Finding Text
Finding 2022-001 ? Accounting Controls ? Internal Controls over Financial Statement Preparation CFDA 14.850 & 14.871 ? Noncompliance and Material Weakness Criteria: Regulations at 2 CFR Part 200, Uniform Administrative Requirements, outline the internal control requirements for recipients of federal grant funds. Non-Federal entities must demonstrate, ?Effective control over, and accountability for, all funds, property, and other assets.? A deficiency in internal control exists when the design or operation of a control does not allow management or its employees, in the normal course of operation, to detect or correct errors, fraud, or misstatements in a timely manner. The failure to properly implement internal control procedures can result in material misstatements of the account balances and noncompliance with grant oversight provisions. Condition: We noted the following deficiencies related to the maintenance of accounting records and the underlying internal controls: 1) Cash and Investments ? We noted in the general ledger and in the unaudited Financial Data Schedule (FDS) submission that the Authority accounted for general fund activity in Public Housing AMP 1. AMP 1 converted fully to the Rental Assistance Demonstration (RAD) program during the audited period and as such transferred most assets to the new blended component unit. The Authority failed, however, to transfer the cash balance which at fiscal year end netted with intercompany balances to $1,350,336. We have proposed audit adjustments to correct this misstatement and will transfer the funds to AMP 2. We also noted that the Housing Authority accounts for most transactions through a general cash fund and then balances the general ledgers through a system of intercompany accounts. The Authority does not appear to clear these intercompany balances, however, which causes these accounts and the related cash accounts to perpetually increase. The balances net against each other and result in no net book effect. We note that due to the increasing balances, however, that it increases the complexity of account analysis and increases the risk of financial misstatement and error. 2) GASB 68 Retirement Accounting ? Upon review of the GASB 68 retirement balance sheet accounts we noted that the Authority failed to account for employer contributions paid subsequent to the measurement date of the actuarial valuation. This resulted in audit adjustments in the amount of $326,173 to the agency-wide financial statements. We also noted that the allocation of the liability and related accounting should be reviewed and possibly adjusted for future accounting periods. 3) Accounts Payable ? We noted that the Authority calculated and prepared support for vendor and utility accruals at fiscal year end. In error the Authority set the accruals to reverse in the same period which resulted in none of the accruals being represented in the financial statements. We have posted adjustment to correct for this in the audited financial statements. 4) Tenant Accounts Receivable ? The Authority incorrectly included activity in the general ledger TAR accounts that did not reflect actual operating transactions. The Authority in the past set up mirror accounts for HAP activity in the RAD developments but shifted from those original general ledgers to their now current general ledgers. The Authority incorrectly included these unused ledgers in the financial statements which resulted in TARs being overstated by $289,134. We have proposed audit adjustment to correct this deficiency for the audited financial statements. 5) HCV HAP Accounting ? We reviewed the unaudited Housing Choice Voucher HAP Subsidy accounts and found that the Authority netted the RAD PBV Housing Assistance transfers against the increment funding received for the RAD PBV conversion. This resulted in both HAP Subsidy and HAP expense being understated by $824,689. The Authority has implemented additional controls subsequent to the end of the fiscal year to properly recognize the HAP expense on the HCV side for the PBV transfers to RAD. Cause: Lack of internal controls in the area of financial reporting and in the review of the financial statements. We also noted that the Director of Finance was taking a leave of absence due to a family illness. The Authority hired an outside consultant to do a partial review and closeout of the financial statements in order to submit the unaudited FDS. Effect: Improper balancing of accounts and accounting controls can result in misstated financial statements and improper financial information being communicated to management and to HUD. Recommendation: We recommend that year end internal control procedures be put in place to demonstrate effective oversight over account balances and grant activity. We also recommend management review the internal controls and adequacy of the HCV budget to cover administrative costs. Questioned Costs: None Repeat Finding: Yes, 2021-001 from prior year. Views of responsible officials: The Owensboro Housing Authority agrees with the findings and the recommended corrective actions.