Finding 981324 (2023-004)

Department of Housing and Urban Development Federal Assistance Listing #14.128 Section 242 – Mortgage Insurance ‐ Hospitals Reporting Material Weakness in Internal Control Over Compliance and Material Noncompliance Criteria: 2 CFR 200.303(a) states that the auditee must establish and maintain effective internal control over federal awards that provides reasonable assurance that the Organization is managing the federal awards in compliance with federal statutes, regulations and terms and conditions of the federal award. Condition: The Department of Housing and Urban Development (HUD) requires a quarterly reporting of financial and statistical data. Amounts reported under “All Non‐Operating Revenue” and “Other Changes in Fund Balance” in the Organization’s third quarter report submitted to HUD were not reconciled to and did not agree with the underlying financial data. The internal financial statements do not present all of the information that is required in the HUD quarterly reports and the differing information was all put to one line on the HUD quarterly report when the differences should have been evaluated and documented. Cause: The Organization does not have a control process in place to ensure the report submitted to HUD agrees to its internal financial statements and that the internal financial statements contain all information needed to properly complete the report. Effect: The Organization reported amounts under “All Non‐Operating Revenue” and “Other Changes in Fund Balance” in a quarterly report that may be inaccurate. Per discussion with the client and observation of the other quarterly reports, it was determined that the other quarterly reports would contain the same error. Therefore, the sample size was not increased. Questioned Costs: None reported. Context: There were a total of eight reports required to be submitted to HUD during the year ended December 31, 2023. Three reports were selected for testing. Of the three reports selected, it was noted that one report contained potential errors. Repeat Finding from Prior Years: Yes, Finding 2022‐004. Recommendation: We recommend the Organization implement a control process which includes a secondary review and approval of the required reports submitted to the federal agency after they have been entered into HUD’s format by an individual who understands the financial statements and the HUD reporting requirements. Views of Responsible Officials: Management agrees with the finding.