City and County of HonoluluLocal Government

Criteria: In accordance with 24 CFR section 576.203, the recipient must pay each subrecipient for allowable costs within 30 days after receiving the subrecipient’s complete payment request. Condition: The City did not pay subrecipient for allowable costs within 30 days as required by 24 CFR section 576.203. Context: We selected 4 subrecipients and a total 10 subrecipient payments for testing and noted 5 payments were not paid within 30 days. Cause: Based on discussions with City personnel, it was noted that the delay in payments was due to a lack of diligence in following the City’s policy and procedures to complete timely reviews upon receipt of the completed payment request. Effect: Failure to make timely payments resulted in noncompliance with the subrecipient monitoring requirement. Questioned Costs: None Identification as a Repeat Finding, if applicable: See finding 2024-003 included in the Summary Schedule of Prior Audit Findings. Recommendation: We recommend that the City be diligent in following their policy and procedures to ensure timely reviews and compliance with the requirement. Views of Responsible Officials: The City agrees with finding, and the unabridged version of their response can be found in the Corrective Action Plan. Please see the Corrective Action Plan issued by the City.

Criteria: 24 CFR section 570.902 of the CDBG regulations states that a grantee is in compliance with timely expenditure requirements if, 60 days prior to the end of its program year, there is no more than 1.5 times its annual grant remaining in the line of credit, including any program income on hand. Condition: The Department of Housing and Urban Development (the “HUD”) notified the City, in a letter dated June 4, 2024, that the City was not in compliance with the 60-day timeliness test conducted May 2, 2024, as the City had a line-of-credit balance of 1.71 times its annual grant. Context: According to the HUD letter dated June 4, 2024, this is the third consecutive year that the City was not noncompliant with 24 CFR section 570.902. The HUD required the City to develop a workout plan describing the steps the City will take to ensure compliance by May 2, 2025. The City submitted a workplan to the HUD in a letter dated June 10, 2024 . HUD granted the City an exception to the timely expenditure requirements for the 2024 grant year due to factors beyond the City’s reasonable control. Cause: Based on our discussions with City management, the failure to meet the timely expenditure requirement was primarily due to capital projects delays and supply chain issues , which were beyond the program’s control. Effect: Failure to meet the timeliness standard results in noncompliance with the period of performance requirement and could result in sanctions and reduction in future grant funds. Questioned Costs: None Identification as a Repeat Finding, if applicable: See finding 2023-003 included in the Summary Schedule of Prior Audit Findings. Recommendation: We recommend the City adhere to the workout plan submitted to HUD to comply with the CDBG timely expenditure requirements. Views of Responsible Officials: Client agrees with finding, and the unabridged version of their response can be found in the Corrective Action Plan. Please see the Corrective Action Plan issued by the City.

Criteria: In accordance with 24 CFR section 576.203, the recipient must pay each subrecipient for allowable costs within 30 days after receiving the subrecipient’s complete payment request. Condition: The City did not pay subrecipient for allowable costs within 30 days as required by 24 CFR section 576.203. Context: We selected 18 subrecipient payments for testing and noted 10 were not paid within 30 days. Cause: Based on discussions with City personnel, it was noted that the delay in payments was due to a lack of diligence in completing timely reviews of invoices. Effect: Failure to make timely payments resulted in noncompliance with the special tests and provisions requirement. Questioned Costs: None Identification as a Repeat Finding, if applicable: N/A Recommendation: We recommend that the City be diligent in completing timely reviews to ensure that it complies with the requirement. Views of Responsible Officials: Client agrees with finding, and the unabridged version of their response can be found in the Corrective Action Plan. Please see the Corrective Action Plan issued by the City.

