Housing Authority of the City of Martinsburg

Finding 2025-003 – Low-Income Public Housing Tenant Files – Eligibility – Rent Calculations Noncompliance & Material Weakness Low-Income Public Housing Program – ALN 14.850 Criteria: The Code of Federal regulations, the Housing Authority’s Admissions and Continued Occupancy Policy (ACOP) and specific HUD guidelines in documenting and maintaining Low-Income Public Housing tenant files. Condition & Cause: Of the twenty Low-Income Public Housing tenant files reviewed, three (15%) contained errors. In each case, the tenant was improperly given a permissive deduction equal to 20% of total income, even though the Authority’s ACOP had been amended prior to fiscal year 2025 to eliminate all permissive deductions. These three annual certifications, effective October 2024, resulted in known questioned costs of $5,895. Despite the policy change, staff inconsistently applied permissive deductions in error. We acknowledge that the Authority has taken steps to remove permissive deductions from all rent calculations. Effect: Improperly applying permissive deductions results in decreased rental income, which affects the Authority’s future operating potential. Recommendation: We recommend that the Agency complete a current review of all participant files to identify and correct calculations still including permissive deductions. Questioned Costs: We performed an extrapolation of the undercharged rent based on our reviewed sample of resident files. This resulted in likely questioned costs of $95,693, which reflects 7.25% of total rental income. Repeat Finding: No Was sampling statistically valid? Yes Views of Responsible Officials: The PHA agrees with the results of the audit and recommendations.

Finding 2024-001 – Capital Fund Program Accounting – Cash Management & Program Compliance ALN 14.872 – Grant years 2018, 2019, 2021, 2022 – Noncompliance & Material Weakness Criteria: Appropriate cash management policies and procedures should facilitate the timely request and reimbursement of allowable HUD grant expenses. Per the Capital Fund Guidebook, “once funds are disbursed, i.e. transferred from LOCCS to the PHA’s bank account, the PHA must pay the applicable bill(s) within 3 business days after the deposit of the funds into the PHA’s bank account. PHAs cannot expend nonfederal funds first to pay the applicable bills and then use Capital Funds to reimburse themselves.” Condition & Cause: During the fiscal year 2023 audit, we established an allowance to offset HUD receivables whose collection was deemed uncertain. During the 2024 audit, we found that HUD did not allow the PHA to draw these funds. Additionally, the PHA failed to obligate the funds for 501-21 and 501-22 by the obligation deadlines. The authorization for these two grants totaled $1,474,707, which was forfeited due to this oversight. Lastly, due to the Housing Authority’s unwillingness to utilize the capital fund grants, it is expending operating funds for modernization purposes. We noted purchases of $441,902 in elevator repairs and $186,950 in water heaters that was paid from operating funds. Effect: Failure to request reimbursements for incurred grant costs in a timely fashion led to HUD disallowing the drawdown of those grants, which required using funds from other sources to cover the capital fund program costs. Failure to obligate grant costs by the obligation deadline led to the forfeiture of those grants. Ineligible modernization costs in the Public Housing program. Recommendation: We recommend that the PHA establish an appropriate cash management procedure that facilitates timely requests and reimbursements of grant costs as incurred. We also recommend that the applicable PHA staff undergo Capital Fund training to ensure grant requirements are met prior to their deadlines. Questioned Costs: None Repeat Finding: Yes

