Housing and Redevelopment Authority of Fergus Falls

Criteria: A fundamental concept of a system of internal controls is the segregation of incompatible duties. Condition: Due to the limited size of the Authority's business staff and related resources available, the Authority does not have adequate segregation of duties so that no one individual handles a transaction from its inception to its completion. Questioned Costs: None. Effect: The control deficiency could result in a misstatement to the financial statements that would not be prevented or detected in a timely manner. Cause: Limited number of staff and hours available preclude the Authority from ideal segregation of duties of separating the assignment of different staff people to authorize transactions, record transactions, and maintain custody of assets. Repeat Finding: This finding was reported in the prior year as finding 2024-001. Recommendation: Although it may not be economically feasible for the Authority to attain an ideal segregation of duties environment, the Authority can periodically observe and evaluate its current structure to make improvements when considered necessary. Views of Responsible Officials and Planned Corrective Actions: The Authority is in agreement with the finding. See separately issued Corrective Action Plan.

Criteria: Generally, a system of internal control includes the ability to understand and prepare the Authority's financial statements in accordance with accounting principles generally accepted in the United States of America. Condition: Due to the limited size of the Authority's business staff and related resources available, material audit adjustments were required for the financial statements to be presented in accordance with accounting principles generally accepted in the United States of America. Questioned Costs: None. Effect: Audit adjustments were necessary to correct material misstatements noted during the audit for the financial statements to be in compliance with generally accepted accounting principles. Cause: Limited number of staff and hours available preclude the Authority from having proper resources to prepare all required adjusting journal entries necessary in preparing financial statements. Repeat Finding: This finding was reported in the prior year as finding 2024-002. Recommendation: The Authority should continue to review internal controls currently in place and improve internal controls over financial reporting so that financial statements are in compliance with generally accepted accounting principles. Views of Responsible Officials and Planned Corrective Actions: The Authority is in agreement with the finding. See separately issued Corrective Action Plan.

Criteria: The Authority is required to adhere to the Housing Quality Standards (HQS) relating to the Housing Voucher Cluster program. The Housing Quality Standards require that the Authority systematically inspects voucher properties to determine that established housing quality and safety standards are met, or if deficiencies are found, they are corrected in a timely manner. According to CFR 24 982.404, units under HAP contracts that fail to meet housing quality standards, the public housing authority (PHA) must require the owner to correct any life threatening HQS deficiencies within 24 hours of the inspection and all other HQS deficiencies within 30 calendar days or within a specified PHA-approved extension. If the owner does not correct the cited HQS deficiencies within the specified correction period, the PHA must stop (abate) HAPs beginning no later than the first of the month following the specified correction period or must terminate the HAP contract. Condition: The Authority systematically inspects voucher properties for compliance with the Housing Quality Standards; however, five properties were found to have life threatening issues that the Authority did not complete the reinspection within the 24-hour period provided by the standards and three properties were found to have non-life threatening issues that the Authority did not complete the reinspection within the 30 calendar days provided by the standards. Only six of the eight properties were corrected before required voucher abatement. Effect: The Authority was not in compliance with the Housing Voucher Cluster Housing Quality Standards. Questioned Costs: $48,441 Context/Sampling: A sample of 10 of 99 housing quality standard violations were tested. 8 of the 10 sampled contained violations that were not corrected within the period provided by the standards. Cause: Limited number of staff trained for Housing Quality Standards and a lack of follow-up with landlords and/or tenants regarding violations resulted in the noncompliance. Repeat Finding: This finding was reported in the prior year as finding 2024-003. Recommendation: We recommend that the Authority develop and implement procedures for the Housing Quality Standards which provide for re-inspections within the period provided by the standards for housing quality violations. Views of Responsible Officials and Planned Corrective Actions: The Authority is in agreement with the finding. See separately issued Corrective Action Plan.

Criteria: A fundamental concept of a system of internal controls is the segregation of incompatible duties. Condition: Due to the limited size of the Authority's business staff and related resources available, the Authority does not have adequate segregation of duties so that no on individual handles a transaction from its inception to its completion. Effect: The control deficiency could result in a misstatement to the financial statements that would not be prevented or detected in a timely manner. Cause: Limited number of staff and hours available preclude the Authority from ideal segregation of duties of separating the assignment of different staff people to authorize transactions, record transactions, and maintain custody of assets. Recommendation: Although it may not be economically feasible for the Authority to attain an ideal segregation of duties environment, the Authority can periodically observe and evaluate its current structure to make improvements when considered necessary. Views of Responsible Officials and Planned Corrective Actions: The Authority is in agreement with the finding. The Authority has determined the benefit of adequately segregating duties is less than the cost. Based on the assessment, the Authority is accepting the risk posed by the deficiency while also evaluating mitigating controls that will help reduce the risk of material misstatement of the financial statements. Management attempts to mitigate the associated risks by doing the following: 1. Identifies areas where lack of segregation of duties exists and where there are higher risks of error or fraud occuring. 2. Implements limited segregation to the extent possible to reduce risks without impairing efficiency. 3. Uses the knowledge that management and the Board of Directors have of operations by having them review certain accounting records and reports. 4. Monitors the effectiveness of the above actions and makes changes as considered necessary.

