FORT MADISON HOUSING AUTHORITY

Finding 2025-004: Activities Allowed/Allowable Costs/Cost Principles Public Housing Program, Assistance Listing #14.850 Section 8 Housing Choice Voucher Cluster Program, Assistance Listing #14.871 Material Weakness - Repeat Finding Criteria: A properly designed internal control structure relies greatly on a proper segregation of duties between several individuals. The duties related to initiating, authorizing, recording, processing and reporting financial data would be segregated so there is less likelihood that a misstatement of the entity’s financial statements would occur. In addition, the controls over the significant areas should be documented in order to determine that the controls are functioning. Condition: The Agency consists of limited administrative employees and as a result does not have personnel assigned responsibilities in such a way that different employees handle different parts of the same transaction. The limited number of employees results in an inadequate overall internal control structure design. Cause: The Agency has not properly implemented and documented the internal controls as designed. Effect or Potential Effect: The lack of controls over the categories above could result in questioned costs and misstatements in the financial statements in the future. Recommendation: The Agency needs to review and re-evaluate its internal control procedures over the significant areas of its internal control structure and make sure the controls are well documented to ensure the controls are identifiable and traceable during the audit process. Further, we noted in March 2026 that the Agency adopted a new internal control policy but needs to implement the policy. View of Responsible Official: Management agrees with the Finding.

Finding 2025-005: External Reporting – REAC Submission Public Housing Program, Assistance Listing #14.850 Material Weakness/Noncompliance – Repeat Finding Criteria: According to 24 CFR §5.801of Uniform financial reporting standards established by HUD, requires the Agency to submit financial information through the HUD REAC system no later than 60 days after the end of the fiscal year of the reporting period. Condition: The Agency did not submit the Unaudited Submission to REAC until April 15, 2026, which was required by December 1, 2025. Cause: Management did not get the financial information to the fee accountant in a timely manner in order for the REAC submission to be completed within the required deadlines. Effect or Potential Effect: The Agency is in noncompliance with external reporting requirements of HUD. Recommendation: In the future the Agency needs to get the information needed to submit the electronic submission to REAC and to allow the audit to be completed and submitted within the time requirements. View of Responsible Official: Management agrees with the Finding.

Finding 2025-006: Financial Condition Public Housing Program, Assistance Listing #14.850 Material Weakness Criteria: The Public Housing Program has limited revenue resources, and the financial condition should be monitored closely to ensure the Agency can continue to operate in an effective and efficient manner. Condition: During our audit for the year ended September 30, 2025, we noted the Agency continues to report an operating loss from operations before the recording of depreciation. Below is a table that depicts the loss during the respective years. This table does not include any funds used for operations from the capital funds: Year Ended 9/30/25 $ (32,739) Year Ended 9/30/24 $ (41,946) Year Ended 9/30/23 $ 96,094 Year Ended 9/30/22 $ 122,181 Unrestricted net position represents the amount available to be used to meet the Agency’s ongoing obligations to creditors, requirements for cash outlays in the next fiscal year as well as the financial capacity to sustain operations. Below is a table that depicts the changes in the unrestricted net position during the respective years: Unrestricted Net Position as of 9/30/25 $ 31,511 Unrestricted Net Position as of 9/30/24 $ 88,304 Unrestricted Net Position as of 9/30/23 $ 196,775 Unrestricted Net Position as of 9/30/22 $ 174,793 Cause: The Agency is incurring operating and capital costs that exceed the resources available, which is not conducive to sound fiscal policy. Effect or Potential Effect: The effect of this could result in the future declining financial condition of the Agency and could jeopardize the financial viability of the Housing Agency after this year if the expenses continue to exceed revenues as indicated previously. Recommendation: We recommend the Agency review the operating expenses and determine which areas could be reduced. In addition, the Board should take a proactive role in monitoring the financial condition of the Agency. The Board should refrain from approving a budget deficit and should be approved based on available financial resources. View of Responsible Official: Management agrees with the Finding.