Finding 2024-002 – Documentation of Costs and Vendor Invoices – Financial Reporting and Internal Controls ALN 14.850 & 14.871– Noncompliance & Material Weakness Criteria: The Code of Federal Regulations Title 2 Part 200, The Uniform Administrative Guidance, gives requirements to non-Federal recipients of Federal grants relating to the documentation of records for grant expenditures. The financial management system of grantees must provide for the retention and access to records which relate to expenditures of program income. Costs must also meet certain criteria relating both to grant stipulations and to cost reasonableness and allowableness which are defined within the Uniform Guidance. Condition & Cause: Based on our discussions with management regarding purchasing, the Authority should be using purchase orders on all purchases except routine utilities and contracts. Our review of seventy-five (75) cash disbursements revealed that over $70,000 of goods and services were purchased without an applicable purchase order. Documentation to support purchases was limited to an invoice if one was provided. Effect: Failure to provide proper cost support can lead to those costs being deemed ineligible and would require reimbursement from other Non-Federal sources. Recommendation: We recommend that the Authority amend policies and procedures to better facilitate effective purchasing controls. A clear audit trail should be maintained to ensure proper approval, as well as documentation to support the allowability and eligibility of costs. Questioned Costs: None Repeat Finding: Yes Was sampling statistically valid? Yes

Finding 2024-003 – Special Tests and Provisions – SEMAP reporting ALN 14.871 – Noncompliance & Significant Deficiency Criteria: 24 CFR Part 985.3 states that PHAs “must leave a clear audit trail that can be used to verify that the PHA’s quality control sample was drawn in an unbiased manner.” Condition & cause: We noted during our review of the 2024 SEMAP submission and supporting documentation that the PHA did not maintain a clear audit trail to support the self-certification. Upon inquiry, we found that the Authority was not maintaining any documentation for SEMAP. Effect: The SEMAP certification provides HUD with a system to evaluate a PHA’s Section 8 performance. Failure to provide proper supporting documentation can lead to ineffective measurements of Authority performance, as well as its ability to meet the needs of eligible families. Furthermore, misleading SEMAP certifications can disguise a troubled agency who may need HUD intervention. Recommendation: We recommend that the PHA personnel obtain the appropriate training for SEMAP documentation and certification and appropriately document the SEMAP reports in future years. We also recommend that the PHA utilize the existing computer system to adequately document SEMAP on a regular basis. Questioned Costs: None Repeat Finding: Yes Was sampling statistically valid? Yes

Finding 2024-004 – Special Tests and Provisions – Public Housing Inspections ALN 14.850 – Noncompliance & Significant Deficiency Criteria: 24 CFR §5.707 states that PHAs “are required to annually self-inspect their properties, including all units, to ensure the units are maintained in accordance with the standards in §5.703.” Condition & cause: In our review of twenty (20) Public Housing tenant files, we found that the PHA was unable to produce documentation of an annual inspection being conducted for eight tenants. This amounts to 40% of the sample. Effect: Delayed unit inspections increase the risk of unsafe or unsanitary living conditions. These issues can lead to noncompliance with regulations as well as heightened scrutiny from oversight bodies. Recommendation: We recommend that the PHA schedule annual inspections to occur in conjunction with the annual recertifications. Alternatively, the PHA could schedule all annual inspections to occur at one time. Questioned Costs: None Repeat Finding: No Was sampling statistically valid? Yes

Finding 2024-005 – Special Tests and Provisions – Public Housing Waiting List ALN 14.850 – Noncompliance & Significant Deficiency Criteria: 24 CFR Part 960.206(e)(2) states that “the method for selecting applicants must leave a clear audit trail that can be used to verify that each applicant has been selected in accordance with the method specified in the PHA plan.” Condition & cause: During our review of the Public Housing waiting lists, we found that the PHA was unable to provide documentation for any of the requested applicants. Upon further inquiry, it was determined that the lists had either been misplaced or destroyed. Effect: Failure to maintain documentation of proper wait list selections can lead to improper housing of applicants, as well as an increased risk of Fair Housing accusations. Recommendation: We recommend that the PHA review its policies and procedures surrounding the selections of applicants to ensure compliance with federal, state and local regulations. The PHA should then develop a documentation system that ensures a clear trail can be provided on the movement of applicants while on the waiting list. Finally, they should ensure that documentation is available for review when requested. Questioned Costs: None Repeat Finding: No Was sampling statistically valid? Yes