Criteria: Generally, a system of internal control includes the ability to understand and prepare the Authority's financial statements in accordance with accounting principles generally accepted in the United States of America. Condition: Due to the limited size of the Authority's business staff and related resources available, material audit adjustments were required for the financial statements to be presented in accordance with accounting principles generally accepted in the United States of America. Effect: Audit adjustments were necessary to correct material misstatements noted during the audit for the financial statements to be in compliance with generally accepted accounting principles. Cause: Limited number of staff and hours available preclude the Authority from having proper resources to prepare all required adjusting journal entries necessary in preparing financial statements. Recommendation: The Authority should continue to review internal controls currently in place and improve internal controls over financial reporting so that financial statements are in compliance with generally accepted accounting principles. Views of Responsible Officials and Planned Corrective Actions: The Authority is in agreement with the finding. The Authority will continue to review the accounting system and related financial reporting system to identify and correct material misstatements to the financial statements.

Criteria: The Authority is required to adhere to the Housing Quality Standards related to the Housing Voucher Cluster program. The Housing Quality Standards require that the Authority systematically inspects voucher properties to determine that established housing quality and safety standards are met or if deficiencies are found they are corrected in a timely manner. Condition: The Authority systematically inspects voucher properties for compliance with the Housing Quality Standards; however, 3 properties were found to have life threatening issues, and the Authority did not complete the reinspection within the 24-hour period provided by the standards. All 3 properties with life threatening issues were corrected before required voucher abatement. Effect: The Authority was not in compliance with the Housing Voucher Cluster Housing Quality Standards. Questioned Costs: None. Context/Sampling: A sample of 5 of 15 housing quality standard violations were tested. 3 of the 5 sampled contained life threatening violations that were not corrected within the 24-hour period. Cause: Limited numebr of staff trained for Housing Quality Standards and a lack of immediate follow-up with landlords and or tenants regarding life threatening violations resulted in the non-compliance. Recommendation: We recommend that the Authority develop and implement procedures for the Housing Quality Standards which provide for re-inspections within 24 hours of all life threatening housing quality violations. Views of Responsible Officials and Planned Corrective Actions: The Authority is in agreement with the finding. See separately issued Corrective Action Plan.

Inadequate Segregation of Duties: Condition: The Authority has a limited number of office personnel and, accordingly, does not have adequate separation of duties. An effective internal control structure provides an adequate segregation of duties so that no one individual handles a transaction from its inception to its completion. Criteria: A fundamental concept in a good system of internal controls is the segregation of incompatible duties. Cause: Due to the relatively small size of the Authority’s staff, the Authority is not able to attain ideal segregation of duties of separating the assignment of different people to authorize transactions, record transactions, and maintain custody of assets. Effect: This control deficiency could result in a misstatement to the financial statements that would not be prevented or detected. Recommendation: Although it may not be economically feasible for the Authority to attain an ideal segregation of duties environment, the Authority can periodically observe and evaluate its current structure so as to make improvements when considered necessary. Views of Responsible Officials and Planned Corrective Actions: The Organization has determined the benefit of adequately segregating duties is less than the cost. Based on the assessment, the Organization is accepting the risk posed by the deficiency while also evaluating mitigating controls that will help reduce the risk of material misstatement of the financial statements. Management attempts to mitigate the associated risks by doing the following: 1. Identifies areas where lack of segregation of duties exists and where there are higher risks of errors or fraud occurring. 2. Implements limited segregation to the extent possible to reduce risks without impairing efficiency. 3. Uses the knowledge that management and the Board of Directors have of operations by having them review certain accounting records and reports. 4. Monitors the effectiveness of the above actions and makes changes as considered appropriate.

Audit Adjustments: Criteria and Condition: Material audit adjustments were necessary for the financial statements to be presented in accordance with accounting principles generally accepted in the United States of America. Cause: The City does not have the resources to prepare all required adjusting entries necessary in preparing financial statements. Effect: Audit adjustments were necessary to correct material misstatements noted during the audit for the financial statements to be in compliance with GAAP. Recommendation: The Organization should review internal controls currently in place and improve internal controls over financial reporting which will prevent, or detect and correct, misstatements to the financial statements. View of Responsible Officials: Management of the Organization is in agreement with the finding.

