Laguna Housing Development and Management Enterprise

2024-002 Federal Program Compliance – Special Tests – Wage Rate Requirements Federal Agency: U. S. Department of Housing and Urban Development Federal Program Title: Indian Housing Block Grant Program (IHBG) Assistance Listing Number: 14.867 Federal Award Identification Number and Year: 55IH3503180 - 2024 Award Period: 1/1/2024 – 12/31/2024  Significant Deficiency in Internal Control Over Compliance  Other Matters Criteria or specific requirement: Davis Bacon (Wage Rate Requirements): All laborers and mechanics employed by contractors or subcontractors to work on construction contracts in excess of $2,000 financed by federal assistance funds must be paid wages not less than those established for the locality of the project (prevailing wage rates) by the Department of Labor (DOL) (40 USC 3141–3144, 3146, and 3147. Nonfederal entities shall include in their construction contracts subject to the Wage Rate Requirements (which still may be referenced as the Davis-Bacon Act) a provision that the contractor or subcontractor comply with those requirements and the DOL regulations (29 CFR Part 5, Labor Standards Provisions Applicable to Contacts Governing Federally Financed and Assisted Construction). This includes a requirement for the contractor or subcontractor to submit to the nonfederal entity weekly, for each week in which any contract work is performed, a copy of the payroll and a statement of compliance. Condition: One out of five contracts tested did not have the required certified payroll completed. Questioned costs: None Context: Construction files were obtained for five projects receiving federal assistance under this grant. One out of the five items tested did not have the required certified payroll. Cause: Project was an emergency procurement and due to the low dollar amount the certified payroll was not provided. Effect: Failure to comply with federal program requirements surrounding certified payroll requirement for construction contracts that exceed $2,000. Recommendation: We recommend that LHDME reviews all construction contracts to make sure they request certified payrolls for all contracts that exceed $2,000. Views of responsible officials: We agree with this finding. In the future all construction contracts will be reviewed on an monthly basis to determine what contracts total $2,000.00 or over to make sure we have a certified payroll for these contracts.

2019-003 (2017-007 and 2018-002) FEDERAL GRANT REPORTING (SIGNIFICANT DEFICIENCY) (OTHER NONCOMPLIANCE) MODIFIED AND REPEATED Funding Agency: U.S. Department of Housing and Urban Development Program: Indian Housing Block Grant (IHBG) CFDA Number: 14.867 Award Number: 55IH3503180 Grant Year: 2017 and 2018 CONDITION All four quarterly reports (SF-425) tested included inaccurate financial data and all four quarters did not agree to draws of federal funds for the respective periods. The total of the four SF-425s filed for 2019 does not tie to the Schedule of Expenditures of Federal Awards (SEFA). Corrective Action Plan Update: LHDME contests the finding in that it did not actually expend more than 20% of the expended IHBG funds on administrative activities. The discrepancy discovered during the audit was due, in significant part, to inadequate coding of activities and expenditures. LHDME shall, not less than quarterly, review expenditures to ensure they are properly allocated between program and administrative costs and to non-program funds. Annually, during the end of year close, LHDME shall perform a careful analysis of expenditures to ensure that all administration, planning, and program costs are properly allocated. If LHDME determines that expenses booked as administration and planning were incorrectly inputted into the accounting system and should have been program costs, adjustments shall be made. If LHDME determines that administration and planning expenses did exceed 20% of the expended IHBG funds, a portion of such costs shall be apportioned to non-federal sources. ANTICIPATED COMPLETION DATE: LHDME shall develop protocols to ensure that drawdowns and expenditures are accurately tracked within ninety days. LHDME shall review the application and implementation of the protocols during quarterly close activities. However, LHDME will not be able to determine the effect of the corrective actions until the end of the year closeout. LHDME developed a series of reports to help with the correct drawdown amounts for the NAHASDA funded activities. It has gotten a little better, however, the new goal is to make sure the correct GL codes are being used. This will aid in getting correct posting and a correct drawdown report for the LOCCS system. CONTEXT The table below summarizes the differences noted. See Schedule of Findings and Questioned Costs for chart/table *The annual unadjusted SEFA included approximately $534,462 (out of $642,231) of noncash HAP subsidies that were recorded as federal expenditures. CRITERIA Per 2 CFR 200.327, financial reports submitted to granting agencies should be complete, accurate, and in agreement with the Schedule of Expenditures of Federal Awards (SEFA) and underlying financial records. Per 2 CFR 200.303(a), federal awardees must maintain effective internal control over federal awards. EFFECT Failure to file complete and accurate SF-425 Federal Financial Reports could affect future funding. CAUSE Inadequate reconciliation of federal expenditures to the accounting records on a timely basis. QUESTIONED COSTS None. Due to audit adjustments made to year-end federal grants revenue and receivable account balances which offset overdraws made throughout the year, total billings for the year did not exceed total expenditures. RECOMMENDATION We recommend that LHDME update and review federal expenditures (SEFA) that reconcile to the general ledger at least quarterly, which will facilitate the accurate recording of federal expenditures and quarterly preparation of Line of Credit Control System (LOCCS) drawdown requests (billing) which are also used as support to prepare the SF-425 Federal Financial Reports. VIEWS OF RESPONSIBLE OFFICIALS AND PLANNED CORRECTIVE ACTION LHDME accepts the finding and takes into consideration the recommendations of the Audit team. Since the recent hiring of the new staff members in the accounting department, primarily the controller, the SEFA will become a primary responsibility to control and review. New reporting will be completed to include a report primarily for the LOCCS drawdown. The HUD monitoring review team suggested that the SF425 be reviewed and sent back as amended to include the corrected SF425 forms. POINT OF CONTACT Nadine Encino, Chief of Operations