Finding 2025-007: Eligibility Public Housing Program, Assistance Listing #14.850 Section 8 Housing Choice Voucher Cluster Program, Assistance Listing #14.871 Material Weakness Criteria – In accordance with the Public Housing Program regulations under 24 CFR Part 960 and the Housing Choice Voucher Program regulations under 24 CFR 982.201, housing authorities are required to establish and maintain procedures governing (1) eligibility determinations; (2) determination of income, rent, and Housing Assistance Payments (HAP); and (3) leasing and continued occupancy. These procedures are essential to ensure compliance with HUD program requirements. Condition – During our audit of tenant and participant files within the Public Housing and Housing Choice Voucher Programs, we noted no evidence of a supervisory review control being performed or documented. File processing and eligibility determinations appeared to be completed by a single individual without independent review. The absence of a supervisory review increases the risk that errors or noncompliance may not be detected in a timely manner. Cause – Although supervisory review procedures were reportedly in place in prior years, turnover in administrative personnel resulted in these controls not being consistently performed or documented. Management did not implement adequate procedures to ensure continuity of this key internal control. Effect or Potential Effect – The lack of supervisory review over tenant and participant files increases the risk of noncompliance with HUD eligibility requirements, including improper eligibility determinations, inaccurate rent calculations, and incorrect HAP payments. This could result in questioned costs, repayment obligations, or potential program sanctions. Recommendation – We recommend the Agency strengthen its internal control structure over tenant and participant file processing by implementing and documenting a formal supervisory review process. This review should be performed by a qualified individual independent of the preparer. Additionally, the Agency should establish procedures to ensure continuity of controls during staff turnover, including cross-training and written policies and procedures. View of Responsible Official: Management agrees with the Finding.

Finding 2025-008: Eligibility, Flat Rent Requirements Public Housing Program, Assistance Listing #14.850 Material Weakness/Noncompliance- Repeat Finding Criteria: As required by the 2014 Appropriations Act, paragraph (2)(b)(i) Section 3(a) of the United States Housing Act of 1937, as amended by Section 201, establishes new parameters that PHAs must use when determining the flat rent amounts. Specifically, flat rents must now be set at no less than 80 percent of the applicable Fair Market Rent (FMR) and adjusted annually. In addition, most recently HUD issued Notice: PIH 2021-27 which clarifies HUD’s interpretation of the statutory amendment to flat rents and procedures to obtain specific exemptions. Condition: During our audit we noted the Agency did not adjust the flat rents during the calendar year 2025 until October 2025, which resulted in tenant not paying the appropriate amount of rent and resulted in a projected loss of income for the Agency of $5,880 for the year ended September 30, 2025. Cause: The Agency did not adjust the flat rents annually as required or obtain an appropriate exemption to reflect current market conditions. Effect or Potential Effect: Because the flat rents were not adjusted correctly, this resulted in an estimated loss of rental income of $5,880 and affected ten tenants. Recommendation: We recommend the Agency review the flat rents and adopt them according to the flat rent regulations on an annual basis. The Agency should review HUD Notice PIH 2021-27 for the updated procedures on flat rents and exemptions and to implement accordingly. View of Responsible Official: Management agrees with the Finding.

Finding 2025-009: Special Tests and Provisions - HQS Re-Inspections Section 8 Housing Choice Voucher Cluster Program, Assistance Listing #14.871 Material Weakness/Noncompliance Criteria: In accordance with 24 CFR 982.158(d) and 24 CFR 982.405(b), the Agency is required to inspect each assisted unit at least annually to ensure compliance with Housing Quality Standards (HQS). In addition, the Agency must perform and document quality control re-inspections to ensure the effectiveness and accuracy of the inspection process. Condition: During our audit, we noted the Agency does not have a system in place to perform quality control re-inspections. While annual inspections are conducted by the maintenance supervisor, no additional procedures were implemented to provide independent quality control over the inspection process for the year ended September 30, 2025. Cause: The condition appears to be the result of the Agency not establishing procedures to perform and document required quality control re-inspections. Effect or Potential Effect: The lack of quality control re-inspections increases the risk that deficiencies in unit conditions may not be identified or corrected in a timely manner. As a result, the Agency is not in compliance with Section 8 Housing Choice Voucher Program requirements. Recommendation: We recommend the Agency establish and implement procedures for performing quality control re-inspections in accordance with the applicable CFR requirements. Documentation supporting the completion and results of these re-inspections should be maintained in the Agency’s records. View of Responsible Official: Management agrees with the Finding.

