City of Covington, KentuckyNon-Profit

2024-002: Section 8 Housing Examination of Family Income and Composition Criteria – Per requirement by the United States Department of Housing and Urban Development, Section 8 Housing program participants should have their income and family composition examined by the public local housing authority every 12 months. Condition – During the testing of eligibility for the program, it was noted that documentation of family income and composition could not be provided for one program participant. Effect – HUD compliance procedures were not properly followed. Cause – Record retention procedures were not properly followed as designed by the public housing authority. Recommendation – We recommend the public housing authority design and implement internal controls to have the Section 8 Housing program participants income and family composition examination every 12 months. Additionally, such examination should be documented and retained in the Section 8 Housing program participant files. Management’s Response: We agree with the auditors’ recommendations, and the following action will be taken to improve the situation. The public housing authority will review procedures around record retention and adjust as necessary to ensure compliance with HUD requirements.

Criteria: The City is required to file quarterly Project and Expenditure reports that detail financial data, projects funded, expenditures, and contracts and subawards over $50,000, that were paid with the Coronavirus State and Local Fiscal Recovery Funds (CSLFRF). Condition: The Project and Expenditure report filed by the City for the quarter ended June 30, 2022, reported that there were no current or cumulative expenditures in the Replace Lost Revenue category. The City recognized $3,554,003 in expenditures to Replace Lost Revenue during the year ended June 30, 2022, and $2,547,800 in expenditures to Replace Lost Revenue during the year ended June 30, 2021. Cause: A deficiency in the operation of internal controls resulted in the City not reporting expenditures in the Replace Lost Revenue category on their Project and Expenditure report. Effect: As a result, total expenditures in the CSLFRF grant were understated on the June 30, 2022, Project and Expenditure report by approximately $6,102,000. Recommendation: We recommend that the City improve its process for completing and approving the Project and Expenditure reports. The total expenditures on the Project and Expenditure reports should be reconciled to current and cumulative expenditures reported by the City in the ARPA fund. Management?s Response: Management acknowledges that there have been deficiencies in processes. The City intends to enhance its internal controls over ARPA reporting. These efforts will be accomplished through improved internal communication and training of staff to ensure proper reporting of the Replace Lost Revenue category.

Finding 2020-002 ? Highway Planning and Construction Cluster - CFDA 20.205- Significant Deficiency ? Allowable Costs Criteria: 2 CFR Section 200.303 indicates that the non-federal entity must establish and maintain effective internal control over the Federal award that provides reasonable assurance that the nonfederal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: It was determined that there were significant issues with the tracking and reporting of expenditures within the Highway and Planning and Construction grant. It was noted that several grant reimbursement requests were submitted to the grantor that included costs in excess of the allowable costs incurred by the City, as well as requests that had not removed the appropriate amount of local matching share. The City also recorded revenue and accounts receivable for costs that were not going to be reimbursed by the grantor. Cause: The internal control process used by the City to track and report grant activity within the Highway Planning and Construction grant did not operate as designed. Expenditures were not always allocated to the matching portion of the grant and expenditures charged to the grant were not always limited to the amount of remaining expenditures in the budget. Effect: Multiple expense reimbursement requests made to the grantor that included costs that were not allowable were either identified during the audit and corrected by the City or identified by the grantor and resubmitted prior to the payment of unallowable costs. In addition, significant adjustments were necessary to adjust grant revenues and receivables to appropriately record the amount of funding that would be received under the grant. Recommendation: We recommend that the City make improvements to its internal controls related to tracking and reporting expenditures within the grant. These improvements could include a secondary review of grant reimbursement requests, prior to submitting to the grantor. In addition, grant receivables should be compared to the budget in the grant agreement to determine that amounts accrued will be reimbursed by the grantor. Management?s Response: The City agrees with the auditor?s comments. The City intends to continue to enhance its internal controls over the tracking of grants and by initiating a more robust management review of account receivables and reimbursement requests, and improved monitoring of grant expenses and reimbursements. These efforts will be accomplished through improved internal communication and training of staff.

Criteria: 24 CFR Section 570.500 indicates that CDBG program income includes proceeds from the disposition by sale of real property purchased with CDBG funds. 24 CFR section 570.504 requires that program income be disbursed for eligible activities before withdrawals of additional grant funding are made by the grantor. Condition: During the year ended June 30, 2019, we noted that $22,600 in proceeds from the sale of three properties identified by the City as being purchased with CDBG funding were not recorded as program income in the CDBG Fund. Cause: A deficiency in the operation of internal controls resulted in the City not identifying the proceeds from the sale of the properties as CDBG program income. Effect: The City recorded the proceeds from the sale of the properties as revenue of the General Fund. An audit adjustment was made to record the proceeds as program income in the CDBG fund and the City will reimburse the CDBG Fund from the General Fund during the year ended June 30, 2020. Recommendation: As noted under finding 2019-002, we recommend that the City improve its capital asset recording process. Improvements to the capital asset recording process should also include tracking property purchased with grant funding separately from assets purchased with unrestricted funding. Management?s Response: The City agrees with the auditors' comments and will implement remedial efforts to properly record the addition and disposal of properties. These will include tracking property purchased with grant funds separately from assets purchased with unrestricted funds. Thus, allowing the City to properly record proceeds from the sale of grant funded properties as program income. The Finance Department will work closely with other City departments to ensure that the original source of funding for any property sold is properly identified. The Finance Department will also periodically review the sale of surplus property account to determine if proceeds are recorded appropriately. A final tracking of these items will be through the fixed asset system, by verifying funding sources for all assets in the system itself.

GSA_MIGRATION