Condition The Department of Housing and Urban Development (“HUD”) notified the City, via letter dated May 31, 2023, that the City was not in compliance with the 60 day timeliness test conducted May 2, 2023, as the City had a line-of-credit balance 1.66 times its annual grant. Criteria 24 CFR Section 570.902 of the CDBG regulations states that a grantee is in compliance with timely expenditure requirements if, 60 days prior to the end of its program year, there is no more than 1.5 times its annual grant remaining in the line of credit, including any program income on hand. Effect Failure to meet the timeliness standard results in noncompliance with the period of performance requirement and could result in sanctions and reduction of future grant funds. However, HUD granted the City an exception to the timeliness requirements for the FY2023 grant year due to the lingering impacts of the COVID 19 pandemic. Cause The failure to meet the timeliness requirement was primarily due to the impact of the COVID‐19 pandemic compounded by supply chain issues. Recommendation We recommend that the City establish procedures to ensure that it complies with the CDBG timeliness standard specified in 24 CFR Section 570.902. In addition, we recommend that the City ensures that it adheres to the workout plan it submitted to HUD.

Condition During our audit, we examined a non statistical sample of two subawards and found that the required subaward information was not reported in the Federal Funding Accountability and Transparency Act Subaward Reporting System (“FSRS”) as required under the Federal Funding Accountability and Transparency Act (“FFATA”). The two subawards not reported to FSRS totaled approximately $3,793,000. Criteria Under FFATA, which is codified in 2 CFR §170, recipients of grants or cooperative agreements are required to report first-tier subawards of $30,000 or more to FSRS, including the following subaward information: • Subawardee name • Subawardee DUNS number • Amount of subaward • Subaward obligation/action date • Subaward number • Subaward project description Effect Failure to fully report required subaward information in FSRS may result in noncompliance with FFATA reporting requirements and limits the transparency of the use of federal funds awarded. Cause The failure to meet the FFATA requirements was due to a lack of communication and staff turnover with the responsible personnel at the City. Recommendation We recommend that the City establish procedures to ensure that subawards are uploaded to the FSRS system on a timely basis.

Condition During our audit, we examined 15 haphazardly selected program exit forms to test if proper controls were being followed for participants exiting the program. We identified for all samples selected, there was no evidence of review of the program exit forms. Criteria 20 CFR Section 677 provides certain requirements for reporting and determining participants who exit the program. Effect A lack of review on exited participants could result in improper reporting and untimely exits from the program. Cause Although the City has policies and procedures in place to ensure proper exit reviews, program personnel were not diligent in maintaining evidence of compliance with the policies and procedures. Recommendation We recommend the City be more diligent in following its policies and procedures for tracking, documenting and performing its exit processes.

Condition During our audit, we examined a non statistical sample of four ERA quarterly compliance reports. We identified inaccurate information submitted for one of the reports examined. Also, for two reports examined, we were unable to complete our testing due to incomplete reports being provided. Criteria 2 CFR Sections 200.328 and 200.329 provide certain requirements for accurate financial and performance reporting. Effect Inaccurate reporting affects the accuracy and transparency of the program funds used and reported to the Department of Treasury. Cause Although the City has policies and procedures in place to ensure proper reporting, City personnel were not diligent in following procedures to ensure accurate reporting. Also due to system limitations at the Department of Treasury and a lack of retention policies, the City was unable to provide completed quarterly reports. Recommendation We recommend the City be more diligent in following its policies and procedures for submitting quarterly information to the Department of Treasury. We also recommend the City implement retention procedures to track the reports and supporting information submitted to the Department of Treasury.

Condition During our audit, we examined the two ERA subawards for proper monitoring procedures. For the two subawards tested, the City did not follow their policies and procedures for performing on site reviews and did not review and evaluate the results of the subrecipients’ single audit reports. Criteria 2 CFR Section 200.332(d) requires a pass through entity to perform monitoring procedures which may include on site monitoring. The City’s policies and procedures require on site reviews to be conducted for its ERA programs. 2 CFR Section 200.332(d) also requires a pass through entity to review available single audit reports and follow up on any deficiencies pertaining to the federal award provided. Effect Without performing on site monitoring or evaluating subrecipients’ most recent single audit reports, the City may not be able to determine if subrecipients are using federal funds appropriately. Cause Due to staffing shortages and turnover, the City was not able to adhere to its on site monitoring procedures. The City also lacked procedures to review subrecipients’ single audit reports. Recommendation We recommend the City be more diligent in following its policies and procedures for on site monitoring of its subrecipients. We also recommend the City implement control procedures to review a subrecipient’s most recent single audit report to determine if any management decisions on findings or monitoring is necessary.

