Housing Authority of the City of Michigan City, IndianaLocal Government

Condition: The Authority did not always maintain the sufficient documents required to support tested transactions. During our testing of transactions, we noted the lack of supporting documentation for four out of forty items tested. The four transactions totaled $91,273, and all occurred before a change in management in April 2024. All transactions after April 2024 were properly recorded and supported. Criteria: CFR 2 Part 200, Subpart E § 200.400(d): The application of federal cost principles should require no significant changes in the internal accounting policies and practices of the non-Federal entity. However, the accounting practices of the non-Federal entity must be consistent with federal cost principles and support the accumulation of costs as required by the principles, and must provide for adequate documentation to support costs charged to the Federal award. Cause: The Authority did not maintain supporting documentation for expenditures. Effect: Possible theft or misuse of federal funds can occur without proper support and approval of expenditures. Recommendation: We recommend that the Authority record all expenditures are properly supported, documented and approved, to ensure compliance with the uniform guidance and generally accepted accounting principles.

2020-001 INTERFUND REIMBUSEMENT: CURRENT CONDITION: The Authority does not have a system in place to reimburse and settle the program interfunds on a regular basis. CFDA#: 14.850, 14.871 CRITERIA: HUD rules and regulations require that program funds be separately accounted for and can not be intermingled. EFFECT: The Authority is in violation of the ACC. QUESTIONED COSTS: None CONTEXT: The Authority uses revolving accounts in the normal course of business to pay vendor bills and employees. The Authority does not have a regular routine for analyzing the interfunds and moving the cash to the appropriate program on a regular basis. RECOMMENDATION: The Authority needs to settle the interfunds on at least a quarterly basis. DISCUSSED WITH: Sharon Hutton and Board members, April 14, 2021 RESPONSE: We have hired a new Finance Manager that will be reviewing and reconciling all the books on a monthly basis.

2020-002 BALANCE SHEET SUBSTANTIATION CURRENT CONDITION: The following accounts lacked proper supporting documentation, or are not in agreement with the supporting documentation. VOUCHERS 1. List of accounts payable of 62,349 2. List of ports of 21,130 BUSINESS ACTIVITIES 1.Year to date general ledger for the interfund of 1,512,638 COMPONENT UNITS 1. Supporting documentation for A/R, prepaid rent, allowance, and security deposits 2. List of A/P 3,098 PROJECT 1. General Fund Cash ? missing support for 10,173, -12,702, 673 2. Support for Accounts receivable, Prepaid rent, and Security deposits does not agree 3. No support for A/R HUD of 54,994. 4. Inventory 5. Accounts payable and interfund year to date general ledger, support for $27,938, & $1,512,638 6. The homebuyers reserve account does not agree 36 HOUSING AUTHORITY OF THE CITY OF MICHIGAN CITY Michigan City, Indiana September 30, 2020 SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) CURRENT YEAR FINDINGS SECTION II - FINANCIAL STATEMENT FINDINGS (Continued) CFDA#: 14.850, 14.871 CRITERIA: HUD rules and regulations require internal controls and regular agreement of supporting documentation for account balances. EFFECT: The Authority does not have accurate records. QUESTIONED COSTS: None CONTEXT: The Authority has not had sufficient staff and helpful fee accounts and has not had regular internal controls in place to ensure that the account balances stay accurate. RECOMMENDATION: The Authority needs to analyze the staffing, including the fee accounting and put trained staff in place who can use proper internal controls to keep the books and records accurate. Old account balances should be written off with board approval. DISCUSSED WITH: Sharon Hutton and Board members, April 14, 2021 RESPONSE: The Finance Manager is currently working on a new policy and procedure for the staff. One of the new policies would be to bring a write-off quarterly to the board. We are preparing to go out to bid for a new fee accountant.

2020-003 REPORTING: CURRENT CONDITION: The Authority submitted an unaudited and audited financial data schedule (FDS) that did not follow the REAC line definition reporting guide. CFDA#: 14.850, 14.871 CRITERIA: HUD rules and regulations require accurate reporting on the REAC system. EFFECT: The Authority has not followed reporting requirements. QUESTIONED COSTS: None CONTEXT: The Authority?s fee accountant did not put the programs in the proper columns and did not fill out all the required lines. The proper beginning equity was not used. RECOMMENDATION: The Authority needs to completely review the fee accountants work before any submissions are made. DISCUSSED WITH: Sharon Hutton and Board members, April 14, 2021 RESPONSE: The Housing Authority will actively began searching for a new fee accountant.

