Carroll County CommissionersLocal Government

Federal Agency: U.S. Department of Housing and Urban Development Federal Program Name: Housing Choice Voucher Program Assistance Listing Number: 14.871 & 14.879 Federal Award Identification Number MD032VO - 2024 Federal Award Year 2024 Pass-Through Agency: N/A Pass-Through Number: N/A Compliance Requirement: Special Tests and Provisions Award Period: 7/1/2023 - 6/30/2024 Type of Finding: Significant Deficiency in Internal Control Over Compliance, Other Matters Criteria or specific requirement: Compliance Requirements: Public Housing Agencies (PHAs) must enter into General Depository Agreements (GDA) with their financial institutions, as specified by HUD. These agreements protect federal funds and grant third-party rights to HUD. Many agreements include terms requiring the funds to be placed in interest-bearing accounts (24 CFR section 982.156). Condition: The County has not established a depository agreement with their financial institution, as mandated by 24 CFR 982.156. Context: During our review of the County's financial management practices and processes, we found that the County lacks a depository agreement with their financial institution, as required by 24 CFR 982.156. Questioned costs: None. Cause: The County was unaware that the General Depository Agreement requirement was applicable to them. Effect: HUD has not been granted the necessary third-party rights to recover federal funds if needed. Repeat Finding: No. Recommendation: We recommend the County establish procedures to ensure compliance with HUD requirements, including entering into a general depository agreement in the form required by HUD. Views of Responsible Officials and Planned Corrective Action: The County agrees with this finding.

Criteria or Specific Requirement: Compliance: Per 2 CFR 200 Section 510(b), the auditee must prepare a schedule of expenditures of Federal awards for the period covered by the auditee’s financial statements which must include the total Federal awards expended as determined in accordance with Section 200.502. The schedule must list individual Federal programs by Federal agency and provide total Federal awards expended for each individual Federal program and the Assistance Listings Number or other identifying number when the Assistance Listings information is not available. It must also include the total amount provided to subrecipients from each Federal program. Per Section 502(g), Federal non-cash assistance, such as free rent, food commodities, donated property, or donated surplus property, must be valued at fair market value at the time of receipt or the assessed value provided by the Federal agency. Control: Per 2 CFR section 200.303(a), 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 comply 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: Expenditures were recorded on the Schedule of Expenditures of Federal Awards (SEFA) submitted to the auditors in the year when reimbursement was received and not in the year in which the expenditure was incurred. Cause: Turnover in the grant accountant position resulted in an inexperienced accountant completing the schedule of expenditures of federal awards and management was unaware of the federal requirements for preparation of the SEFA. Effect: Federal expenditures were incorrectly reported on the SEFA submitted to the auditors by $140,000, effecting the initial determination of Type A and Type B programs and our program coverage. Questioned Costs: Undetermined Recommendation: We recommend that the County improve its SEFA compilation process to ensure that program expenditures reported on the County’s SEFA are complete and accurate based on when the expenditure was incurred. Views of Responsible Officials: The County agrees with this finding. See separate Correction Action Plan related to this finding.

Condition: The accounting records required numerous adjustments to be proposed and recorded in order for the implementation of GASB 87 to be fairly presented in accordance with generally accepted accounting principles in the United States of America. Criteria: Internal controls over financial reporting should exist to ensure that material misstatements are detected and corrected by management in a timely manner. Effect or Potential Effect: Management may produce financial statements that are materially misstated. Cause: Management did not have controls over financial reporting specifically related to the implementation of GASB 87. Recommendation: Management should undertake a review of internal controls over financial reporting to determine who is preparing adjustments related to new GASB implementations and who is reviewing the adjustments and ensure that financial data is properly recorded in the books and records of the County to prevent misstatements from occurring in the future. Views of Responsible Official(s) and Planned Corrective Actions: The Accounting office plans on utilizing DebtBook which was purchased earlier in the fiscal year to assist with this corrective action plan for GASB 87 implementation and compliance. This will include the formation of a Lease committee which would meet quarterly (at a minimum) beginning with FY23 ? quarterthree (3). The Lease committee will have representatives from various departments tasked with ongoing lease collection and compliance for all leases where the County is the Lessor or the Lessee. Our goal will be to continue to understand our obligations, obtain lease data, better organize our leases, and test for compliance so that Accounting can improve the creation of proper Schedules, Journal Entries, and Year-End Audit Notes for our Annual Comprehensive Financial Report (ACFR). In addition, Accounting will review the internal controls for booking these entries into our Financial Management System (FMS) so that we have separation of duties between those preparing the adjustments and those reviewing the adjustments to ensure the financial data is properly recorded in the books and records of the County to prevent misstatements from occurring in FY23 and future fiscal years.

Condition: During the course of our audit we noted a material misstatement in the County?s recognition of grant revenue related to fee-for-service grants in the grant fund, a major governmental fund. Criteria: Internal controls over financial reporting should exist to ensure that material misstatements are detected and corrected by management in a timely manner. Effect or Potential Effect: Management may produce financial statements that are materially misstated. Cause: Management did not have controls over financial reporting specifically related to the recognition of revenue for fee-for-service grants. Recommendation: We recommend that the County update its formal documentation surrounding its procedures pertaining to grants. The policies and procedures should include a formal review process by a designated finance department employee with the proper subject matter expertise to help overcome the fact that grant administration is decentralized at the County. The process should include documentation of the procedures that are put in place so that the review can be reperformed. Views of Responsible Official(s) and Planned Corrective Actions: The Accounting office will take the lead in documenting the requirements of recognizing grant revenue related to fee-for-service grants to ensure the revenue is properly recorded. Revenue recognition is a generally accepted account principle (GAAP) that requires revenue to be recognized in the period when realized and earned. Accounting will work with the Grant Management Office, Budget Office, as well as various Grant Administrators to review and update our formal documentation: Carroll County Guide to Grants. Once updated in FY23 ? quarter three (3), we will train staff with fiscal responsibilities of managing and recording revenue and expenses to these grants. This topic will also be added to our FY23 current quarterly / monthly grant meeting with various departments. In addition, Accounting will review the internal controls for booking these entries into our Financial Management System (FMS) so that we have designed employees with the expertise to complete a formal review of revenue earned and unearned to ensure the financial data is properly recorded in the books and records of the County to prevent misstatements from occurring in FY23 and future fiscal years.