Condition During our audit, we selected a non statistical sample of three CSLFRF subawards for proper monitoring procedures. For two rental assistance subawards examined, we noted the City did not follow its policies and procedures for performing on site reviews and did not review and evaluate the results of the subrecipients’ single audit reports. Criteria 2 CFR Section 200.332(d) requires a pass through entity to perform monitoring procedures which may include on site monitoring. The City’s policies and procedures require on site reviews to be conducted for its CSLFRF programs. 2 CFR Section 200.332(d) also requires a pass through entity to review available single audit reports and follow up on any deficiencies pertaining to the federal award provided. Effect Without performing on site monitoring or evaluating subrecipients’ most recent single audit reports, the City may not be able to determine if subrecipients are using federal funds appropriately. Cause Due to staffing shortages and turnover, the City was not able to adhere to its on site monitoring procedures. The City also lacked procedures to review subrecipients’ single audit reports. Recommendation We recommend the City be more diligent in following its policies and procedures for on site monitoring of its subrecipients. We also recommend the City implement control procedures to review a subrecipient’s most recent single audit report to determine if any management decisions on findings or monitoring is necessary.

Condition During our audit, we examined six haphazardly selected subrecipient monitoring reports and identified one subrecipient for which the financial review portion of their subrecipient monitoring was not performed timely. Criteria 2 CFR 92.504(d) requires a financial review to be performed at least annually for rental projects with 10 or more units. Effect Failure to perform reviews timely may result in subrecipients misusing or mismanaging program funds. Cause Due to significant staffing turnover and COVID 19 pandemic restrictions, the City was unable to perform timely reviews and complete the monitoring reports. Recommendation Management should create policies and procedures to ensure required monitoring procedures are performed and completed timely.

Condition During our audit, we examined 25 haphazardly selected failed Housing Quality Standards (?HQS?) inspections to test if corrections and verifications of corrections were performed within the correction period and proper action taken by the Public Housing Agency (?PHA?). We identified for one owner, verification of correction was performed after the correction period, but no housing assistance payments (?HAP?) were abated. Criteria 24 CFR 92.252(a) provides certain rental assistance limitations that apply to the rent plus the tenant?s utility allowance. The maximum rent is the lesser of 1) the fair market rent for existing housing for comparable units in the area as established by the Department of Housing and Urban Development (?HUD?) under 24 CFR 888.111; or 2) a rent that does not exceed 30% of the adjusted income of a family whose annual income equals 65% of the median income for the area, as determined by HUD, with adjustments for number of bedrooms in the unit. The HOME rent limits provided by HUD include average occupancy per unit and adjusted income assumptions. 24 CFR sections 982.404(a) requires owners to maintain units in accordance with HQS. If an owner fails to maintain a dwelling in accordance with HQS and fails to correct the HQS deficiencies within the correction period, the PHA should abate HAP or terminate the contract. Effect As the City verified correction of HQS deficiencies after the correction period, HAP in the amount of $12,222 was improperly disbursed in the year ended June 30, 2022 resulting in questioned costs. Cause Although the City has policies and procedures in place to ensure proper HQS enforcement, there was a lack of diligence in complying with the policies and procedures due to staffing shortages. Recommendation We recommend the City be more diligent in following its policies and procedures for tracking, documenting and performing HQS inspections and taking appropriate action timely when an owner fails to correct HQS deficiencies identified.