2022-001. Inadequate Segregation of Duties Condition: The Authority has a limited number of office personnel and, accordingly, does not have adequate separation of duties. An effective internal control structure provides an adequate segregation of duties so that no one individual handles a transaction from its inception to its completion. Criteria: A fundamental concept in a good system of internal controls is the segregation of incompatible duties. Cause: Due to the relatively small size of the Authority?s staff, the Authority is not able to attain ideal segregation of duties of separating the assignment of different people to authorize transactions, record transactions, and maintain custody of assets. Effect: This control deficiency could result in a misstatement to the financial statements that would not be prevented or detected. Recommendation: Although it may not be economically feasible for the Authority to attain an ideal segregation of duties environment, the Authority can periodically observe and evaluate its current structure so as to make improvements when considered necessary. Views of Responsible Officials and Planned Corrective Actions: The Organization has determined the benefit of adequately segregating duties is less than the cost. Based on the assessment, the Organization is accepting the risk posed by the deficiency while also evaluating mitigating controls that will help reduce the risk of material misstatement of the financial statements. Management attempts to mitigate the associated risks by doing the following: 1. Identifies areas where lack of segregation of duties exists and where there are higher risks of errors or fraud occurring. 2. Implements limited segregation to the extent possible to reduce risks without impairing efficiency. 3. Uses the knowledge that management and the Board of Directors have of operations by having them review certain accounting records and reports. 4. Monitors the effectiveness of the above actions and makes changes as considered appropriate.

2021-001. Inadequate Segregation of Duties Condition: The Authority has a limited number of office personnel and, accordingly, does not have adequate separation of duties. An effective internal control structure provides an adequate segregation of duties so that no one individual handles a transaction from its inception to its completion. Criteria: A fundamental concept in a good system of internal controls is the segregation of incompatible duties. Cause: Due to the relatively small size of the Authority?s staff, the Authority is not able to attain ideal segregation of duties of separating the assignment of different people to authorize transactions, record transactions, and maintain custody of assets. Effect: This control deficiency could result in a misstatement to the financial statements that would not be prevented or detected. Recommendation: Although it may not be economically feasible for the Authority to attain an ideal segregation of duties environment, the Authority can periodically observe and evaluate its current structure so as to make improvements when considered necessary.

2020-001. Inadequate Segregation of Duties Condition: The Authority has a limited number of office personnel and, accordingly, does not have adequate separation of duties. An effective internal control structure provides an adequate segregation of duties so that no one individual handles a transaction from its inception to its completion. Criteria: A fundamental concept in a good system of internal controls is the segregation of incompatible duties. Cause: Due to the relatively small size of the Authority?s staff, the Authority is not able to attain ideal segregation of duties of separating the assignment of different people to authorize transactions, record transactions, and maintain custody of assets. Effect: This control deficiency could result in a misstatement to the financial statements that would not be prevented or detected. Recommendation: Although it may not be economically feasible for the Authority to attain an ideal segregation of duties environment, the Authority can periodically observe and evaluate its current structure so as to make improvements when considered necessary.

2019-001. Preparation of Financial Statements and Related Notes Condition: The Authority does not have an internal control system designed to provide for the preparation of the financial statements being audited. Authority personnel do prepare periodic financial statements and other financial information for internal use that meets the needs of management and the Board of Commissioners. However, the Authority does not have the internal resources to prepare full-disclosure financial statements required by GAAP for external reporting. As auditors, we were requested to draft the financial statements and accompanying footnotes. Criteria: Internal Controls over Financial Reporting include those related to the actual preparation and review of the audited financial statements. In order to prepare a complete set of financial statements in conformity with GAAP, the preparer must have the necessary expertise. Questioned Costs: None. Cause: The Authority does not have the resources to compile their own financial statements. Effect: This control deficiency could result in a misstatement to the financial statements that would not be prevented or detected. Recommendation: This control deficiency is not unusual in smaller authorities. However, it is the responsibility of management and the Board of Commissioners to decide whether to accept the degree of risk associated with this condition based on the cost of correction and other considerations.

2019-003. Inadequate Segregation of Duties Condition: The Authority has a limited number of office personnel and, accordingly, does not have adequate separation of duties. An effective internal control structure provides an adequate segregation of duties so that no one individual handles a transaction from its inception to its completion. Criteria: A fundamental concept in a good system of internal controls is the segregation of incompatible duties. Cause: Due to the relatively small size of the Authority?s staff, the Authority is not able to attain ideal segregation of duties of separating the assignment of different people to authorize transactions, record transactions, and maintain custody of assets. Effect: This control deficiency could result in a misstatement to the financial statements that would not be prevented or detected. Recommendation: Although it may not be economically feasible for the Authority to attain an ideal segregation of duties environment, the Authority can periodically observe and evaluate its current structure so as to make improvements when considered necessary.