Criteria: A properly designed internal control structure relies greatly on a proper segregation of duties between several individuals. The duties related to initiating, authorizing, recording, processing and reporting financial data would be segregated so there is less likelihood that a misstatement of the entity’s financial statements would occur. In addition, the controls over the significant areas should be documented in order to determine that the controls are functioning. Condition: Because of the complete turnover in staff, there has been certain significant internal controls that have not been documented or performed to ensure there is a proper segregation of duties in the internal control process. These items are summarized as follows: • Cash – during our audit of controls over significant processes we noted the bank reconciliations and review of the bank statements were not being completed internally by the Agency’s staff but was only being completed by the fee accountant. It is the responsibility of the Agency to review these documents to ensure unusual or unintended transactions are identified by the Agency • Monthly Deposits and Rent Registers – During our audit of this process we noted the deposit breakdowns and rental register controls are not being documented, we were not able to determine if the controls are functioning as of September 30, 2024. • Payroll Tax Reports – During our audit we noted the Authority had withheld federal payroll taxes on wages and made the appropriate deposits but was not able to provide us copies of the IRS Form 941 reports for the quarters ending December 31, 2023 and March 31, 2024. The Authority hired a vendor to completed these reports but did not maintain a hard-copy of the report and the vendor was unable to re-generate the form. It is imperative that the Agency maintain hard-copies of all payroll reports and not to rely on any vendor for this information. Cause: The Agency has not properly implemented and documented the internal controls as designed. Effect or Potential Effect: The lack of controls over the categories above could result in questioned costs and misstatements in the financial statements in the future. Recommendation: The Agency needs to review and re-evaluate its internal control procedures over the significant areas of its internal control structure and make sure the controls are well documented to ensure the controls are identifiable and traceable during the audit process. View of Responsible Official: Management agrees with the Finding.

Criteria: As required by the 2014 Appropriations Act, paragraph (2)(b)(i) Section 3(a) of the United States Housing Act of 1937, as amended by Section 201, establishes new parameters that PHAs must use when determining the flat rent amounts. Specifically, flat rents must now be set at no less than 80 percent of the applicable Fair Market Rent (FMR) and adjusted annually. In addition, most recently HUD issued Notice: PIH 2021-27 which clarifies HUD’s interpretation of the statutory amendment to flat rents and procedures to obtain specific exemptions. Condition: During our audit we noted the Authority did not adjust the flat rents during 2024 which resulted in twelve tenants not paying the appropriate amount of rent and resulted in a projected loss of income for the Authority of $3,542 for the year ended September 30, 2024. Cause: The Authority did not adjust the flat rents annually as required or obtain an appropriate exemption to reflect current market conditions. Effect or Potential Effect: Because the flat rents were not adjusted correctly, this resulted in an estimated loss of rental income of $3,542 and affected twelve tenants. Recommendation: We recommend the Authority review the flat rents and adopt according to the flat rent regulations on an annual basis. The Authority should review HUD Notice PIH 2021-27 for the updated procedures on flat rents and exemptions and to implement accordingly. View of Responsible Official: Management agrees with the Finding.

Criteria – The Agency is required to follow OMB Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards contained in 2CFR Chapter I and Chapter II. One of the general criteria contained in §200.403, costs must be “necessary and reasonable for the performance of the Federal Award and be allocable thereto under these principles”. Condition – The Agency has a contract to purchase bulk cable services and is required to pass these costs to the tenants who are the users of the service. During our audit we noted the Agency did not have the fees charged to the tenants high enough to cover the cost incurred for the service. The amount of costs not recovered was $4,503 for the year ended September 30, 2024. Cause – This finding was repeated from the prior year. The Agency did not increase the amount charged to tenants during the year ended September 30, 2024. Effect or Potential Effect - The cost of the cable service does not meet the “necessary and reasonable” criteria and resulted in questioned costs of $4,503. Subsequent the fiscal year end, the Agency has increased the fees charged. Recommendation - We recommend in the future that the Agency consider the basic criteria of being “necessary and reasonable” before incurring costs in a Federal Award program. The costs of the cable services need to be paid fully by the tenants and should be monitored by management to ensure the Public Housing Program does not incur any of these costs. View of Responsible Official: Management agrees with the Finding.

Criteria: According to 24 CFR §5.801of Uniform financial reporting standards established by HUD, requires the Authority to submit financial information through the HUD REAC system no later than 60 days after the end of the fiscal year of the reporting period. Condition: The Authority did not submit the Unaudited Submission to REAC until February 12, 2025 which was required by November 30, 2024. Cause: Management did not get the financial information to the fee accountant in a timely manner in order for the REAC submission to be completed within the required deadlines. Effect or Potential Effect: The Authority is in noncompliance with external reporting requirements of HUD. Recommendation: In the future the Authority needs to get the information needed to submit the electronic submission to REAC and to allow the audit to be completed and submitted within the time requirements. View of Responsible Official: Management agrees with the Finding.

