CITY OF SOUTHFIELD, MICHIGANLocal Government

Assistance Listing, Federal Agency, and Program Name - 14.871, U.S. Department of Housing and Urban Development (HUD), Section 8 Housing Choice Vouchers Program Federal Award Identification Number and Year - Not applicable Pass-through Entity - Not applicable Finding Type - Material weakness Repeat Finding - No Criteria - Per 2 CFR 200.303, the recipient must establish, document, and maintain effective internal control over the federal award that provides reasonable assurance that the recipient is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. These internal controls should align with the 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). Condition - The City did not have adequate controls in place around the salaries and wages charged to the program. Questioned Costs - Not applicable If questioned costs are not determinable, description of why known questioned costs were undetermined or otherwise could not be reported - Not applicable Identification of How Questioned Costs Were Computed - Not applicable Context - During testing over the City's internal controls, PM identified the City did not have supporting documentation to show controls in place to review the salaries and wages charged to the program. Cause and Effect - The City was not able to provide sufficient documentation to support a review of salaries and wages. Although no instances of noncompliance were identified, the risk of noncompliance exists due to the fact no controls were in place to review expenditures for payroll applied to the program. Recommendation - We recommend the City implement controls surrounding the review of payroll-related expenditures. Views of Responsible Officials and Corrective Action Plan - The City acknowledges this finding and has updated our procedures to include the City Administrators’ review and approval, as evidenced by his signature, on all Section 8 employee timesheets. The City believes this finding will be corrected by June 30, 2026.

Assistance Listing Number, Federal Agency, and Program Name 14.871, U.S. Department of Housing and Urban Development (HUD), Section 8 Housing Choice Vouchers Program Federal Award Identification Number and Year Not applicable Pass through Entity Not applicable Finding Type Significant deficiency Repeat Finding No Criteria Per 24 CFR Chapter IX, Part 982, Subpart I, Section 982.405 (a), the PHA must inspect the unit prior to the initial term of the lease to determine if the unit meets the Housing Quality Standards (HQS) as prescribed by HUD. If the HQS standards are not met, the owner must correct the deficiency within 30 days of the notification from the PHA (Section 982.405 (d)(2)). Per Section 982.405(j)(4), if the owner fails to correct the deficiencies within the 30 day cure period, the PHA must withhold the housing assistance payments until the owner makes the repairs and the PHA verifies the correction. Condition The City had insufficient controls in place that resulted in the City releasing HAP payments on behalf of a participant, despite a failed HQS inspection, which was not rectified within the 30-day cure period or the months that followed. Questioned Costs $1,542 Identification of How Questioned Costs Were Computed Questioned costs are all the housing assistance payments made during the City's fiscal year ended June 30, 2024 on behalf of this participant, which was July 2023 to January 2024 Context During tenant file testing, we identified the City had one participant whose initial HQS inspection failed and lacked supporting information to demonstrate the deficiencies were cured within the 30-day cure period, yet teh City continued to provide the participant with housing assistance payments throughout the year. Cause and Effect The City was not able to provide sufficient documentation of the owner correcting the deficiencies from the initial failed HQS inspection and did not terminate housing assistance payments to the participants. This resulted in the participant receiving ineligible housing assistance payments of $1,058 during the year under audit and $1,542 in totality, inclusive of amounts pertaining to the City's prior fiscal year. Recommendation We recommend the City implement controls surrounding the follow up of failed initial inspections after the 30 day cure period is over to ensure the owner corrected all deficiencies. We also recommend the City obtain these results from the third party inspectors in a timely manner in order for the City to stop housing assistance payments immediately, and remain compliance with the program requirement. Views of Responsible Officials and Corrective Action Plan The City has implemented controls with our inspection vendors to ensure reinspection is completed within the necessary 30 days and communicated to the PHA. If the owner fails to make the necessary corrections within the 30 day cure period, the PHA will withhold housing assistance payments in accordance with 24 CFR Chapter IX, Part 982 until the PHA verifies the corrections have been made. The City has also implemented a process to ensure reinspection documentation, when applicable, is included in the participant file. We expect this finding to be corrected by June 30, 2025.

CFDA Number, Federal Agency, and Program Name CFDA# 14.218 U.S. Department of Housing and Urban Development CDBG Entitlement Grants Cluster Neighborhood Stabilization Program 1 (NSP1) and Neighborhood Stabilization Program 3 (NSP3) Federal Award Identification Number and Year B 08 MN 260011 and B 11 MN 26 0011 Pass through Entity N/A Finding Type Material weakness and material noncompliance with laws and regulations Repeat Finding No Criteria Unified NSP1 and NSP3 Federal Register Notice October 19, 2010 Vol. 75, No. 201 states that a quarterly performance report must be submitted within 30 days following the end of each quarter. Condition The City did not submit the required Neighborhood Stabilization Program 1 and 3 Quarterly Performance Reports (QPR). Questioned Costs None Identification of How Questioned Costs Were Computed N/A Context The City records grant activity in the City's financial accounting system and is required to submit certain financial and nonfinancial information to the granting agency on a quarterly basis. Cause and Effect It is our understanding that transition of program staff has resulted in reporting and recording keeping gaps. Without accurate and up to date data in the grant reporting system, required quarterly reports, and regular monitoring of program activities, grantees are not able to demonstrate to the funding agency through reporting that the activities achieved the goals of the award. Recommendation We recommend that the City implement procedures and controls to ensure compliance of reporting requirements. Views of Responsible Officials and Corrective Action Plan The City acknowledges this finding and has implemented procedures to ensure that required reports are timely submitted. We believe this will be corrected by June 30, 2021.

