Finding 2023-004: Capital Fund Grant Administration
Capital Funds 14.872
Material Weakness/Noncompliance – Activities Allowed or Unallowed, Period of Performance, Special Tests and Provisions
Questioned Costs: $206,189.50
Criteria: The Authority is awarded an annual Capital Fund grant each year. The Authority prepares a five-year plan which indicates improvements the grants will be used for and the dollar amount. This annual budget is modified upon the grant award to match the grant amount. Only items included within the budget are allowable costs.
Unless an extension is approved by HUD, the Authority must obligate at least 90 percent of each Capital Fund grant within 24 months of the funds becoming available to the Authority for obligation. The Authority is required to self-report obligations and expenditures in the Line of Credit Control (LOCCS) monthly.
Condition: During our audit, we tested $240,034.30 of the $252,818.56 of Capital Fund grant transactions. Of the $240,034.30 tested, $173,832.14 of expenditures were not included as work items in the applicable grant budget and therefore not allowable.
The Authority was required to meet the 90% obligation threshold by May 28, 2022 for the 2018 Capital Fund grant. The Authority had reported either 100% or 98% obligation since the Authority began reporting in LOCCS for the period of May, 2018. We noted $32,357.36 of expenditures related to the 2018 Capital Fund grant that were associated with a contract signed on July 1, 2022 which is after the obligation deadline. Based on the actual obligation occurring after the obligation deadline and the fact the Authority reported the grant fully obligated since May, 2018, these expenditures are also not allowable.
We further noted a variety of issues with the Authority’s reporting of funds obligated and expended in LOCCS. Specifically, we noted the following:
• As noted above, the Authority reported the 2018 grant as fully obligated when it had signed a contract for the work after the obligation deadline.
• The Authority entered into a contract on January 11, 2022 for work related to the 2019 Capital Fund grant. The Authority did not adjust the obligation amount in LOCCS for this until October, 2022. The Authority had expended $160,055.23 of the grant as of June 30, 2023 but the Authority was still reporting the balance at $108,517.03 reported for the June, 2022 period in ELOCCS on in the November, 2023 report as the report had not been updated. The $108,517.03 reconciled to the June 30, 2022 general ledger balance.
• Related to the 2021 Capital Fund grant, the Authority entered into a contract on January 11, 2022, however, the amount reported as obligated in LOCCS did not change until the January, 2023 reporting period.
• Related to the 2022 Capital Fund grant, the Authority reported a $57,030.14 increase in the amount reported obligated for the period ending October, 2022. We inquired of the Executive Director of what made up the obligation and she was unable to identify the obligation.
It should be noted that due to the limited staff, compliance with the Capital Fund grant requirements was solely with responsibility of the Executive Director without compensating controls.
Cause: The responsibility to administer Capital Fund grant was the responsibility of one individual and the staff did not have a proper understanding of how the Capital Fund grant was to operate and was unaware of the various rules and regulations. The Executive Director was under the assumption that as long as a cost was in the five-year plan, the Authority could spend any of its grants on the item. Further, the Authority had gotten away from maintaining subsidy recorded to support grant funds obligated and expended by grant.
Effect or Potential Effect: $206,189.50, or 82%, of capital fund grant expenditures during the year are being questioned as unallowed activities. Further, the reporting of funds obligated and expended were materially in error. Based on the level of noncompliance noted, we have issued an adverse opinion of Capital Fund grant compliance.
Recommendation: During our audit fieldwork, the Executive Director indicated she had recently received Capital Fund grant training and had realized she had not administered the grant correctly. The Authority should establish procedures to report at board meetings the status of the grants including the grant award, obligation and expenditure deadlines, funds obligated, funds advanced and funds expended. All obligations should be supported by signed contracts or invoices/billings. The Authority should review this situation with HUD to determine how to remedy it.
View of the Responsible Officials of the Auditee: The auditee’s management agrees with the finding.