Finding 2023-002 – Accounting Controls – Cash Management & Program Compliance ALN 14.850 – Grant years 2022, 2023 – Noncompliance & Material Weakness Criteria: Regulations at 2 CFR Part 200, Uniform Administrative Requirements, outline the internal control requirements for recipients of federal grant funds. Non-Federal entities must, “Establish and maintain effective internal control over 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.” Condition & Cause: As of the audit field date, the Authority has failed to draw down operating subsidy applicable to fiscal year 2023. The Authority felt that due to excessive amounts of cash on hand, they did not need or want to draw the appropriated funding down. However, the Authority’s Public Housing program would end the fiscal year with a significant deficit without these funds. Effect: Failure to draw down operating subsidy in the correct period results in a misstatement of program operations and a failure to match the appropriated revenue with expenses incurred. Further the Agency could have used these funds to further its approved mission and goals related to low income and affordable housing. Recommendation: We recommend that the PHA establish an appropriate cash management procedure that facilitates timely requests of appropriated subsidy. Operating Subsidy should be drawn down on a regular monthly basis. Questioned Costs: None Repeat Finding: No

Finding 2023-003 – Documentation of Costs and Vendor Invoices – Financial Reporting and Internal Controls ALN 14.850 & 14.871– Noncompliance & Material Weakness Criteria: The Code of Federal Regulations Title 2 Part 200, The Uniform Administrative Guidance, gives requirements to non-Federal recipients of Federal grants relating to the documentation of records for grant expenditures. The financial management system of grantees must provide for the retention and access to records which relate to expenditures of program income. Costs must also meet certain criteria relating both to grant stipulations and to cost reasonableness and allowableness which are defined within the Uniform Guidance. Condition & Cause: Based on our discussions with management regarding purchasing, the Authority should be using purchase orders on all purchases except routine utilities and contracts. Our review of seventy-five (75) cash disbursements revealed that over $70,000 of goods and services were purchased without an applicable purchase order. Documentation to support purchases was limited to an invoice if one was provided. We also noted $4,984.05 of questioned costs, which was primarily due to the Authority only submitting a credit card statement to support credit card purchases. This often did not give any indication of what the purchase was for. Effect: Failure to provide proper cost support can lead to those costs being deemed ineligible and would require reimbursement from other Non-Federal sources. Recommendation: We recommend that the Authority amend policies and procedures to better facilitate effective purchasing controls. A clear audit trail should be maintained to ensure proper approval, as well as documentation to support the allowability and eligibility of costs. Questioned Costs: $4,984.05 Repeat Finding: No Was sampling statistically valid? Yes

Finding 2023-004 – Housing Choice Voucher Tenant Files – Rent Calculations ALN 14.871 – Noncompliance & Significant Deficiency Criteria: Part 24 of the Code of Federal Regulations, Section 982, and the Housing Choice Voucher Guidebook give the requirements and guidance for maintaining the tenant files. HUD requires that certain information be obtained from each resident to properly support the rental calculations and prescribes acceptable methods of tenant income calculation. Additionally, the Agency’s Administrative Plan provides guidance on the requirements of the tenant files and how they must be maintained. Condition & Cause: We reviewed fifteen (15) Housing Choice Voucher tenant files and noted two (2) files were not in compliance, or 13.3%. Both instances pertain to the verification or calculation of annual income. In the first file noted, the Agency failed to gather proper third-party verification for a portion of income. In the second file, the Agency conducted an interim reexamination for a decrease in income but failed to remove a portion of the income from the rental charge calculation. Effect: Improper calculation of tenant rental charges can result in misstatement of the financial statements, improper calculation of HAP subsidy, and noncompliance with Federal provisions governing the Housing Choice Voucher program. Recommendation: We recommend that the Authority conduct a file audit of existing tenants to determine whether there are additional deficiencies. We also recommend that the Authority implement a quality control review to adequately monitor compliance with regulations pertaining to the maintenance of tenant files. Questioned Costs: None Repeat Finding: No Was sampling statistically valid? Yes

