ST. JOSEPH COUNTY HOUSING CONSORTIUM

Finding 2024-002 Information on the federal program: Subject: Home Investment Partnership Program – Internal Controls Federal Agency: Department of Housing and Urban Development Federal Program: Home Investment Partnership Program Assistance Listing Number: 14.239 Pass-Through Entity: N/A - Direct Grant Compliance Requirement: Special Tests and Provisions - Underwriting Requirements Audit Findings: Significant Deficiency Criteria: 2 CFR section 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal awards in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 29 CFR 92.250(b) states in part: Participating jurisdictions must underwrite and evaluate projects to ensure that Home funds are not invested in projects with unreasonable costs, that the project is financially viable, and that the level of Home investment is not more than necessary. Additionally, the Uniform Guidance requires entities to maintain adequate documentation to demonstrate compliance with federal program requirements. Condition: The Consortium did not have a documented review control in place to ensure the underwriting calculation was prepared, reviewed, and maintained. Cause: The Consortium's management had not developed a system of internal controls to ensure compliance with the compliance requirements listed above. Effect: The failure to establish an effective internal control system placed the Consortium at risk of noncompliance with the grant agreement and the underwriting compliance requirements. Questioned Costs: There were no questioned costs identified. Context: In a sample of three, the following items were noted: • For the first selection, project underwriting support was not available. The underwriting calculation was prepared by a former employee. Review of the calculation was also performed by a former employee. The Consortium does not have record of the calculation. • For the second selection, the underwriting calculation did not have formal sign off by the reviewer. Only the preparer signed the calculation. • For the third selection, the underwriting calculation did not have formal sign off by the preparer. Only the reviewer signed the calculation. Identification as a repeat finding: No. Recommendation: We recommend the Consortium implement a formal process to ensure the required underwriting calculations are prepared, reviewed, and maintained. Adequate documentation should be maintained to support the underwriting calculations. Views of Responsible Officials and Planned Corrective Actions: Management agrees with the finding and has prepared a corrective action plan.

Finding 2024-002 Information on the federal program: Subject: Home Investment Partnership Program – Internal Controls Federal Agency: Department of Housing and Urban Development Federal Program: Home Investment Partnership Program Assistance Listing Number: 14.239 Pass-Through Entity: N/A - Direct Grant Compliance Requirement: Special Tests and Provisions - Underwriting Requirements Audit Findings: Significant Deficiency Condition: The Consortium did not have a documented review control in place to ensure the underwriting calculation was prepared, reviewed, and maintained. Context: In a sample of three, the following items were noted: • For the first selection, project underwriting support was not available. The underwriting calculation was prepared by a former employee. Review of the calculation was also performed by a former employee. The Consortium does not have record of the calculation. • For the second selection, the underwriting calculation did not have formal sign off by the reviewer. Only the preparer signed the calculation. • For the third selection, the underwriting calculation did not have formal sign off by the preparer. Only the reviewer signed the calculation. Views of Responsible Official: We concur with the finding. Description of Corrective Action Plan: Management will implement a system of internal controls to ensure the required underwriting calculations are prepared, reviewed, and maintained. Responsible Party and Timeline for Completion: The Consortium Director (or their designee) and the Federal Grant Administrator are responsible for implementation, which will go into effect immediately.

FINDING 2019-001 Subject: Economic Development Cluster - Internal Controls Federal Agency: Department of Commerce Federal Program: Economic Adjustment Assistance CFDA Number: 11.307 Federal Award Number and Year (or Other Identifying Number): 06-19-01251 Pass-Through Entity: Direct Compliance Requirement: Special Tests and Provisions - RLF Loan Requirements Audit Finding: Material Weakness Condition and Context An effective internal control system was in place at the City in order to ensure compliance with requirements related to the grant agreement and the Special Tests and Provisions - RLF Loan Requirements compliance requirement; however, this control was not documented. Application file folders are kept for approved loans. Within these folders, a checklist is kept outlining the documents needed before a loan can be funded. As required documents were received, the employee that prepared the checklist also marked off the received items. No documentable controls were in place to ensure the proper documents were received. The lack of documented controls was a systemic issue, which occurred throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." Cause Management had not properly developed a system of internal control to ensure compliance with the Special Tests and Provisions - RLF Loan Requirements compliance requirement. Effect The failure to establish an effective internal control system placed the City at risk of noncompliance with the grant agreement and the compliance requirement listed above. A lack of segregation of duties within an internal control system could also have allowed noncompliance with the compliance requirement and allowed the misuse and mismanagement of federal funds and assets by not having proper oversight, reviews, and approvals over the activities of the program. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the City's management establish a system of internal controls, including segregation of duties, related to the grant agreement and the Special Tests and Provisions - RLF Loan Requirements compliance requirement. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report. Auditor's Response It was the City's responsibility to ensure that internal controls were designed to ensure compliance with applicable laws and regulations. The City failed to provide documented controls to ensure proper documentation was provided by applicants prior to the loan being funded. A checklist prepared and reviewed by the same employee is not considered an effective internal control. The City was not able to provide documentation that credit files were subjected to a review process to ensure any noncompliance would be prevented, or detected and corrected, in a timely manner.

FINDING 2019-001 Contact Person Responsible for Corrective Action: Angelina Billo Contact Phone Number: 574-235-5838 Views of Responsible Official: The City of South Bend (the ?City?) continuously strives to monitor and improve upon its system of internal control in all areas, including in the operation of the Industrial Revolving Fund. For that reason, the City shares the desire of the State Board of Accounts to ensure that all controls are appropriately documented and has undertaken the corrective action plan noted below. However, the City disagrees with the opinion of the State Board of Accounts that the lack of a second signature on the loan documentation closing checklist indicates a material weakness or a significant deficiency in internal control, and therefore disagrees with this finding. There are two principal reasons for the City?s position: first, the checklist itself (with or without a second signature) is an effective, documented internal control to provide reasonable assurance of the receipt of all appropriate documentation. While a second signature strengthens the documentation even further, the City believes this control is effective and adequately documented with or without an additional signature. This belief is especially compelling when considering the second reason for the City?s position; namely, that the checklist is only one part of a larger system of internal controls. This system contains compensating controls designed to further identify whether any required loan documentation is missing. One example of a compensating control is that both the loan officer and the IRF attorney are physically present at each loan closing to ensure that hard copies of all required loan documentation are present before the loan is closed. After closing, the loan officer creates a credit file with all loan documentation which is inspected and reviewed by the Director of Business Development. For these reasons, the City believes that its current system of internal control is effective, and, although minor improvements can and should always be made, believes that its system is adequately documented. Description of Corrective Action Plan: Out of a desire to continuously strengthen internal control documentation, each loan documentation closing checklist is now reviewed and signed off on by the Director of Business Development prior to closing. The checklist continues to be prepared by the loan officer. Anticipated Completion Date: This change has already been implemented.

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