CFDA Number, Federal Agency, and Program Name CFDA# 14.218 U.S. Department of Housing and Urban Development (HUD) CDBG Entitlement Grants Cluster Community Development Block Grant (CDBG) Federal Award Identification Number and Year B 15 MC 260012, B 19 MC 260012, B 20 MC 260012 Pass through Entity N/A Finding Type Material weakness and material noncompliance with laws and regulations Repeat Finding No Criteria CDBG recipients are required by HUD to file the PR26 CDBG Financial Summary Report (PR26). The PR26 is submitted annually to HUD by CDBG recipients at the time of a Consolidated Annual Performance and Evaluation Report (CAPER) submission. The PR26 is used to determine if an entitlement grantee has remained in compliance with the primary objective of the Housing and Community Development Act of 1974 (HCDA) which is to ensure that CDBG funds are primarily used for the benefit of low and moderate income persons. The report is also used to determine if the entitlement grantee has remained in compliance with the limitations placed on planning and administrative costs and public service costs. Condition The City filed the PR26 report, however the numbers reported were not reconciled to the City's general ledger and accounting records; as a result, the mathematical accuracy of the report could not be verified. Questioned Costs Unknown Identification of How Questioned Costs Were Computed Because the reporting was not reconciled to the reocrds, the City could not demonstrate compliance with earmarking requirements. As a result, there may be ineligible costs that exist that have not been identified. Context The PR26 reported total expenditures of $592,213, compared to the general ledger which reported total expenditures of $465,507. Additionally, the PR26 reported program income of $0, compared to the general ledger which reported program income of $18,386. Without a reconciliation between PR26 and the general ledger, balances reported to HUD may be inaccurate. Cause and Effect The City did not perform timely reconciliations for grant balances, which may result in inaccurate reporting being submitted to HUD. Recommendation We recommend that the City implement procedures and controls to ensure that the balances reported in the PR26 report are reconciled to the general ledger and that the reconciliation is done timely to ensure accurate reporting within the PR26 report. Views of Responsible Officials and Planned Corrective Actions The City acknowledges this finding and has implemented procedures to ensure the balances reported in the PR26 are reconciled to the underlying accounting records. We believe this will be corrected by June 30, 2021.

CFDA Number, Federal Agency, and Program Name CFDA# 14.218 U.S. Department of Housing and Urban Development (HUD) CDBG Entitlement Grants Cluster Community Development Block Grant (CDBG) Federal Award Identification Number and Year B 15 MC 260012, B 19 MC 260012, B 20 MC 260012 Pass through Entity N/A Finding Type Material weakness and material noncompliance with laws and regulations Repeat Finding No Criteria All costs must follow Cost Principles found at 2 CFR 200.400 in Subpart E. HUD requires timesheets to support all costs charged to the grants. 2 CFR 200.430(i) requires non Federal entities to maintain records that ?accurately reflect the work performed.? These records must: be supported by a system of internal controls, which provides reasonable assurance that the time being charged is accurate, allowable, and properly allocated, and incorporated in the official records, such as payroll records which reasonably reflects the employee?s total activity. The record must provide a time breakdown on all activities, both Federally funded and non Federally funded, for the employee; and comply with the non Federal entity?s pre established accounting practices and procedures. Further more, 2 CFR 200.403 Factors affecting allowability of costs. Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards and includes (g) be adequately documented. Condition During a review of the 2018 CDBG program activity by HUD, it was determined that the City failed to follow Cost Principles as related to time and attendance records. For a sample of timesheets reviewed by HUD, the timesheets revealed several areas of non compliance: (a) did not provide an accounting of the daily tasks or program that was worked on (whether a federal or non federal task); (b) the timesheets did not bear a date of when the timesheet was signed by the employee ? which must coincide with the pay period; (c) there was no supervisor signature or date on the timesheet and, an employee is not authorized to sign their own timesheet for a federal program. On the second timesheet submitted after the Exit Conference, there was no task details only a timekeepers? signature and date ? or any indication if this timekeeper was the supervisor. There was no payroll (ADP) record to show what was actually paid for or the amount expended with CDBG funds. Questioned Costs None Identification of How Questioned Costs Were Computed N/A Context The items noted pertained to 2018 CDBG program year award, which was not reported on the current year schedule of expenditures of federal awards (SEFA.) The finding issued by HUD did not pertain to awards under which the City reported current year expenditures. For the CDBG payroll expenditures reported on the current year SEFA and tested as part of the current year single audit, for the sample we reviewed, the timesheets included detail of the activity/program the employees worked on., in addition to describing services provided each day. As a result, there are no questioned costs. We did observe the lack of supervisor signature on the timesheets. Cause and Effect Time and attendance records may be inconsistently used and do not appear to consistently follow 2 CFR 200 requirements. As a result, the City was not in compliance with federal regulations based on HUD's findings. Recommendation The City should utilize time and attendance templates provided by HUD for documenting employee time charged to the grant and ensure proper approval/authorization of hours reported and paid. Views of Responsible Officials and Planned Corrective Actions The City acknowledges this finding as it relates to prior year expenditures. The City has revised a time sheet for CDBG employees. It should be noted that the Chore program has the only full time CDBG funded employee. The remaining CDBG employees are part time. This timesheet reflects CDBG activities and non CDBG activities. Timesheets will be signed by the employee, and forwarded to a timekeeper for review and entry into the Payroll System. Administration and/or Department heads then approve payrolls, prior to review by the Payroll Department.