Finding 2023-005 – Special Tests and Provisions – SEMAP reporting ALN 14.871 – Noncompliance & Significant Deficiency Criteria: 24 CFR Part 985.3 states that PHAs “must leave a clear audit trail that can be used to verify that the PHA’s quality control sample was drawn in an unbiased manner.” Condition & cause: We noted during our review of the 2023 SEMAP submission and supporting documentation that the PHA did not maintain a clear audit trail to verify specific indicators. Specifically, there was no documentation to support Indicator 5 – HQS Quality Control Inspections maintained within the support. We also noted that although support was provided for indicators 2-4, it was not apparent that the review was conducted, as the spreadsheet used was not filled out. Lastly, as stated above, we noted a 13% error rate with our review of the HCV tenant files, but the Authority received a perfect score for Indicator 3 - Determination of Adjusted Income. Effect: The SEMAP certification provides HUD with a system to evaluate a PHA’s Section 8 performance. Failure to provide proper supporting documentation can lead to ineffective measurements of Authority performance, as well as its ability to meet the needs of eligible families. Furthermore, misleading SEMAP certifications can disguise a troubled agency who may need HUD intervention. Recommendation: We recommend that the PHA personnel obtain the appropriate training for SEMAP documentation and certification and appropriately document the SEMAP reports in future years. We also recommend that the PHA utilize the existing computer system to adequately document SEMAP on a regular basis.

Finding 2022-001 ? Capital Fund Program Accounting ? Noncompliance & Material Weakness ? Cash Management & Program Compliance ? CFDA # 14.872 ? Grant years 2018, 2019 Criteria: Appropriate cash management policies and procedures should facilitate the timely request and reimbursement of allowable HUD grant expenses. Per the Capital Fund Guidebook, ?once funds are disbursed, i.e. transferred from LOCCS to the PHA?s bank account, the PHA must pay the applicable bill(s) within 3 business days after the deposit of the funds into the PHA?s bank account. PHAs cannot expend nonfederal funds first to pay the applicable bills and then use Capital Funds to reimburse themselves.? Condition: Upon review of the year-end financial statements and capital fund accounting and reporting we have determined that a deficiency in funding at June 30, 2022 for CFP 501-18 and 501-19 in the amount of $386,903.44. This means that the PHA incurred costs in excess of funds drawn down from the eLoccs HUD system. The PHA is not properly managing cash flow in regards to the expenditures of CFP costs and subsequent requisition of funding from HUD via eLoccs. There should be a system in place which provides for the immediate expensing and then requisitioning of funds from HUD. Cause & Effect: Failure to request reimbursements for incurred grant costs in a timely fashion led to a year-end accounts receivable balance in the Capital Fund program of $386,903.44, which required using funds from other sources to cover the capital fund program costs. Recommendation: We recommend that the PHA establish an appropriate cash management procedure that facilitates timely requests and reimbursements of grant costs as incurred.

Finding 2020-001 ? Accounting Controls ? Internal Controls over Financial Statement Preparation CFDA 14.850 ? Grant Year 2020 ? Noncompliance, Significant Deficiency Criteria: Regulations at 2 CFR part 200, Uniform Administrative Requirements, outline the internal control requirements for recipients of federal grant funds. Non-Federal entities must demonstrate, ?Effective control over, and accountability for, all funds, property, and other assets.? A material weakness in internal control exists when management, in the normal course of operation, will not detect or correct errors, fraud or misstatements in a timely manner. The failure to properly implement internal control procedures can result in material misstatements of the account balances and noncompliance with grant oversight provisions. Also, requirements are given in federal regulations for cash management. Condition: We noted that the operating subsidy has not been drawn down on a timely basis. In the current audit period, there were amounts earned but no drawdowns of operation subsidy made. The Authority, subsequent to year end, drew down these obligated funds, which caused a material adjustment to be made to the financial statements. Recommendation: We recommend that the Housing Authority draw down operating subsidy on a regular monthly basis as the funds become available. Questioned Costs: None Repeat Finding: Yes Views of responsible officials: The Housing Authority agrees with the finding and recommendations.

