Finding 6849 (2023-001)

SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Housing Authority of the City of Kelso April 1, 2022 through March 31, 2023 2023-001 The Housing Authority had inadequate internal controls for ensuring compliance with depository agreement requirements for its Section 8 Housing Choice Voucher program. Assistance Listing Number and Title: 14.871 – Section 8 Housing Choice Vouchers Federal Grantor Name: U.S. Department of Housing and Urban Development (HUD) Federal Award/Contract Number: WA020VO Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Description of Condition During fiscal year 2023, the Housing Authority received $2,435,667 under the Housing Voucher Cluster Program (HCVP). The HCVP provides rental assistance to help families with very low incomes afford decent, safe and sanitary rental housing. Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. The Housing Authority must enter into depository agreements with its financial institutions in the form required by HUD. The agreements serve as safeguards for federal funds and provide third-party rights to HUD. The terms in the agreements include requirements for funds to be placed in an interest-bearing account. While the Housing Authority entered into a depository agreement with its financial institution, our audit found it did not comply with the agreement’s terms that required the funds to be placed in an interest-bearing account. We consider this internal control deficiency to be a material weakness that led to material noncompliance. Cause of Condition Although Housing Authority officials knew about the requirement to hold funds in an interest-bearing account, they thought choosing a bank account that did not charge fees was more fiscally responsible for handling the HCVP funds. Effect of Condition The Housing Authority it is not in compliance with the program’s depository agreement requirement, and no interest was earned on HCVP account balances during the audit period. Recommendation We recommend the Housing Authority strengthen internal controls to ensure it complies with depository agreement requirements. Specifically, the Housing Authority should ensure funds are held in an interest-bearing account, as the program requires. Housing Authority’s Response In the low interest environment of the past several years, the Authority arranged its Housing Choice Voucher bank account to achieve the best net cost savings for the program. This resulted in low checking and ACH fees in exchange for a noninterest-bearing arrangement. Unfortunately, while our aim was to preserve funding as much as possible to serve the public, this is not in compliance with the letter of regulations which requires this account to be interest-bearing. The Authority has changed the Housing Choice Voucher account to be interest-bearing going forward. Unfortunately, this will result in several thousand dollars of additional fees per year to the program because of its many ACH payments to landlords. We have consulted with HUD and have confirmed that this, indeed, is the required arrangement despite the cost. Auditor’s Remarks We appreciate the Housing Authority’s commitment to resolve this finding and thank the Housing Authority for its cooperation and assistance during the audit. We will review corrective action taken during the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 24 CFR 982.156, Depositary for program funds.