960 were selected for testing from the County's receipt ledger. The four
receipts were unable to be located on the PR07 report provided for audit. However, one of the four receipts
was recorded in the IDIS system after information regarding the receipt was requested.
In addition, we were unable to verify the total amount recorded in the receipt ledger to the total
reported on the PR07 report. The County's ledger was greater than the PR07 report by $30,324 and is
primarily attributed to under reporting of program income in the IDIS as identified above.
The lack of internal controls and noncompliance were systemic issues throughout the audit period.
Criteria
2 CFR 200.303 states in part:
"The non-Federal entity must:
(a) Establish and maintain effective internal control over the Federal award that provides
reasonable assurance that the non-Federal entity is managing the Federal award in
compliance with Federal statutes, regulations, and the terms and conditions of the Federal
award. These internal controls should be in compliance with guidance in 'Standards for
Internal Control in the Federal Government' issued by the Comptroller General of the
United States or the 'Internal Control Integrated Framework', issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). . . ."
INDIANA STATE BOARD OF ACCOUNTS
21
LAKE COUNTY
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
2 CFR 200.1 states in part:
". . . Internal controls for non-Federal entities means:
(1) Processes designed and implemented by non-Federal entities to provide reasonable
assurance regarding the achievement of objectives in the following categories:
(i) Effectiveness and efficiency of operations;
(ii) Reliability of reporting for internal and external use; . . ."
2 CFR 200.302 states in part:
"(a) Each state must expend and account for the Federal award in accordance with state laws
and procedures for expending and accounting for the state's own funds. In addition, the state's
and the other non-Federal entity's financial management systems, including records documenting
compliance with Federal statutes, regulations, and the terms and conditions of the
Federal award, must be sufficient to permit the preparation of reports required by general and
program-specific terms and conditions; and the tracing of funds to a level of expenditures
adequate to establish that such funds have been used according to the Federal statutes,
regulations, and the terms and conditions of the Federal award. . . .
(b) The financial management system of each non-Federal entity must provide for the
following: . . .
(3) Records that identify adequately the source and application of funds for federallyfunded
activities. These records must contain information pertaining to Federal
awards, authorizations, financial obligations, unobligated balances, assets, expenditures,
income and interest and be supported by source documentation. . . ."
24 CFR 570.504 states in part:
"(a) Recording program income. The receipt and expenditure of program income as defined
in § 570.500(a) shall be recorded as part of the financial transactions of the grant program.
(b) Disposition of program income received by recipients.
(1) Program income received before grant closeout may be retained by the recipient if the
income is treated as additional CDBG funds subject to all applicable requirements
governing the use of CDBG funds.
(2) If the recipient chooses to retain program income, that program income shall be
disposed of as follows:
(i) Program income in the form of repayments to, or interest earned on, a revolving
fund as defined in § 570.500(b) shall be substantially disbursed from the fund before
additional cash withdrawals are made from the U.S. Treasury for the same activity.
(This rule does not prevent a lump sum disbursement to finance the rehabilitation of
privately owned properties as provided for in § 570.513.)
(ii) Substantially all other program income shall be disbursed for eligible activities
before additional cash withdrawals are made from the U.S. Treasury. . . ."
INDIANA STATE BOARD OF ACCOUNTS
22
LAKE COUNTY
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Cause
A turnover of staff in the County's Community Development office, and management not ensuring
that a system of internal controls that segregated key functions was designed, implemented, and operating
effectively, contributed to the program income issue identified above.
Effect
Without the proper implementation of an effectively designed system of internal controls, the
County could not ensure that program income was properly reported and used before the drawdown of
federal funds as required. The County could be at risk of losing federal funds by the federal awarding
agency due to noncompliance with federal regulations.
Questioned Costs
There were no questioned costs identified.
Recommendation
We recommended that the management of the County establish a system of internal controls to
ensure that all program income received is properly reported in the IDIS system and expended prior to
drawing down federal awards.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.