External auditor flags inspection noncompliance, questioned costs in 2023 SFHA audit

Benjamin Lau, the external auditor from Messiah, Jeanne & O'Connell (MGO), presented the Housing Authority's audited financial statements for the year ended Sept. 30, 2023, and the related single-audit results at the Feb. 27 commission meeting.

Lau told commissioners MGO issued a modified opinion on the authority's financial statements and identified two emphasis-of-matter items, including the authority's concentration of federal (HUD) revenue and a long-standing going-concern issue for a discretely presented component unit, Plaza East Associates. He said one audited federal program received a modified opinion and the housing choice voucher cluster received a qualified opinion.

The nut of the auditor's findings concerned two instances of noncompliance tied to Housing Quality Standards (HQS) inspections. Lau described one as a known questioned cost of about $10,000 arising from sampled payments where inspections or enforcement were not documented; the other was a projected questioned cost (based on sampling) with a projected known component of about $479,000. Lau said the program-level federal award totals about $402 million, and the reported questioned costs reflect sampling results and projection methodology used by auditors.

Housing Authority Chief Executive Officer Tanya Leju and staff responded to the findings in turn. Leju said the authority has a corrective-action plan, is working closely with HUD and contractors, and emphasized that there is no evidence of fraud. "So all to say there is no fraud. That's number 1," she told the commissioners.

Authority staff described steps taken since the audit year: updates to financial policies, changes to the month-end and midyear close processes, hiring additional staff, and implementation of tracking sheets and corrective-action work with property management and inspection contractors. Staff said they expect continued improvement and expressed confidence the outstanding financial significant deficiency could be closed in the upcoming audit year given the process and staffing changes.

The auditor also summarized accounting-standard changes the authority implemented in 2023 (GASB 91, 94 and 96) and noted additional GASB pronouncements on the horizon that could materially affect future financial reporting.

Why this matters: the modified and qualified opinions and the HQS findings can affect HUD oversight, future federal reporting obligations, and the authority's administration of housing choice vouchers. Staff said discussions with HUD field office are ongoing and, at this point, no federal funds have been retracted.

Ending: Commissioners thanked MGO and authority staff for the presentation and said they expect a follow-up in a future meeting on progress against the corrective-action plan and any developments with HUD.