External auditor reports progress but flags HUD inspection findings and questioned costs in 2023 audit

Benjamin Lau of Messiah, Genie & O'Connell (MGO), the Housing Authority's external auditor, presented the Authority's fiscal year 2023 audit results to the Commission on Feb. 27, saying auditors issued a modified opinion on the Authority's basic financial statements and identified two single-audit findings tied to housing quality standards (HQS) inspections.

Lau said the modified opinion on the financial statements amounted to a “clean report” but included two emphases of matter: a concentration of HUD (federal) revenue and a longstanding going-concern qualification related to the discretely presented component unit for Plaza East Associates. He also said auditors issued a qualified opinion on the Housing Choice Voucher program component of the single audit and described two findings on special tests and provisions concerning HQS inspection enforcement.

Why it matters: the single-audit findings relate to HUD-funded programs and can trigger discussions with HUD about questioned costs and corrective actions. Auditors described known questioned costs of about $10,000 for sampled items and a projected additional exposure (based on sampling) of roughly $479,000, both tied to inspection and enforcement timing and documentation.

“The question cost is a calculated number by the auditor…based on the nature of the finding,” Lau said, explaining that one known questioned cost came from sampled units where inspections or enforcement steps were not completed in the expected timeframe and that auditors project possible additional questioned costs to the larger population.

Housing Authority CEO Tanya Lehi told commissioners the Authority is working with HUD and contractors and that there is no indication of fraud. “All to say there is no fraud. That's number 1,” Lehi said, adding the questioned-cost numbers in the auditor’s report are projections based on sampling and that the Authority has been in ongoing discussions with its HUD field office.

Lehi described corrective actions already under way: the Authority has implemented a corrective action plan, is working with its inspection contractors (named in the meeting as PEM and CVR), and has added tracking and monitoring for inspections, abatements and reinspections. She said the findings are concentrated in the recent Sunnydale and Potrero transitions from public housing to project-based vouchers and that staff are coordinating closely with HUD and contractors to resolve outstanding items.

MGO also noted improvement over prior years in internal-control findings: where the Authority had a material weakness two audits ago, the 2023 report downgraded that to a significant deficiency, reflecting progress in policies and processes. Lau and Authority staff said they expect further improvement in the next audit cycle if current process changes and staffing additions continue.

Commissioners asked for clarification about the trends and the questioned-cost methodology. Lau pointed to a long-term decrease in the number of single-audit findings since 2016 and reiterated that auditors calculate question costs from known sampling results and may project to the full population. Lehi said the Authority has revamped financial policies, added staff, and implemented monthly and mid‑year close processes to address financial-reporting issues.

The presentation concluded with commissioners thanking staff and auditors for the work and noting continued monitoring. The auditors said they will provide additional details in the formal audit report and remain available for follow-up questions.

Ending: The commission did not take a formal vote tied to the audit presentation; commissioners asked staff to continue reporting progress and to return with follow-up in future meetings.