Audit: NCDPS didn’t accurately report data to HUD because they didn’t fully understand requirements

The North Carolina Department of Public Safety (NCDPS) didn’t accurately report Community Development Block Grant (CDBG) financial data to the US Department of Housing and Urban Development (HUD) because they didn’t fully understand the reporting requirements.

That’s according to an audit of the department included in the North Carolina Office of the State Auditor (NCOSA) 2024 Statewide Single Audit.

Auditors reviewed the cash receipts and disbursements reported in all 12 quarterly federal financial reports and found that the amounts reported did not agree with the Department’s accounting records.

Specifically, auditors found:

• Four Hurricane Florence disaster reports had matching total receipts and accounting records; however, disbursements were underreported by $2.9 million.
• Four Hurricane Matthew disaster reports had total receipts underreported by $8.9 million, and disbursements were underreported by $13.4 million.
• Four Hurricane Matthew mitigation reports showed total receipts were over-reported by $101,800, and disbursements were over-reported by $5.9 million.

Reporting inaccurate CDBG financial data prevents HUD from monitoring the federal funds used to help communities provide housing and expand economic opportunities for low-and moderate-income families.

According to NCDPS management, the federal financial report was prepared using amounts from HUD’s Disaster Reporting Grant Reporting (DRGR) system, and the amounts were not reconciled to NCDPS’ accounting records to ensure accuracy due to a lack of understanding of the reporting requirements.

Federal regulations require that the department submit quarterly reports concerning the financial activity for CDBG funds, known as the SF-425 Federal Financial Report. The DRGR system generates this report, and the NCDPS is responsible for confirming the data is accurate and complete.

Federal regulations also require the department to establish and maintain effective internal control over federal awards that provide reasonable assurance that the program is being managed in compliance with federal statutes, regulations, and the terms and conditions of the federal award.

The federal regulations define internal controls to include the processes for achieving reliable reporting.

Auditors recommend that NCDPS management ensure that the staff responsible for reporting understand the requirements, including reconciling the amounts for accuracy.

NCDPS agrees with the findings and recommendations and said their controller’s office and the North Carolina Office of Resiliency and Recovery (NCORR) were unaware of changes in reporting requirements for the SF-425 until the FY2023-24 audit cycle.

Management is currently seeking guidance from HUD to better understand the requirements and process for completing the reconciliation and reporting going forward.

NCDPS has been the subject of past audits in December and April 2022.

North Carolina Central University

The audit also found issues with North Carolina Central University, which was the subject of a separate audit previously released by State Auditor Dave Boliek.

Auditors found that the university didn’t have adequate internal controls over Higher Education Institutional Aid program expenditures to ensure compliance with federal requirements. During the period, the university disbursed $12.06 million in expenditures under this program, which is intended to strengthen institutions’ academic quality.

Auditors reviewed a sample of 40 operating expenditures totaling $356,641 that were paid during the audit period and found 10 (25%) expenditures totaling $12,830 that were not reviewed for compliance before disbursement.

As a result, there is an increased risk that federal funds may not be used in accordance with federal requirements, which may reduce funding otherwise available for use under the program.

Auditors said the university’s internal controls over federal compliance were ineffective due to a change in the electronic approval process during the period that inadvertently removed staff responsible for compliance from the list of required approvals.

They recommended that university management review electronic approval processes periodically and verify by the staff responsible for compliance with federal requirements.

The university also didn’t maintain accurate records of equipment purchased with funds from the Higher Education Institutional Aid program. As of June 30, the university reported 232 equipment assets, with a total cost of $3.8 million that were purchased through this program.

Auditors conducted a physical inspection for a sample of 47 equipment assets totaling $697,882 and found the following errors:

• Nine (19%) assets totaling $99,131 could not be located, and the university could not provide records supporting their location, sale, or disposal.
• Four (9%) assets totaling $59,446 were disposed of in prior years but were not removed from the university’s equipment records.

As a result, there is an increased risk that equipment purchased with federal funds could be lost, stolen, or otherwise used for activities not allowed under the Higher Education program.

Auditors said the university’s internal controls over the physical inventory process weren’t effective because they did not identify the specific personnel responsible for reconciling the inventory results to equipment records and following up on any differences.

They recommended that university management strengthen their internal controls over the physical inventory process.

North Carolina Central University agreed with both findings, and corrective action will be in place by May.

Elizabeth City State University

The Statewide Single Audit also found that Elizabeth City State University didn’t maintain accurate records for equipment purchased with Higher Education Institutional Aid program funds. As of June 30, the university reported 220 equipment assets with a total cost of $3.9 million purchased through this program.

Auditors conducted a physical inspection of 48 equipment assets totaling $1.6 million. They found that the university could not locate five (10%) of these assets, totaling $44,716, nor provide records supporting their location, sale, or disposal.

As a result, there is an increased risk that equipment purchased with federal funds could be lost, stolen, or otherwise used for activities not allowed under the program.

The university’s internal controls over the physical inventory process were ineffective because no one was responsible for ensuring the inventory counts were complete and accurate.

Auditors recommended that university management strengthen its internal controls over the physical inventory process, ensuring there are people to review inventory counts for completeness and accuracy.

Elizabeth City State University agreed with the findings and recommendations and implemented a corrective action plan.

Winston-Salem University

Auditors found a similar situation with Winston-Salem University. They said the university did not have adequate internal controls over Higher Education Institutional Aid program expenditures to ensure compliance with federal requirements. During the period, the university disbursed $9.67 million in expenditures under this program which is intended to strengthen the academic quality of institutions.

NCOSA found expenditures that were not reviewed for compliance before disbursement. Specifically:  

• In a sample of 40 payroll expenditures totaling $372,901, auditors found three (7.5%) expenditures totaling $20,672 that were not reviewed.
• In a sample of 40 operating expenditures totaling $20,927, auditors found 10 (25%) expenditures totaling $6,507 that were not reviewed.
• In a test of 16 capital expenditures totaling $961,462, auditors found 15 (94%) expenditures totaling $743,463 that were not reviewed.

As a result, there is an increased risk that federal funds may not be used in accordance with federal requirements, which may reduce funding otherwise available for use under the program.

Auditors said the university’s internal controls over federal compliance were ineffective due to a change in the electronic approval process during the period that inadvertently removed staff responsible for compliance from the list of required approvals.

They recommended that university management review electronic approval processes periodically and verify by the staff responsible for compliance with federal requirements.

The university agreed with the findings and recommendations and a corrective action plan is in place.

NCOSA also focused on audits of NCDHHS and NC Department of Commerce in the 2024 Statewide Single Audit.

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