Condition The financial review portion of the subrecipient monitoring was not performed for four out of five projects tested. The City also lacked the proper monitoring controls related to the following: 1) a formal review process to ensure reports are reviewed and finalized, and 2) procedures to review subrecipient Single Audit reports and related findings. Criteria 2 CFR 200.331 states that depending on the pass-through entity?s assessment of risk posed by the subrecipient, one monitoring tool that may be useful for the pass-through entity to ensure proper accountability and compliance with program requirements and achievement of performance goals is an on-site review of the subrecipient?s program operations. 2 CFR 200.331(b) states that pass-through entities must evaluate each subrecipient?s risk of noncompliance with Federal statutes, regulations, and the terms and conditions of the subaward for purposes of determining the appropriate subrecipient monitoring. 2 CFR 200.331(d) states that pass-through entities must monitor subrecipients and issue management decisions for audit findings related to the subaward. 2 CFR 92.504(d) requires a financial review to be performed at least annually for rental projects with 10 or more units. Effect Failure to perform reviews timely may result in subrecipients misusing or mismanaging program funds. Cause Due to significant staffing turnover and COVID 19 pandemic restrictions, the City was unable to perform timely reviews and complete the monitoring reports. There was a lack of diligence in complying with the policies and procedures. Recommendation Management should create policies and procedures to ensure required monitoring procedures are performed timely, including the review and issuance of monitoring reports. Management should also implement a schedule for targeted monitoring and comprehensively track those projects that require monitoring.

Condition During our audit, we examined 17 haphazardly selected tenant-based rental assistance (?TBRA?) recipients and identified one tenant with a miscalculated rental assistance payment amount. The miscalculation resulted in an overpayment of $100 to the tenant during the year ended June 30, 2021. Criteria 24 CFR 92.252(a) provides certain rental assistance limitations that apply to the rent plus the tenant?s utility allowance. The maximum rent is the lesser of 1) the fair market rent for existing housing for comparable units in the area as established by HUD under 24 CFR 888.111; or 2) a rent that does not exceed 30% of the adjusted income of a family whose annual income equals 65% of the median income for the area, as determined by HUD, with adjustments for number of bedrooms in the unit. The HOME rent limits provided by HUD include average occupancy per unit and adjusted income assumptions. Effect Failure to properly review rent calculations resulted in $100 in improper TBRA payments. Cause Due to insufficient staffing and controls, review over TBRA rent calculations were not performed. Recommendation Management should create policies and procedures to ensure TBRA rental assistance payments are calculated correctly in accordance with 24 CFR 92.252.

See Schedule of Findings and Questioned Costs for chart/table. Condition The financial review portion of the subrecipient monitoring was not performed for five out of six projects tested. The City also lacked the proper monitoring controls related to the following: 1) tracking postdevelopment monitoring and newly completed projects for timely monitoring, 2) a formal review process to ensure reports are reviewed and finalized, and 3) procedures to review subrecipient Single Audit reports and related findings. Criteria 2 CFR 200.331 states that depending on the pass-through entity?s assessment of risk posed by the subrecipient, one monitoring tool that may be useful for the pass-through entity to ensure proper accountability and compliance with program requirements and achievement of performance goals is an on-site review of the subrecipient?s program operations. 2 CFR 200.331(b) states that pass-through entities must evaluate each subrecipient?s risk of noncompliance with Federal statutes, regulations, and the terms and conditions of the subaward for purposes of determining the appropriate subrecipient monitoring. 2 CFR 200.331(d) states that pass-through entities must monitor subrecipient Single Audit Findings related to the subaward. 2 CFR 92.504(d) requires a financial review to be performed at least annually for rental projects with 10 or more units. Effect Failure to perform reviews timely may result in subrecipients misusing or mismanaging program funds. Cause Due to significant staffing turnover and the COVID-19 restrictions, the City was unable to perform timely reviews and complete the monitoring reports. There was a lack of diligence in complying with the policies and procedures. Recommendation Management should create policies and procedures to ensure required monitoring procedures are performed timely, including the review and issuance of monitoring reports. Management should also implement a schedule for targeted monitoring and comprehensively track those projects that require monitoring.