2019-004 CASH MANAGEMENT (SIGNIFICANT DEFICIENCY) Funding Agency: U.S. Department of Housing and Urban Development Program: Indian Housing Block Grant (IHBG) CFDA Number: 14.867 Award Number: 55IH3503180 Grant Year: 2017 and 2018 CONDITION During our audit, we determined that there was a variance of $37,229 when reconciling the grant revenues to grant expenditures as compared to the available eLOCCS balance as of December 31, 2019. It appears that the amount drawn down of $251,800 on January 13, 2020, for cost reimbursement of November and December 2019 expenditures exceeded the amount of available balance in eLOCCS of funded grant awards by $37,229. CONTEXT The table below summarizes the differences noted. See Schedule of Findings and Questioned Costs for chart/table CRITERIA Per 2 CFR 200.303(a), federal awardees must maintain effective internal control over federal awards. EFFECT Available federal grant funds in eLOCCS were overstated by approximately $37,229 based on the drawdown on January 13, 2020, for cost-reimbursement of the months of November and December 2019 in the amount of $251,800. Federal expenditures on the general ledger were not overstated as it relates to the drawdown methodology applied, but the available balance in eLOCCS appears to be overdrawn. CAUSE Controls over the drawdown calculation methodology were not properly designed to ensure accurate expenditure amounts are used to request reimbursement from the grantor. As a result of corrections to the SEFA due to audit journal entries to the entity, there were additional federal expenditures that resulted in incorrect drawdown calculation amounts. QUESTIONED COSTS None. All expenditures submitted for reimbursement were allowable under the IHBG grant for 2019. Federal grants revenue in 2020 will need to be reconciled to the available funded grant awards account balance during 2020 to offset potential overdraws that could be made during 2020 so that total billings for the 2020 year will not exceed total 2020 expenditures. RECOMMENDATION We recommend reconciling revenue to AR and cash receipts in the "Revenue Reconciliation," reconciling the remaining available funds by using cumulative expenditures from an accurately prepared quarterly reconciled SEFA to calculate the available balance then comparing the calculated balance to the eLOCCS available balance in the "Available eLOCCS Balance Reconciliation" to the eLOCCS balance at the beginning and ending of the quarter in the "Proof of Authorized Amount Reconciliation." VIEWS OF RESPONSIBLE OFFICIALS AND PLANNED CORRECTIVE ACTION LHDME respectfully accepts the recommendations of the Audit team, reconciliation of all accounts will be closely monitored to make sure all revenue accounts are accurate. Accounting staff will create documentation to collect and show due diligence that the amounts of draws are correct and approved. POINT OF CONTACT Nadine Encino, Chief of Operations