Finding 2020-002 - Internal Control over Capital Assets ? Equipment and Real Property Management CFDA 14.850 ? Grant Year 2020 ? Noncompliance, Significant Deficiency Criteria: Regulations at 2 CFR Part 200, Uniform Administrative Requirements, outline the internal control requirements for property and equipment for non-Federal entities. Good internal controls dictate that a depreciation schedule be maintained for capital assets and that it be reconciled in a timely manner to the general ledger and that listings of capital assets be easily identified and agreed to inventory records. Condition: We noted that the depreciation schedule is largely unchanged from the prior year. We noted that the Authority has failed to move a material amount of completed projects from the Work-in-Process account to the proper Fixed asset accounts to be depreciated. This is in direct opposition of requirements found in the Uniform Administrative Requirements. Cause: The Housing Authority failed to properly maintain capital records and depreciation schedules which were reconciled in a timely manner to the general ledger. Effect: Non-compliance with grant oversight provisions and potential misstatements in the capital assets as it relates to the financial statements at year-end. Recommendation: We recommend that the Housing Authority monitor and reconcile the capital assets and depreciation schedule to the general ledger in a timely manner to prevent misstatements. We also recommend that the Housing Authority review all historic capital fund program expenditures and specifically identify certain types of capital assets on the detailed depreciation schedule. We also recommend that the Authority identify all completed projects within the Work-in-Process accounts to properly depreciate these items. Questioned Costs: None Repeat Finding: Yes Views of responsible officials: The Housing Authority agrees with the findings and the recommended corrective actions.

Finding 2020-003 ? Cash Management and Special Provisions ? Period Performance - CFDA 14.872 ? Capital Fund 501-15 ? Noncompliance, Material Weakness Criteria: Regulations at 2 CFR part 200, Uniform Administrative Requirements, outline the internal control requirements for recipients of federal grant funds. Non-Federal entities must demonstrate, ?Effective control over, and accountability for, all funds, property, and other assets.? A material weakness in internal control exists when management, in the normal course of operation, will not detect or correct errors, fraud or misstatements in a timely manner. The failure to properly implement internal control procedures can result in material misstatements of the account balances and noncompliance with grant oversight provisions. Also, requirements are given in federal regulations for cash management. Condition: The Housing Authority failed to draw down funds for eligible costs within the Capital Fund in the allotted time required by 24 CFR 905.306. These costs have been incurred for Capital Fund related projects running from fiscal year 2015 through 2018. 24 CFR 905.306 requires that funds obligated within twenty-four-months after the funds have been available must be expended within a forty-eight months after the funds have been obligated. The Authority also has five years from the date the funds become available to properly draw down these funds before risking losing these funds. Cause: The Housing Authority, due to an excessive amount of cash on hand, did not want to draw capital funding down as appropriated for expended costs. Effect: Failure to draw down funds from HUD caused the Authority to lose $344,836 amount of expended Capital Fund costs which resulted in a material misstatement within the financial statements. Recommendation: We recommend that the Authority draw down capital funds for eligible costs within a timely manner to avoid the risk of losing obligated rewards within the future. Questioned Costs: None Repeat Finding: No Views of the responsible officials: The PHA agrees with the results of the audit and recommendation.