Criteria – The Agency has an established Procurement Policy which sets forth threshold and documentation requirements for management to follow to ensure that the Agency is in compliance with local as well as federal requirements. The Agency must follow the procurement standards established at 2 CFR sections 200.318 through 200.26. In addition, as part of the internal controls over federal award programs, the Agency shall maintain records in sufficient detail to document procedures were followed to ensure contracts are awarded respective to local and federal requirements. Condition - During our audit of Public Housing transactions, we noted instances where the procurement process was not adequately documented to ensure compliance with local and federal requirements. These items are summarized as follows: • Procurement Policy – During our audit, we noted the Agency has not updated its policy for several years. The policy not only should comply with local requirements but also the compliance requirements contained in 2 CFR sections 200.318 through 200.326. The current policy applies to regulations at 24 CFR 85.36 and not the current language requirements. • Procurement Approval – The Agency’s current policy requires any procurement in excess of $2,000 but not exceeding $100,000, no less than three price quotations shall be obtained where practical. The names, addresses and/or telephone numbers of the offerors and person contacted, and the date and amount of each quotation shall be recorded and maintained as public record. During our audit we noted the Agency entered into a contract for flooring and expended $43,073 but had no documentation to support that bids were obtained other than the vendor that was awarded the contract. Bids should have been obtained and documented as noted above. • Wage Rates – Projects funded with Public Housing Funds are required to comply with Wage Rate Requirements contained in Par 4, 20-001 which requires all labors and mechanics employed by contractors or subcontractor to work on construction contracts in excess of $2,000 financed by federal assistance funds must be paid wages not less than those established for the locality of the project. During our audit we noted the flooring contract as noted in the previous bullet point was not monitored for the prevailing wage requirement. Cause – The Agency’s internal controls are not adequate over the documentation of procurement procedures. Effect or Potential Effect - The Agency’s internal controls over procurement documentation is not adequate and the procurement policy is not updated to reflect the Federal requirements contained in 2 CFR sections 200.318 through 200.326. Recommendation - We recommend the Agency make a concentrated effort to maintain the procurement files in a manner sufficient to ensure proper procurement procedures were followed. This documentation should include the significant history of each procurement, including the rationale for the method of procurement, selection of contract type, contractor selection or rejection and the basis for the contract price. In addition, when required the Wage Rate compliance procedures should be documented. View of Responsible Official: Management agrees with the Finding.

View of Responsible Official: Management agrees with the Finding.

View of Responsible Official: Management agrees with the Finding.

View of Responsible Official: Management agrees with the Finding.

View of Responsible Official: Management agrees with the Finding.

View of Responsible Official: Management agrees with the Finding.

View of Responsible Official: Management agrees with the Finding.

Finding 2022-001: Allowable Costs/Cost Principles, Repeat Finding Public Housing Program, Assistance Listing #14.850 Material Weakness/Immaterial Noncompliance, Questioned Costs $4,394 Criteria ? The Agency is required to follow OMB Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards contained in 2CFR Chapter I and Chapter II. One of the general criteria contained in ?200.403, costs must be ?necessary and reasonable for the performance of the Federal Award and be allocable thereto under these principles?. Condition - The Agency has a contract to purchase bulk cable services and is required to pass these costs to the tenants who are the users of the service. During our audit we noted the Agency does not have the monthly cable fee that is charged to tenants high enough to cover the cost incurred for the service. The amount of costs not recovered was $4,394 for the year ended September 30, 2022. In addition, the Authority has been performing management activities for another project in the community owned by the County. The income has been recorded in the Public Housing Program and is being charged on a per unit fee, however the associated costs to generate the respective income is not being allocated based on the actual costs to generate the income. Therefore, it is not known whether or not the costs exceed the amount of fees collected from the County project. If the costs to generate the income is more, then based on the accounting currently used, it is not known whether or not the Public Housing Program is subsidizing this non-Public Housing activity. Cause ? In regards to the bulk cable questioned costs, this finding was repeated from the prior year. The Authority did not increase the amount charged to tenants during the year ended September 30, 2022. For the second item, the Agency did not consider the costs to manage an outside property could exceed the income generated and does not have the accounting system established in a way to allocate the costs. Effect or Potential Effect - The cost of the cable service does not meet the ?necessary and reasonable? criteria and resulted in questioned costs of $4,394. In addition, there maybe additional questioned costs that cannot be determined because the costs are not being allocated properly. Recommendation - We recommend in the future that the Agency consider the basic criteria of being ?necessary and reasonable? before incurring costs in a Federal Award program. The costs of the cable services need to be paid fully by the tenants. During our audit we noted Authority?s contract for the bulk cable had expired and the Agency did not renew the contract. For the second item regarding the allocation of costs associated with the non-Public Program. The Agency should establish a new program for Management type activities and record this income and the respective costs in this general ledger so the feasibility of the program can be established and better management decisions can be made regarding the continuing of the outside management services. View of Responsible Official: Management agrees with the Finding.

