Finding 567384 (2024-001)

Finding 2024-001: Significant Deficiency and known questioned costs related to activities allowed or unallowed and allowable costs/cost principles Major Program: HOME Investment Partnership Program Federal Agency: U.S. Department of Housing and Urban Development Assistant Listing Number: 14.239 Criteria: The City is responsible for ensuring compliance with all applicable provisions of the HOME Investment Partnerships Program (HOME) as prescribed by the U.S. Department of Housing and Urban Development. According to requirements included in the OMB Compliance Supplement, all HOME Funds may be used by participating jurisdictions to provide for: (a) incentives to develop and support affordable rental housing and homeownership affordability through the acquisition, new construction, reconstruction, or rehabilitation of non-luxury housing with suitable amenities, including real property acquisition, site improvements, conversion, demolition, and other expenses, including financing costs, relocation expenses of any displaced persons, families, businesses, or organizations; (b) tenant-based rental assistance, including security deposits; (c) the payment of reasonable administrative and planning costs; and (d) the payment of operating expenses of Community Housing Development Organizations (CHDOs). The housing must be permanent or transitional. The acquisition of vacant land or demolition can only be undertaken with respect to a particular housing project intended to provide affordable housing, and when construction is expected to begin within 12 months. Conversion of an existing structure to affordable housing is rehabilitation unless certain circumstances exist. Manufactured housing may be purchased or rehabilitated and the land upon which it is built may be purchased with HOME funds. HOME funds may be used to pay for development construction hard costs, refinancing costs, acquisition costs, related soft costs, CHDO costs, relocation costs, and costs related to the repayment of loans (24 CFR sections 92.205(a) and 92.206).” 2 CFR 200.516(a)(3) requires an audit finding to be reported for known questioned costs that are greater than $25,000 for a type of compliance requirement for a major program. Condition and Context: During testing of HOME activities allowed or unallowed and allowable costs/cost principles (AB) compliance requirements, it was noted that one (1) out of thirty-nine (39) disbursement transactions reviewed did not meet the AB compliance requirements. 2 CFR 200.305(b)(8) states that “a payment must not be made to a recipient or subrecipient for amounts that the recipient or subrecipient withholds from contractors to assure satisfactory completion of work. Payment must be made when the recipient or subrecipient disburses the withheld funds to the contractors or to escrow accounts established to ensure satisfactory completion of work.” The City requested reimbursement for retainage amounts that were not released as of September 30, 2024. Cause: The City had turnover in the project manager department related to HOME construction projects. The project manager turnover caused a miscommunication between the project managers and grant accounting employees which resulted in the request for reimbursement of retainage that had not yet been paid by the City. Effect or Potential Effect: The City received grant reimbursements related to expenditures that were not paid as of September 30, 2025. Known Questioned Costs: $112,539 from October 1st, 2023 through September 30th, 2024. These are for all projects that retainage was requested for reimbursement but the retainage was not released as of September 30, 2024. Repeat Finding: No Recommendation: We recommend the City continue to train its employees to on allowable activities and costs related to the HOME grant. View of Responsible Officials: See Corrective Action Plan on page 10