See Schedule of Findings and Questioned Costs for chart/table. Condition HUD notified the City via a letter dated August 28, 2020 that the City was not in compliance with the sixty-day timeliness test conducted on May 2, 2020 as the City had a line-of-credit balance 1.64 times its annual grant. Criteria 24 CFR 570.902 of the CDBG regulations states that a grantee is in compliance with timely expenditure requirements if, 60 days prior to the end of its program year, there is no more than 1.5 times its annual grant remaining in the line of credit, including any program income on hand. Effect Failure to meet the timeliness standard results in noncompliance with the period of performance requirement. However, HUD has currently suspended all corrective actions, sanctions, and informal consultations for timeliness in light of the ongoing COVID-19 pandemic. Cause The failure to meet the timeliness requirement was primarily due to the ongoing COVID-19 pandemic, which led to work-from-home orders and other disruptions to the City?s operations. Recommendation We recommend that the City establish procedures to ensure that it complies with the CDBG timeliness standard specified in 24 CFR 570.902. In addition, we recommend that the City ensures that it adheres to the workout plan it submitted to HUD.

See Schedule of Findings and Questioned Costs for chart/table. Condition During our audit, we examined 25 haphazardly selected expenditure transactions and identified seven expenditures totaling $92,640 that were outside of the grant?s period of performance. Criteria Under 2 CFR 200.344(b), unless the Federal awarding agency or pass-through entity authorizes an extension, a non-Federal entity must liquidate all obligations incurred under the Federal award not later than 120 calendar days after the end date of the period of performance as specified in the terms and conditions of the Federal award. Effect The City may have expended funds outside of the award?s period of performance resulting in $92,640 in questioned costs. Cause The expenditure of funds outside of the period of performance was caused by a lack of controls over project expiration dates and the timing of expenditures. Recommendation We recommend that the City establish procedures to monitor the periods of performance of awards and request extensions from the federal awarding agency, if necessary.

Finding No. 2019-005: Allowable Costs and Period of Performance (Material Weakness) Questioned Costs: $ 1,997,396 Federal Agency: United States Department of Housing and Urban Development (?HUD?) CFDA Number and Title: 14.218, Community Development Block Grants ? Entitlement Grants (?CDBG? Entitlement Grants Cluster) Award Number and Year: B-18-MC-15-000l 2019 Repeat Finding? No Condition HUD notified the City via a letter dated May 31, 2019 that HUD identified $1,997,396 in questioned costs related to the following two drawdowns: ? $243,411 used in the purchase of medical equipment, fixtures, furnishings or other personal property that were not deemed to be integral structural fixtures for use in CDBG public facility and improvement activities. ? $1,753,985 used to acquire and store construction materials was deemed to be ineligible as the City had not approved the construction permit at the time of the drawdown. In addition, HUD notified the City in the same letter that the City was not in compliance with the sixty-day timeliness test conducted on May 2, 2019 as the City had a line-of-credit balance 1.64 times its annual grant. Criteria 24 CFR 570.207(b)(1)(iii) states that the purchase of equipment, fixtures, motor vehicles, furnishings or other personal property not an integral structural fixture is generally ineligible. 24 CFR 200.403(a) states that costs must be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. 24 CFR 570.208 states that all activities undertaken by grantees must meet one of three national objectives of the CDBG Entitlement Grants program: 1) benefit low- and moderate-income persons, 2) prevent or eliminate slums or blight, or 3) meet community development needs having a particular urgency. 24 CFR 570.902 of the CDBG regulations states that a grantee is in compliance with timely expenditure requirements if, 60 days prior to the end of its program year, there is no more than 1.5 times its annual grant remaining in the line of credit, including any program income on hand. Effect HUD directed the City to repay, with non-Federal funds, the $1,997,396 in CDBG funds to the HUD Line of Credit Control System. If the City does not immediately repay the funds, then HUD will require the City to calculate and pay the interest due to the U.S. Treasury. In addition, as the City failed the timeliness test under CDBG regulations, the City is now subject to HUD?s sanctions policy and has until May 31, 2020 to reach the 1.5 timeliness standard. If the City fails the timely expenditure requirement for a second consecutive year, the City?s future grant may be reduced by the dollar amount by which the grantee exceeded the 1.5 timely expenditure standard. The City has submitted responses to the findings identified in the May 31, 2019 letter and requested that HUD reconsider its determination of allowability of the questioned costs. Cause The questioned costs charged to the award were due to a lack of knowledge of the allowability criteria for program expenditures and no formal procedures to ensure compliance with the requirement. The failure to meet the timeliness requirement was due to lack of monitoring and issues related to several projects that resulted in delays in these project expenditures. Recommendation We recommend that the City continue to seek clarification from HUD on the types of costs that are allowable under program guidelines and develop formal procedures to ensure that the allowability criteria are met. We also recommend that the City establish procedures to ensure that it complies with the CDBG timeliness standard specified in 24 CFR 570.902. In addition, we recommend that the City ensures that it adheres to the workout plan it submitted to HUD.