Finding 2021-001: Internal Controls ? Allowable Costs Public Housing Program, Assistance Listing #14.850 Material Weakness Criteria: A properly designed internal control structure relies greatly on a proper segregation of duties between several individuals. The duties related to initiating, authorizing, recording, processing and reporting financial data would be segregated so there is less likelihood that a misstatement of the entity?s financial statements would occur. In addition, the controls over the significant areas should be documented in order to determine that the controls are functioning. Condition: During the turnover in management this past year there has been certain internal controls that have not been documented or performed to ensure there is a proper segregation of duties in the internal control process. These items are summarized as follows: ? Cash ? we noted the bank reconciliation and review of the bank statement was only being done by the Public Housing Coordinator. There was no documentation to support that another person was reviewing the cash reconciliation and bank statement in the Public Housing Program. ? Dual Signatures - During our audit we noted various checks in the monthly bank statements which also only contained 1 signature. The checks are not all being signed by 2 people as required by the internal control policy. ? Credit Card Payments - During our audit we noted the Agency started making online payments for the monthly credit card payments in July, August and September 2021. The Agency did have the transaction supported by receipts, however, we could not determine if the payments were being properly reviewed and approved by a person other than the Executive Director. Cause: The Agency has not properly implemented and documented the internal controls as designed. Effect or Potential Effect: The lack of controls over the categories above could result in questioned costs and misstatements in the financial statements in the future. Recommendation: The Agency needs to review and re-evaluate its internal control procedures over the significant areas of its internal control structure and make sure the controls are well documented to ensure the controls are identifiable and traceable during the audit process. View of Responsible Official: Management agrees with the Finding.

Finding 2021-002: Allowable Costs/Cost Principles Public Housing Program, Assistance Listing #14.850 Material Weakness/Immaterial Noncompliance, Questioned Costs $3,614 Criteria ? The Agency is required to follow OMB Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards contained in 2CFR Chapter I and Chapter II. One of the general criteria contained in ?200.403, costs must be ?necessary and reasonable for the performance of the Federal Award and be allocable thereto under these principles?. Condition - The Agency has a contract to purchase bulk cable services and is required to pass these costs to the tenants who are the users of the service. During our audit we noted the Agency does not have the monthly cable fee that is charged to tenants high enough to cover the cost incurred for the service. The amount of costs not recovered was $3,614 for the year ended September 30, 2021. Cause ? The revenue and the costs incurred for the cable service were not being monitored and considered by Management. Effect or Potential Effect - The cost of the cable service does not meet the ?necessary and reasonable? criteria and resulted in questioned costs of $3,614. Recommendation - We recommend in the future that the Agency consider the basic criteria of being ?necessary and reasonable? before incurring costs in a Federal Award program. The costs of the cable services need to be paid fully by the tenants. View of Responsible Official: Management agrees with the Finding.

Finding 2021-003: Eligibility Public Housing Program, Assistance Listing #14.850 Material Weakness Criteria ? In accordance with the Public Housing Program there are three core occupancy procedures which are described in program regulations and other guidance : (1) determination eligibility; (2) determination of income and rent; and (3) leasing and continuing occupancy. Condition ? During our audit of tenant files in the Public Housing Program, we noted there was no evidence noted in the files where a supervisory review procedure had been implemented. It appears the occupancy procedures related to the tenant files were being done by one person. It is important that a supervisory review occur to ensure compliance is maintained. Cause ? Since management turnover in the previous year, it appears the supervisory procedures have not continued or was not properly documented. Effect or Potential Effect - The inadequate review of the tenant files could lead to noncompliance with HUD Eligibility requirements. Recommendation - We recommend the Agency review its internal controls over tenant files to ensure the Agency continues compliance with Eligibility requirements. In addition in the event the staff member who works on the tenant files is unable to continue or there is a turnover in the position, the proper training can be maintained. View of Responsible Official: Management agrees with the Finding.

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