HOUSING AUTHORITY OF LANCASTERLocal Government

2021-003 CFDA#14.850 & #14.871 ? Low Rent Public Housing and Housing Choice Voucher Program ? Allowable Costs Condition and Criteria: Regulations at 2CFR Part 200 outline the internal control and compliance requirements for recipients of federal grant funds. These requirements clearly state that check disbursements and allocations of costs between programs must be adequately documented. Also, per the Authority's check signing policy, all disbursements require review and a signature from both the Executive Director and Board Chair. The Authority did not adequately document and maintain supporting documentation for costs allocated between the Low Rent Public Housing and Housing Choice Voucher Programs during the year. Potential unallowable costs were noted as the Authority was commingling Low Rent and HCV cash funds held in a Sweep Account where the Authority could not provide support for the allocation of each Program's share of the cash account balance, nor could they provide the necessary support to detail the allocation of cash transactions between the two Programs. The Authority has also failed to implement its HUD-required check signing policy. There is also a lack of internal controls and safeguards in place for the Authority?s check signing procedures that could potentially allow for fraud to occur as the Authority uses digital signature stamps for the Executive Director and Board Chair?s signatures. The digital signature for the Board Chair?s is entered by the Executive Director whenever she is stamping her signature on the checks. In these situations, the Board Chair is not even getting a chance to review over these individual checks prior to the checks being disbursed. Also, the Authority allows for the Executive Director to sign checks to herself without anyone else approving these checks. Amount of Questioned Costs: None. Context: The lack of supporting documentation for allocation of costs between the Low Rent Public Housing Program and Housing Choice Voucher Program was observed for 14 out of the 40 check disbursements tested during our audit. Both Low Rent and Housing Choice Voucher cash funds were commingled and held in a Sweep Account. Check disbursements contained digital signatures of the board chair. After discussions with the board chair, it was evident that she did not review disbursements or personally enter her digital signature. Cause: The Authority's accounting methodology over the allocation and reporting of cost associated to either Low Rent or Housing Choice Voucher was inadequate as the allocation method was not documented. The Authority failed to properly maintain the books and records of account on the general ledger system to provide for tracking, allocation, and accrual of expenditures by the appropriate project and program. The Authority?s controls over the check signing procedures were deficient and there is a relaxed attitude towards the handling of check signing Effect: The Authority is at risk for not reporting the correct account balances for shared expenses between the Low Rent and Housing Choice Voucher programs. These transactions could include unallowable or improper activities such as the unallowable co-mingling of funds between the Low Rent and Housing Choice Voucher programs. There is a potential for fraud to be occurring with little or no controls in place to follow the check signing policy. Auditor?s Recommendation: We recommend that the Authority perform the necessary steps to ensure that these transactions including shared costs between the Low Rent and Housing Choice Voucher programs are sufficiently documented and supported by adequate backup and are paid back to the proper program in a consistent and timely manner. We also recommend implementing an updated formal policy that explicitly outlines how the Authority will allocate joint costs to the Low Rent and Housing Choice Voucher programs. We also recommend that the Authority update its check signing policy to implement a more efficient way for the board chair to review disbursements and personally enter her digital signature on checks. Grantee Response: Management acknowledges the finding and is following the auditor?s recommendation. The Authority is in the process of closing the Sweep account and will make each program to stand on its own merits and ensure that proper documentation is provided and stop the co-mingling of federal funds.

2021-004 CFDA#14.871 ? Housing Choice Voucher Program ? Reporting Condition and Criteria: The Authority did not accurately report data related to monthly Unrestricted Net Position (UNP) and Restricted Net Position (RNP) as of the Last Day of the Month in Voucher Management System (VMS) online to HUD. Instances were identified where the annual Unaudited Financial Data Schedule (FDS) report and monthly VMS Reports did not match with each other or with information obtained during the audit of the financial statements causing these reports to be inaccurate. Per 24 CFR section 5.801, a PHA must submit the HUD-required financial reporting information to HUD electronically. This financial reporting information includes the monthly reporting of leasing and cost data through the Voucher Management System (VMS) online through the Real Estate Assessment Center (REAC). The submission of this data in VMS must be prepared in accordance with Generally Accepted Accounting Principles and submitted in such form and substance as prescribed by HUD. VMS data is used by HUD for monitoring, determining the renewal funding levels, and funding-related factors under the Section Eight Management Assessment Program (SEMAP). HUD allows a 3% variance between the amounts reported in the VMS and FDS. Amount of Questioned Costs: None. Context: Key VMS-reported amounts were not accurately reported and were outside of the 3% allowed HUD established threshold. UNP per the VMS was $100,660 versus $90,693 on the unaudited FDS, a variance of 9.90%. RNP per the VMS was $41,811 versus $38,727 on the unaudited FDS, a variance of 7.38%. UNP of $108,605 was reported on the audited FDS, a variance of 7.89%. RNP of $30,608 was reported on the audited FDS, a variance of 26.79%. Cause: Of the 12 months reported in the VMS system for the fiscal year, we found errors in reported data related to the UNP and RNP as of the Last Day of the Month for March 2021. For VMS reporting, the Authority lacked the internal controls to properly prepare and report the correct balances for UNP and RNP. This led to imprecise UNP and RNP as of the Last Day of the Month balances that were submitted to HUD via an online monthly transmission. The Authority does not have the necessary controls in place to properly report their VMS data and the Authority has internal control deficiencies over financial reporting that have led to inaccurate financial reporting in the Unaudited FDS. Effect: VMS reporting data is used by HUD for monitoring, determining the renewal funding levels, and funding-related factors under the Section Eight Management Assessment Program (SEMAP), the Authority's Housing Choice Voucher program federal funding possibly was not accurately calculated and could have led to the Authority receiving more or less federal funding than they should have. The Authority would not have been able to identify noncompliance instances if they had existed since they were not accurately tracking each month's rolled forward UNP and RNP as of the Last Day of the Month balances. Auditor?s Recommendation: The Authority's Staff should implement and maintain a new monthly Excel spreadsheet that accurately presents the monthly UNP and RNP as of the Last Day of the Month balances as to ensure that VMS data is accurately reported to HUD. WE also recommend that the Authority reconcile the numbers reported in the VMS with the numbers prepared for the unaudited FDS submission. This will enable the Authority to better monitor and engage controls regarding compliance with HUD's Housing Choice Voucher program reporting guidelines. Grantee Response: Management acknowledges the finding and with the aid of the new fee accountant has created a new excel workbook to assist in the correction of this matter. A thorough review of the current FYE of VMS is undergoing and will be completed in time for the CYE review.