FINDING 2019-03 Subject: Housing Choice Voucher Cluster ? Activities Allowed or Unallowed and Allowable Costs/Cost Principles Federal Agency: Department of Housing and Urban Development Federal Program: Housing Choice Vouchers CFDA Number: 14.871 Compliance Requirement: Activities Allowed or Unallowed and Allowable Costs/Cost Principles Audit Findings: Material Weakness, Qualified Opinion Condition: An effective internal control system was not in place at the Housing Authority in order to ensure compliance with requirements related to the grant agreement and the Activities Allowed or Unallowed and Allowable Costs/Cost Principles compliance requirements. The Housing Authority had not designed or implemented adequate policies or procedures to ensure that the rates at which the employees were paid were correct and approved. As a result, all payroll amounts paid became unallowable as we could not verify the pay rates used from October 1, 2018 to September 30, 2019. Context: The lack of sufficient internal controls was a systemic issue throughout the audit period. The lack of sufficient evidential documentation to support the disbursements was limited to vendor transactions. Criteria: 2 CFR 200.303 states in part: ?The non-Federal entity must: 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 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 of the Housing Authority had not developed or implemented a system of internal controls to ensure compliance with the grant agreement and the compliance requirements listed above. Effect: The failure to establish an effective internal control system placed the Housing Authority at risk of noncompliance with the grant agreement and the compliance requirements listed above. A lack of segregation of duties within an internal control system could have also allowed noncompliance with the compliance requirements and allowed the misuse and mismanagement of Federal funds and assets by lacking proper oversight, reviews, and approvals over the activities of the programs. Questioned Costs: There were no questioned costs identified. Recommendation: We recommend the Housing Authority?s management establish a system of internal controls to ensure compliance with the grant agreement and the Activities Allowed or Unallowed and Allowable Costs/Cost Principles compliance requirements. Views of Responsible Officials: For the views of responsible officials, refer to the Corrective Action Plan that is part of this report

FINDING 2019-04 Subject: Housing Choice Voucher Cluster ? Eligibility Federal Agency: Department of Housing and Urban Development Federal Program: Housing Choice Vouchers CFDA Number: 14.871 Compliance Requirement: Eligibility Audit Findings: Material Weakness, Qualified Opinion Condition: The Housing Authority had not established an effective internal control system related to the grant agreement and the Eligibility compliance requirement. Eligibility for Housing Choice Voucher was determined on form HUD-50058 and application forms that are filled out by the PHA staff during an interview with the tenant. The head of the household signs required documents. Under certain circumstances, other members of the family are also required to sign these forms. Four tenants files were found to not have proper tenant signatures on the reexamination forms. Family income reexaminations are required to be documented in the tenant file and require verification of (1) family annual income, (2) value of assets, (3) expenses related to deductions from annual income and (4) other factors that affect eligibility or determination of rent benefits. Evidence of a reexamination for eight tenants was not retained by the Housing Authority and therefore could not be verified. Tenant files for thirteen tenants could not be located by the Housing Authority. These tenant files could not be tested. Context: The lack of controls, lack of supporting documentation for eligibility, and noncompliance were systemic issues throughout the audit period, 22% of tenant files requested could not be found by the Housing Authority and 17% were missing required eligibility documentation. Criteria: 24 CFR 5.230 states in part: ?Required consent by assistance applicants: Each member of the family of an assistance applicant or participant who is at least 18 years of age, and each family head and spouse regardless of age, shall sign one of more consent forms.? 24 CFR 982.516 states in part: ?PHA responsibility for reexamination and verification (1) The PHA must conduct a reexamination of family income and composition at least annually. (2) The PHA must obtain and document in the tenant file third party verification of the following factors or must document in the tenant file why verification was not available? i. Reported family annual income ii. Value of assets iii. Expenses related to deductions from annual income iv. Other factors that affect adjusted income.? 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 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 of the Housing Authority had not developed or implemented a system of internal controls to ensure compliance with the grant agreement and the compliance requirements listed above. Effect: The failure to establish an effective internal control system at the Housing Authority enabled noncompliance to go undetected. Noncompliance with the grant agreement and the reporting requirement could have resulted in the loss of Federal funds to the Housing Authority. Questioned Costs: There were no questioned costs identified. Recommendation: We recommend the Housing Authority?s management establish a system of internal controls to ensure compliance with the grant agreement and the Eligibility compliance requirement. Views of Responsible Officials: For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

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