Finding 2019-001 ? Accounting Controls ? Internal Controls over Financial Statement Preparation CFDA 14.850 ? Grant Year 2019 ? Significant Deficiency Criteria: Regulations at 2 CFR Part 200, Uniform Administrative Requirements, outline the internal control requirements for recipients of federal grant funds. Non-Federal entities must demonstrate, ?Effective control over, and accountability for, all funds, property, and other assets.? A deficiency in internal control exists when the design or operation of a control does not allow management or its employees, in the normal course of operation, to detect or correct errors, fraud, or misstatements in a timely manner. The failure to properly implement internal control procedures can result in material misstatements of the account balances and noncompliance with grant oversight provisions. Also, requirements are given in federal regulations for both capitalization and for cash management. Condition: We noted the following deficiencies related to the maintenance of accounting records and the underlying internal controls: 1. We did not note any capitalization errors in the current period. We did note, however, that prior year bathroom additions were not added to the depreciation schedule in the current year. We have proposed an adjustment to correct this error and depreciated the assets accordingly. 2. We noted that the operating subsidy issue has been corrected by the Authority drawing funding from those sources. We noted, however, that the capital fund continues to not be drawn in a timely manner. We noted that an accounts receivable to HUD existed on the balance sheet of $688,315 which consists entirely of capital fund payments expended but not yet drawn. This amount represents operating funds ?borrowed? to pay for capital grants. In addition we noted that the Authority attempted to draw the grant money for CFP grant 501-15 in April of 2019. This grant money has yet to be received at the time of our field date as it is pending HUD review. 3. We noted approximately $40,330.15 in capital fund grant costs expended to the city for additional security patrols by local police. This amount was drawn from grant account 1408. Security costs of this nature are an ineligible cost and should be paid from operating sources. See the Capital Fund Guidebook for further detail of ineligible costs and allowable 1408 grant line costs. 4. Bank reconciliations ? We noted that the general operating bank account for Public Housing had not been reconciled since June of 2019. This prevents management from catching errors, misstatements, and fraud in a timely manner. Cause: The Housing Authority failed to follow the capitalization policy in expending renovations to improve assets. Also, the Housing Authority, due to excessive amount of cash on hand, did not want or need to draw funding down as appropriated. Effect: Failure to capitalize certain improvements overstated the operating expenses and understated the capital assets. Also, the failure to accrue and draw-down funds from HUD results in misstatement and a failure to match the revenue with the appropriate period of expense. Finally, the failure to complete bank recs timely can lead to fraud or errors going undetected for a number of months and can lead to large losses. Recommendation: We recommend that the Housing Authority follow its capitalization policy and recommendations of the Uniform Administrative Requirements applicable to HUD developments. We also recommend that the Housing draw down operating subsidy on a regular monthly basis as the funds become available. Finally, it is imperative that bank accounts are reconciled monthly for management review. Questioned Costs: None Repeat Finding: Yes Views of responsible officials: The Housing Authority agrees with the finding and recommendations.

Finding 2019-002 ? Internal Control over Capital Assets ? Equipment and Real Property Management CFDA 14.850 ? Grant Year 2019 ? Noncompliance, Significant Deficiency Criteria: Regulations at 2 CFR Part 200, Uniform Administrative Requirements, outline the internal control requirements for property and equipment for non-Federal entities. Good internal controls dictate that a depreciation schedule be maintained for capital assets and that it be reconciled in a timely manner to the general ledger and that listings of capital assets be easily identified and agreed to inventory records. Condition: We noted that the depreciation schedule is largely unchanged from the prior year. In addition we noted that closed 501-14 capital fund costs were added into a single line of the schedule. This is in direct opposition of requirements found in the Uniform Administrative Requirements. Cause: The Housing Authority failed to properly maintain capital records and depreciation schedules which were reconciled in a timely manner to the general ledger. Effect: Non-compliance with grant oversight provisions and potential misstatements in the capital assets as it relates to the financial statements at year-end. Recommendation: We recommend that the Housing Authority monitor and reconcile the capital assets and depreciation schedule to the general ledger in a timely manner to prevent misstatements. We also recommend that the Housing Authority review all historic capital fund program expenditures and specifically identify certain types of capital assets on the detailed depreciation schedule. We also recommend that this comprehensive list be reconciled to the detailed inventory taken on an annual basis. Questioned Costs: None Repeat Finding: Yes Views of responsible officials: The Housing Authority agrees with the findings and the recommended corrective actions.

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