Finding No. 2019-006: Eligibility and Special Tests (Significant Deficiency) Questioned Costs: $2,847 Federal Agency: HUD CFDA Number and Title: 14.871, Section 8 Housing Choice Vouchers (Housing Voucher Cluster) Award Number and Year: HI001 2018 Repeat Finding? No Condition During our audit, we examined 60 haphazardly selected failed Housing Quality Standards (?HQS?) inspections to test if corrections and verification of corrections were performed within the correction period and proper action taken by the Public Housing Agency (?PHA?). We noted that for one owner, the verification of correction was performed after the correction period, but no Housing Assistance Payments (?HAP?) were abated. Criteria 24 CFR 982.404 requires owners to maintain units in accordance with HQS. If an owner fails to maintain a dwelling in accordance with HQS and fails to correct the HQS deficiencies within the correction period, the PHA should abate HAP or terminate the HAP contract. Effect As the City verified the correction of HQS deficiencies after the correction period, HAP in the amount of $2,847 was improperly disbursed resulting in questioned costs. Cause Although the City has policies and procedures in place to ensure proper HQS enforcement, there was a lack of diligence in complying with the policies and procedures. Recommendation We recommend the City be more diligent in following its policies and procedures for documenting and performing HQS inspections and taking appropriate action when an owner fails to correct HQS deficiencies identified.

Finding No. 2019-007: Period of Performance (Significant Deficiency) $ 26,805 Federal Agency: United States Department of Transportation CFDA Number and Title: 20.205 Highway Planning and Construction (Highway Planning and Construction Cluster) Award Number and Year: Repeat Finding? NBIS064 No 2015 Condition During our audit, we examined 25 haphazardly selected expenditure transactions and identified one expenditure for $26,805 that was outside of the grant?s period of performance. Criteria Under 2 CFR section 200.343(b), unless the Federal awarding agency or pass-through entity authorizes an extension, a non-Federal entity must liquidate all obligations incurred under the Federal award not later than 90 calendar days after the end date of the period of performance as specified in the terms and conditions of the Federal award. Effect The City may have expended funds outside of the award?s period of performance resulting in $26,805 in questioned costs. Cause The expenditure of funds outside of the period of performance was caused by two emergency situations that arose near the end of the period of performance. The City amended the contracts internally to address these emergencies but did not obtain approval for an extended period of performance from the federal agency. Recommendation We recommend that the City establish procedures to monitor the periods of performance of awards and request extensions from the federal awarding agency if necessary.

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