2019-005 PREPARATION OF THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (SIGNIFICANT DEFICIENCY) (COMPLIANCE) Funding Agency: U.S. Department of Housing and Urban Development Program: Indian Housing Block Grant (IHBG) CFDA Number: 14.867 Award Number: 55IH3503180 Grant Year: 2017 and 2018 CONDITION Management included $534,462 of noncash HAP subsidies journal entry accruals within the annual Schedule of Expenditures of Federal Awards (SEFA) related to the final year of the LP1 and LP2 partnership agreements. Therefore, LHDME recorded too much federal grants revenue and receivable due from the federal government for the year ended December 31, 2019. (See Finding 2019-004.) CRITERIA The SEFA should report expenditures that comply with the terms of federal grant award agreements and reconcile to the general ledger. Revenues should be recorded when earned, which in the case of cost reimbursement grants, should be only when actual cash disbursement expenditures are made. EFFECT The final SEFA was overstated by approximately $520,820. The unadjusted trial balance provided for audit had federal grant revenue and receivable overstated by $539,905. CAUSE Lack of controls over the SEFA reconciliations and financial closing as well as lack of recognition and understanding of noncash expenses that were included within federal grant expenditures for preparation of the unadjusted SEFA. QUESTIONED COSTS None. RECOMMENDATION We recommend that LHDME update the SEFA at least monthly, which will facilitate the timely recording and monthly preparation of electronic Line of Credit Control System (eLOCCS) drawdown requests (billing) to accrue monthly federal grant revenues. VIEWS OF RESPONSIBLE OFFICIALS AND PLANNED CORRECTIVE ACTION LHDME accepts and appreciates the recommendation of the Audit team. Monthly review will be completed of the SEFA. This will be a priority of the new Controller. POINT OF CONTACT Nadine Encino, Chief of Operations

2019-006 ACTIVITIES ALLOWED AND ALLOWABLE COSTS (OTHER NONCOMPLIANCE) Funding Agency: U.S. Department of Housing and Urban Development Program: Indian Housing Block Grant (IHBG) CFDA Number: 14.867 Award Number: 55IH3503180 Grant Year: 2017 and 2018 CONDITION Testing of compliance with the activities allowed and allowable costs compliance requirements found the following instances of non-compliance as a result of account coding errors: $9,084 of repair and maintenance expenditures related to the replacement of an HVAC system was charged to the IHBG grant. The HVAC system is an unallowable cost as it was for a commercial building and not covered in the IHP. CRITERIA Unsupported costs are unallowable under 2 CFR 200.403(g), costs related to activities that are not allowed under the provisions of the grant (ex.: projects not in the approved IHP). QUESTIONED COSTS $9,084 EFFECT The unallowable expenditures are questioned costs. CAUSE Insufficient communication between staff regarding the types of project costs being correctly coded to the proper federal or nonfederal program activity. RECOMMENDATION The coding of transactions (which determines how grant expenditures and billings are calculated) should be clearly and specifically communicated to all relevant staff members, especially purchasing, accounts payable, and payroll staff, to ensure that costs are posted to the appropriate fund, account, and department. Program managers or other responsible officials should review expenditures for propriety before submission of billings. VIEWS OF RESPONSIBLE OFFICIALS AND PLANNED CORRECTIVE ACTION LHDME accepts and appreciates the recommendations of the Audit team. LHDME has hired new accounting team members, accounting technician will be the second set of eyes to review the coding and LHDME hopes to alleviate this issue. New General Ledger codes will be developed to match the expenditures for federal funded activities. POINT OF CONTACT Nadine Encino, Chief of Operations