CFDA Number, Federal Agency, and Program Name CFDA# 14.218 U.S. Department of Housing and Urban Development (HUD) CDBG Entitlement Grants Cluster Community Development Block Grant (CDBG), Neighborhood Stabilization Program 1 (NSP1) and Neighborhood Stabilization Program 3 (NSP3) Federal Award Identification Number and Year B 08 MN 260011, B 11 MN 260011, B 15 MC 260012, B 19 MC 260012, B 20 MC 260012 Pass through Entity N/A Finding Type Material weakness Repeat Finding No Criteria 2 CFR 200.303(a) requires that a 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 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). Condition During our audit, we noted that there appears to be insufficient internal controls to provide reasonable assurance that the City is managing the Federal award in compliance with all of the program requirements. Similar observations were also noted by HUD during a remote monitoring performed in November and December, 2020. Questioned Costs None Identification of How Questioned Costs Were Computed N/A Context The Community Development Block Grant Entitlement Cluster, which includes CDBG, NSP 1, and NSP 3 grants, makes up $528,117 of total federal expenditures reported on the schedule of expenditures of federal awards (SEFA), which represents approximately 13 percent of the total SEFA expenditures of $4,101,677 administered by the City. Cause and Effect Grant responsibilities, including financial reporting and program administration, are divided up between departments and there appears to be a lack of communication among those departments, which has led to several instances of noncompliance for this program, as noted in findings 2020 004, 2020 005, 2020 006 as well as other compliance matters identified during the City's HUD monitoring visit. In addition, most of the CDBG grant management staff are part time, which may be creating capacity constraints. Collectively, this has led to inaccurate and unreconciled records for the program non compliance matters as well as a lack of monitoring of program compliance. Recommendation We continue to recommend that the City consider a centralized grant coordination and monitoring function. In addition, we encourage the City to ensure adequate time and effort is being dedicated to the CDBG program and that sufficient processes and controls are in place to ensure compliance with grant activities. Views of Responsible Officials and Planned Corrective Actions The City acknowledges this finding and continues to work toward implementing a more effective internal control system to ensure compliance with all program requirements. During the year under audit, the City hired a special projects coordinator and we believe this finding will be corrected by June 30, 2021.

CFDA Number, Federal Agency, and Program Name - CFDA# 14.218 U.S. Department of Housing and Urban Development CDBG Entitlement Grants Cluster Neighborhood Stabilization Program 1 (NSP) Federal Award Identification Number and Year - B 08 MN 260011 Pass through Entity - None Finding Type - Material weakness and material noncompliance with laws and regulations Repeat Finding - No Criteria - The Housing and Economic Recovery Act of 2008 (HERA) and 2 CFR part 200, subpart E, establish eligible uses of NSP funds and for approved uses of funds to be spent within the period of availability. Condition - The City incurred an expenditure of NSP1 funds in the current year related to the rehabilitation of a property that had been acquired through the NSP program in a prior year by a then-eligible NSP program participant. The rehabilitation was approved in April 2010 through a loan agreement with the participant that required the use of the loan proceeds by June 30, 2010. Although the period of allowability expired almost nine years prior, the City permitted the use of the loan funds during the current year, without obtaining HUD approval or verifying current eligibility of the program participant. As a result, the allowability of this loan expenditure could not be established. Questioned Costs - $10,000 Identification of How Questioned Costs Were Computed - Costs charged directly against the grant. Context - The City incurred $18,317 of Neighborhood Stabilization Program 1 expenditures in fiscal year 2019. These expenditures included $10,000 of the possible disallowed costs. Cause and Effect - A program participant was permitted to participate in the NSP program and use grant funds based on an approval and eligibility that was almost a decade old. Additionally, while this is a unique circumstance that may have been permitted with HUD approval, such approval was not obtained by the City. The effect is that program funds may have been used for ineligible activities since current eligibility of the program participant was not evaluated. Recommendation - The City should have a system in place to recertify program eligibility prior to approval of program eligible expenditures. Views of Responsible Officials and Corrective Action Plan - The City acknowledges this finding and has implemented new processes to ensure funds are expended within the period of allowability. The City believes this finding will be corrected by June 30, 2020.

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION