Hendersonville Housing Authority

Finding 2023-001 – Accounting Controls – Internal Controls over Financial Statement Preparation ALN 14.182 – Noncompliance and 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. Condition: We noted the following deficiencies related to the maintenance of accounting records and the underlying internal controls: 1) Sale of off book property - The audit revealed that a property sale occurred during the fiscal year, but the transaction was not documented in the general ledger. Moreover, the property’s value was not recorded in the general ledger before its sale. We made an audit adjustment to accurately reflect the property sale and to correct cash and investments by $897,850. This was land owned by the Public Housing program that was released from the declaration of trust following the RAD conversion. The proceeds of the sale have been transferred to the appropriate RAD project. 2) Capital Assets - During the review of capital assets, we noted multiple items that should have been capitalized but they were mistakenly expensed. These adjustments amounted to a total addition of assets of $101,685. 3) Timely Submission of Financial Statements - the FASSUB Owner Certified submissions for Henderson Affordable Housing Corporation and RTS Affordable Housing Corporation were not submitted within 90 days of the fiscal year-end. Cause: Lack of internal controls in the area of financial reporting and in the review of the financial statements. The Authority hired an outside consultant to do the year end closeout of the financial statements. Effect: Improper balancing of accounts and accounting controls can result in misstated financial statements and improper financial information being communicated to management and to HUD. Recommendation: We recommend that year end internal control procedures be put in place to demonstrate effective oversight over account balances and grant activity. Questioned Costs: None Repeat Finding: No

Finding 2022-001 ? Allowable Costs/Costs Principles ? Ineligible Wire Transfer ALN 14.182 Section 8 New Construction, Noncompliance & Material Weakness Criteria: Title 2, Part 200, Uniform Administrative Requirements, states that the entity should ?establish and maintain effective internal control over the Federal award and provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes.? This requirement also specifies that type of payments allowed and the controls over those payments. Condition & Cause: We noted that the client entered $351,532 on the Unaudited Financial Data Schedule into line 97500 Fraud Losses. We inquired into the nature of this account and it came to our attention that the client was the victim of wire fraud during FY 2022. The previous Executive Director was sent a fictitious email under the guise of their RAD conversion vendor Gibraltar Construction. The client had never previously wired this vendor payment and failed to verify the authenticity of this disbursement. Due to this it has been concluded that the client will likely not recover this amount. The previous Executive Director has since retired. Effect: Poor internal controls over wire transfers can result in a significant loss of funds which are restricted by both Federal and State regulations. Recommendation: We recommend that the Housing Authority implement better controls over wire transfers and ACH banking procedures. Typically, when changes to payment method are requested over email, the Housing Authority should have alternative means to identify the legitimacy of the instructions and the transaction. Questioned Costs: $351,532 Repeat Finding: No Views of responsible officials: The PHA agrees with the results of the audit and recommendation.

Finding 2022-002 ? Accounting Controls ? Timeliness of Financial Statement Preparation ALN 14.182 Section 8 New Construction, Noncompliance & Material Weakness Criteria: Regulations at 24 CFR Part 5 describe the reporting requirements for Housing Authority?s that are recipients of Section 8 project-based housing grants. PHA?s that serve as contract administrators for the funding must submit financial information to HUD within sixty (60) days of the end of the reporting period. Condition & Cause: We noted that the client did not submit the Unaudited Financial Data Schedule to HUD within sixty days of the reporting period?s end date. The unaudited FDS was submitted May 8, 2023, into the HUD REAC online system with an original due date of November 30, 2022. This is largely due to staff turnover and other unexpected circumstances. Effect: Non-compliance and reporting deficiencies of the entity financial statements. Recommendation: We recommend that the Housing Authority review HUD reporting guidelines and submit these reports in a timely fashion. Questioned Costs: N/A Repeat Finding: No Views of responsible officials: The PHA agrees with the results of the audit and recommendation.