2020-002 Allowable Costs (Public Housing Program CFDA 14.850) Criteria: Federal Code of Regulations, CFR ? 200.403 requires the Authority to ensure that costs charged to a federal program are allowable and adequately documented. Condition: During the year and in the previous year, the Authority had a total of $37,811 in unauthorized drafts from a Public Housing financial institution account. During the fiscal year ended March 31, 2020, there were a total of $24,461of unauthorized drafts. Questioned Costs: $37,811 Effect: The Authority had a total of $37,811 in unallowed costs charged to the Public Housing Program. Cause: The Authority did not have internal controls in place to prevent unallowable costs to be charged to its federal program. Recommendation: The Authority should implement controls to ensure only eligible Public Housing costs are charged against its federal programs. The Authority should also assign staff to review monthly bank statements to ensure that only authorized charges are incurred each month. Management Response: Management will implement controls to ensure only eligible costs are charged to its federal programs. Management has been working with its financial institution to recover a significant portion of the unauthorized drafts. A total of $27,448 has been recovered.

2020-003 Operating Budget Not approved by Board of Commissioners Before Beginning of Fiscal Year (Public Housing Program CFDA 14.850) Criteria: Under Section 11 of the Annual Contributions Contract (ACC) and 24 CFR 990.315, the Authority is required to prepare and approve its Public Housing Operating Budget before any operating expenses are incurred in the start of the Authority?s fiscal year. Condition: The Authority did not have its Board of Commissioners approved its fiscal year 2020 operating budget until April 17, 2019. Questioned Costs: None. Effect: The Authority did not comply with 24 CFR 990.315. Cause: The Authority did not present its operating budget to its Board of Commissioners for approval until April 17, 2019. Recommendation: The Authority should establish a process whereby the operating budget is prepared and presented to the Authority?s Board of Commissioners before the beginning of its fiscal year. Management Response: We will implement controls to ensure that operating budgets are prepared and presented to the Authority?s Board of Commissioners for approval before the beginning of the Authority?s fiscal year.

Finding No. 2019-002 Noncompliance with Reporting (Public Housing Program CFDA 14.850) Criteria: Federal Code of Regulations, CFR ? 135.3 requires the Authority to report annually HUD 60002 information using the Section 3 Performance Evaluation and Registry System (SPEARS). Condition: During the year, the Authority did not report any Section 3 activity in SPEARS. The reporting was not completed until December 11, 2019. Questioned Costs: None. Effect: The Authority did not properly follow the requirements of CFR ? 135.3. Cause: The Authority did not have an adequate understanding of the Public Housing Program requirements as related to timely submission of Section 3 reports. Recommendation: The Authority?s staff should familiarize themselves with Public Housing Program reporting requirements. Management Response: Management will ensure that future Section 3 reports are made timely.

Finding No. 2019-003 Operating Budget Revision Not Prepared for Expenditures Exceeding Original Budget (Public Housing Program CFDA 14.850) Criteria: Under Section 11 of the Annual Contributions Contract (ACC), the Authority is required to amend its Public Housing Operating Budget if unbudgeted expenses are incurred. Condition: The Authority?s actual operating expenditures in its Public Housing Program exceeded its approved operating budgeted expenditures by $37,842. Questioned Costs: None. Effect: The Authority?s actual operating expenses exceeded its Board approved operating budget. Cause: The Authority did not review its actual operating expenses as compared to its approved operating budget to ensure whether the amount of expenses incurred were within its approved operating budget. Recommendation: The Authority should establish a review process whereby the financial statements are reviewed to ensure the Authority?s actual expenses are within its approved operating budget and if unbudgeted expenses occur, a budget revision should be approved by the Board of Commissioners before the end of its fiscal year. Management Response: We will implement controls to ensure that financial statements are reviewed to determine that operating expenses are within budget and ensure that operating budgets revisions are approved before the end of the Authority?s fiscal year.