HOUSING AUTHORITY OF THE CITY OF STERLING, COLORADOLocal Government

Condition During our audit, we noted that the Authority has not yet implemented formal procedures for monitoring and investing available cash balances. Substantial funds continue to be maintained in non-interestbearing accounts. Total cash and investment balances at year-end amounted to approximately $2,554,904, consisting of $2,434,274 held in bank deposits and $120,330 in investments. Of this total, $361,135 represented restricted cash not available for investment, leaving approximately $2.07 million in unrestricted cash balances held primarily in bank deposits. In addition, the Authority had an operating subsidy receivable of $149,309 at year-end, indicating that a significant portion of available HUD funds had not yet been drawn. The Authority made only two operating-subsidy drawdowns during the year rather than performing monthly draws as required by HUD. Criteria Governmental entities should ensure that available cash balances are prudently invested in accordance with approved policies and applicable regulations to maximize earnings while maintaining safety and liquidity. Operating subsidies should also be drawn down as expenses are incurred to comply with HUD cash-management requirements. Effect Maintaining significant cash balances in non-interest-bearing accounts results in lost investment opportunities and reduced interest income. Infrequent drawdowns may also result in inefficient cashflow management and noncompliance with HUD requirements for timely use of program funds. The Authority earned total interest income of approximately $18,472 during the fiscal year, of which $5,982.69 was from investments yielding an average rate of return of about 5.10 percent. To estimate the potential earnings had available funds been properly invested, we assumed that unrestricted cash balances, less $200,000 retained in checking accounts for operating needs ($100,000 for Public Housing and $100,000 for MacLaren), were invested in an account earning a similar 5.10 percent return. Based on this assumption, projected interest income would have been approximately $93,665, an increase of about $75,000 over actual earnings. Even under a conservative 3 percent rate of return, projected interest income would be about $55,000, or nearly $36,000 higher. This analysis demonstrates the continued opportunity cost of maintaining large balances in non-interest-bearing accounts. Cause The Authority did not have effective cash management and investment procedures in place. Recommendation The Authority should establish separate cash management and investment procedures. The Authority should advance funds as they are obligated from HUD, which would generally require operating subsidy being advanced on a monthly basis.

Capital Funds, 14.872 Material Weakness ? Activities Allowed or Unallowed, Allowable Costs, Cash Management and Special Tests and Provisions Criteria: The Authority is responsible for establishing an effective internal control process to ensure the Authority complies with the requirements governing the Capital Funds program. Condition: The Authority has limited employees which makes it difficult for the Authority to have controls beyond the Executive Director's knowledge. As a result, we noted the following deficiencies related to the internal control components which are considered a material weakness: ? Control Activities ? The Authority only had the one staff handle much of the Capital Fund activities so the Authority has no controls over compliance beyond the Executive Director's knowledge. ? Information and Communication ? Communication involves providing an understanding of individual roles and responsibilities pertaining to internal control over financial reporting The Authority had not formally documented the procedures as a reference point for employees to perform their duties. Further, internal control procedures should be documented so that the controls in place can be monitored. Cause: The Authority?s has limited staff so it is unable to adequately segregate duties. Effect or Potential Effect: The control deficiencies are deficiencies that result in more than a reasonable possibility that material noncompliance with program requirements could occur and not be prevented or detected Recommendation: As noted above, the Authority has limited resources and additional controls are not financially feasible in the hiring of additional staff. In addition, the Board of Commissioners is considered a governing Board and the Board performing management or day-to-day activities is not recommended based on our previous experience and is not intended to be a solution to this situation. The Authority is a small entity and the lack of segregation of duties is common among entities with minimal employees and should be recognized as such. However, it is not our intent to establish internal controls as the Authority's Board should make the final determination in the cost versus benefit. View of the Responsible Officials of the Auditee: The auditee's management agrees with the finding.

Finding 2019-004: Procurement Capital Funds ? CFDS 14.872 Noncompliance ? Procurement Questioned Costs - $21,681.28 Criteria: The Authority had a procurement policy at the time that required sealed bids for contracts over $100,000. The Authority?s procurement policy states the Authority must maintain records sufficient to detail the significant history of each procurement action in reason for accepting or rejecting the bids. Condition: During the year, the Authority took bids for a kitchen remodel project. The Authority received three bids of $83,600, $102,100 and $105,281.28 and accepted the high bid of $105,281.28. The Authority was unable to provide any documentation to support why the high bid was accepted. Cause: The Authority did not follow the requirements of its policy. Effect or Potential Effect: The difference between the low and high bids of $21,681.28 is being questioned as the Authority was unable to provide documentation of why the high bid accepted over either of the lower two bids. Recommendation: The Authority should review its procurement policy and implement procedure to document the rationale for contract awards. View of the Responsible Officials of the Auditee: The auditee?s management agrees with the finding.

Finding 2019-005: Capital Funds Cash Management Capital Funds ? CFDS 14.872 Noncompliance ? Cash Management Criteria: ? 200.305 Payment of Uniform Guidance states the following: (b) For non-Federal entities other than states, payments methods must minimize the time elapsing between the transfer of funds from the United States Treasury or the pass-through entity and the disbursement by the non-Federal entity whether the payment is made by electronic funds transfer, or issuance or redemption of checks, warrants, or payment by other means. Condition: During the year, we noted the Authority advanced $19,523 of grant funds from the 2017 capital fund grant on May 29, 2018 for which these funds were unspent as of March 31, 2019. The Authority had a similar issue reported within Finding 2018-004 in the prior year?s audit. Cause: We inquired of the Authority why these funds were advanced and the Authority stated they did not know why. Effect or Potential Effect: The Authority is in noncompliance with the cash management requirements. Recommendation: The Authority needs to obtain training on Capital Fund grant requirements to ensure future compliance. The Authority should obtain a copy of HUD?s Capital Fund Guidebook which is a good reference to the requirements the Authority must comply with. Further, the Authority should only advance grant funds when they are ready to expend them within three business days. View of the Responsible Officials of the Auditee: The auditee?s management agrees with the finding.

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION