oversight

Benson Housing Authority, Public Housing Programs, Benson, NC

Published by the Department of Housing and Urban Development, Office of Inspector General on 2000-03-27.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                                   Issue Date
                                                                           March 27, 2000
                                                                   Audit Case Number
                                                                           00-AT-202-1005




TO:            Ledford L. Austin, Director, Office of Public Housing, 4FPH


FROM:          Nancy H. Cooper
               District Inspector General for Audit-Southeast/Caribbean, 4AGA


SUBJECT:       Benson Housing Authority
               Public Housing Programs
               Benson, North Carolina

We completed an audit of the Benson Housing Authority, Benson, North Carolina, pertaining to its
public housing programs. This report presents the results of our audit and includes three findings
with recommendations for corrective action.

Within 60 days, please provide us, for each recommendation in this report, a status report on: (1)
the corrective action taken; (2) the proposed corrective action and a planned completion date; or
(3) why action is considered unnecessary. Also, please furnish us copies of any correspondence
or directives issued as a result of the audit. Note that Handbook 2000.06 REV-3 requires
management decisions to be reached on all recommendations within 6 months of report issuance.
It also provides guidance regarding interim actions and the format and content of your reply.

We provided a copy of this report to the auditee.

We appreciate your cooperation during the audit. Should you or your staff have any questions,
please contact me at (404) 331-3369, or Gerald Kirkland, Assistant District Inspector General for
Audit, at (865) 545-4368.
Management Memorandum




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00-AT-202-1005                  Page ii
Executive Summary
At your request, we conducted an audit of the Benson Housing Authority’s (Authority) public
housing programs. We audited activities generally for the period October 1, 1997, to October 31,
1999. Our objectives were to determine: (1) whether the Authority had adequate controls to
ensure its assets were properly safeguarded, and (2) whether the Authority complied with
applicable laws, regulations and Department of Housing and Urban Development (HUD)
requirements.

We found the Authority did not manage its programs in accordance with requirements. This
occurred because: (1) it violated conflict of interest requirements; (2) it did not have an adequate
system of internal controls; (3) it did not maintain adequate books and records; and (4) the Board
of Commissioners did not provide adequate oversight. Also, as shown in the findings, the
Executive Director was apparently not sufficiently qualified to manage the Authority. As a result,
the Authority is in substantial default of the Annual Contributions Contract (ACC) and HUD has no
assurance that funds were used effectively to accomplish program objectives.

Specifically, the Authority did not:

       •   Obtain Board approval to hire relatives of Authority officials;
       •   Have adequate controls over cash disbursements or cash receipts;
       •   Properly administer its payroll functions;
       •   Have adequate books and records to support expenditures; or
       •   Have adequate Board oversight.

Also, the Authority made improper procurements totaling about $1.6 million. This occurred
because it did not comply with procurement requirements to ensure free and open competition.
Specifically, the Authority did not solicit bids or proposals for repair work or the purchase of two
vehicles. Thus, it did not have proper assurance the procurements were reasonable or the most
advantageous to the Authority. For example, the Authority paid almost $1 million to a company to
perform rehabilitation work. The Authority did not solicit bids for the work and did not have a
written contract with the company. The owner of the company was also the Authority’s
maintenance superintendent responsible for overseeing the rehabilitation work. This violated
conflict of interest requirements.

Further, the Authority did not properly determine tenant rent amounts for any of the seven
households we reviewed. As a result, it was deprived of about $37,000 of rental income. All
seven households included tenants who were either Authority officials or employees, including the
former Board Chairperson. We found the former Chairperson did not report over $73,000 of
household income and the Authority improperly calculated the household’s monthly rent. As a
result, the former Chairperson underpaid rent by more than $20,000. The former Chairperson was
indicted for similar offenses in December 1996 by the Superior Court Division of the State of
North Carolina. We found other cases where the Authority did not include income for employees
when determining their monthly rent.




                                                 Page iii                           00-AT-202-1005
Executive Summary

Prior to the issuance of this report: (1) the former Chairperson resigned from the Board and
moved out of her unit; (2) the Executive Director resigned; and, (3) the North Carolina State Office
(State Office) suspended the Authority’s Comprehensive Improvement Assistance Program
(CIAP).

In January 1997, the State Office determined the Authority did not have adequate internal controls
and used incorrect employee income when determining rents. The Authority did not take
appropriate corrective action to prevent future occurrences.

Given the historical mismanagement of the Authority, we recommend you declare the Authority in
substantial default of the ACC and require it to deliver possession and control of the projects to
HUD. Our recommendations address other concerns identified in the Findings.

Authority Response to the draft report

We provided the draft audit findings to the current Board Chairperson and Executive Director on
March 2, 2000. The Chairperson provided written comments to the draft findings on March 10,
2000, which are summarized within each finding and included in their entirety as Appendix B. We
also discussed the draft audit findings with the Chairperson and Executive Director at an exit
conference on March 14, 2000. They generally agreed with our draft findings and stated the
Authority has initiated corrective actions to resolve many deficiencies and will implement
additional procedures. We considered the comments in preparing our final report.




00-AT-202-1005                          Page iv
Table of Contents

Management Memorandum                                           i

Executive Summary                                             iii

Introduction                                                   1

Findings

1    The Authority Mismanaged its Public Housing Programs       3

2    The Authority Made Improper Procurements Totaling About
     $1.6 Million                                                   11

3    The Authority Was Deprived of $37,000 in Rental Income         15


Follow Up On Prior Audits                                     19

Appendices
      A Schedule of Underpaid Rent                              21
      B Auditee Comments                                         23
      C Distribution                                             27




                                 Page v                 00-AT-202-1005
Table of Contents

Abbreviations

ACC              Annual Contributions Contract
CFR              Code of Federal Regulations
CIAP             Comprehensive Improvement Assistance Program
HUD              Department of Housing and Urban Development
OIG              Office of Inspector General
VOE              Verification of Employment




00-AT-202-1005                         Page vi
Introduction
Background

The Authority was established in 1961. It currently administers 5 projects consisting of 173
public housing units under Annual Contributions Contract Number A-4308 .

The Authority is governed by a seven-member Board of Commissioners appointed by the Mayor.
Each member is appointed to a 5-year term. Ms. Maxine Holley served as the Board Chairperson
from October 1997 through September 1999. She previously served as the Chairperson from
October 1993 through September 1994 and was a Board member for about 10 years. She
resigned from the Board in November 1999. Mr. George R. Murphy is the current Chairperson.
The majority of current Board members are newly appointed and were not members during most of
our audit period. Ms. Juanita English served as the Executive Director from December 1992 until
she resigned in January 2000. Mr. William Stewart is the current acting Executive Director.

In fiscal year ended September 30, 1998, the Authority managed operating revenue of about
$388,000. Additionally, from October 1, 1994, through May 31, 1998, the Authority received
about $2.3 million from HUD for CIAP work. Between October 1994 and September 1995, the
Authority also received about $1.2 million from HUD to convert former Section 23 leased units
into public housing units.

The Authority maintains its books and records at its office at 413 Williams Drive, Benson, North
Carolina.

Audit Objective, Scope, and Methodology

Our objectives were to determine: (1) whether the Authority had adequate controls to ensure its
assets were properly safeguarded, and (2) whether the Authority complied with applicable laws,
regulations and HUD requirements. We reviewed activities and management controls regarding
cash receipts and disbursements, procurements, payroll, and tenant certifications.

To meet our objectives, we:

   •   Interviewed HUD North Carolina State Office and Authority staff.

   •   Reviewed books and records as considered necessary.

   •   Reviewed disbursements totaling about $1.9 million to assess eligibility and support. This
       included about $1.2 million of CIAP funds, $.6 million of Section 23 funds, and $.1 million
       of insurance casualty loss funds.

   •   Reviewed procurement files to assess procurement procedures.




                                                 Page 1                           00-AT-202-1005
Introduction

   •   Performed a cash count and evaluated a sample of bank deposits to determine whether
       funds were deposited timely.

   •   Reviewed the Authority’s tenant certifications and rent calculations for seven households
       that included tenants who were Authority employees or officials.

   •   Reviewed the minutes from Board meetings from January 1, 1995, through October 31,
       1999, to determine whether the Board provided adequate oversight.

   •   Inspected a judgmental sample of 17 units to determine whether renovation work appeared
       adequate.

The audit covered Authority activities from October 1, 1997, through October 31, 1999, but was
expanded into prior and subsequent periods as deemed appropriate. Field work was performed
from May through November 1999. We conducted our audit in accordance with generally
accepted government auditing standards.




00-AT-202-1005                      Page 2
                                                                                      Finding 1


  The Authority Mismanaged its Public Housing
                   Programs
The Authority mismanaged its public housing programs. This occurred because it did not:          (1)
comply with conflict of interest requirements: (2) have an adequate system of internal controls; (3)
maintain adequate books and records; or, (4) have adequate Board oversight. As a result, the
Authority is in substantial default of the ACC and HUD has no assurance that funds were used
effectively to accomplish program objectives.



                                      The Authority was required to operate its projects in
 Criteria                             compliance with the ACC and all applicable statutes,
                                      executive orders, and regulations. Section 19 of the ACC
                                      provides conflict of interest requirements. It states the
                                      Authority may not hire an employee in connection with a
                                      project under the ACC if the prospective employee is an
                                      immediate family member of any employee of the Authority
                                      who formulates policy or influences decisions with respect
                                      to the projects or any present or former member or officer of
                                      the governing body of the Authority. The Authority’s
                                      personnel policy provides that the Authority will not employ
                                      any spouse or immediate relative of its staff who resides in
                                      the same household on a permanent basis without Board
                                      approval.

                                      Title 24 of the Code of Federal Regulations (CFR), Part 85,
                                      requires the Authority to maintain effective control and
                                      accountability for all cash, property and other assets. The
                                      Authority’s internal control policy requires the Executive
                                      Director to review and inspect each invoice prior to
                                      payment and deposit cash receipts as frequently as possible.

                                      The ACC requires the Authority to maintain complete and
                                      accurate books of account that permit timely and effective
                                      audit.

                                      The Authority’s Bylaws require the Board to hold monthly
                                      meetings. The Secretary of the Board, the Executive
                                      Director, is to provide an accounting of transactions and
                                      financial conditions at each monthly meeting.




                                                  Page 3                            00-AT-202-1005
Finding 1

                         We found the Authority did not: (1) comply with conflict of
                         interest requirements; (2) have an adequate system of
                         internal controls; (3) maintain adequate books and records;
                         or, (4) have adequate Board oversight. Specifically, the
                         Authority did not:

                             •    Obtain Board approval to hire relatives of Authority
                                  officials;
                             •    Have adequate controls over cash disbursements or
                                  cash receipts;
                             •    Properly administer its payroll functions;
                             •    Have adequate books and records to support
                                  expenditures; or
                             •    Have adequate Board oversight.

                         The Executive Director violated the ACC and Authority
 The Authority did not   conflict of interest policies by hiring her spouse and a Board
 comply with conflict    member’s son as Authority employees. The Executive
 of interest             Director also hired the Authority’s CIAP general contractor
 requirements            as the maintenance superintendent. She hired them without
                         Board approval.

                         The Executive Director’s spouse worked periodically as an
                         Authority employee and as a contractor from October 1994
                         through September 1997. The Authority paid him about
                         $30,200 during this period. The Executive Director
                         prepared her spouse’s time records, invoices, and pay
                         checks. She also endorsed and cashed some of her spouse’s
                         pay checks.

                         The Board Chairperson’s son was employed as a Drug
                         Elimination Grant Coordinator from May 13, 1998, through
                         December 17, 1998. The Authority initially advertised the
                         position and hired someone at an hourly rate of $8. The
                         employee left after a brief time. The Authority did not
                         advertise the position again prior to hiring the Board
                         Chairperson’s son. The Authority paid him $15 per hour.
                         Again, there was no evidence the Board approved the hiring
                         of this family member.




00-AT-202-1005           Page 4
                                                                     Finding 1

                      The Authority hired Turnage Construction Company to
                      perform construction work under the CIAP program. The
                      Authority paid the company almost $1 million from October
                      1994 to August 1997. Also, the Authority hired the owner of
                      Turnage as its maintenance superintendent. The Authority
                      paid him over $79,000 in salary as the maintenance
                      superintendent during this period. Further, the contractor
                      hired the Executive Director’s spouse as a subcontractor.
                      The contractor paid the spouse about $37,600 for his
                      subcontract work.

                      One of the maintenance superintendent’s duties was to
                      oversee the CIAP rehabilitation. He was also in a position
                      to influence decisions concerning the amount and types of
                      repairs to be made. As the contractor, he submitted invoices
                      for payment which were reviewed and paid by the Executive
                      Director.

                      The CIAP rehabilitation work received minimal review by
                      HUD staff and a consultant hired by the Authority.
                      However, in August 1997 the State Office informed the
                      Authority the maintenance superintendent could not also be a
                      contractor. He subsequently resigned as maintenance
                      superintendent.

                      The Executive Director stated that she was not aware of the
                      conflict of interest requirements in the ACC when she hired
                      her spouse and the Board Chairperson’s son. She also
                      stated that she hired her spouse because he would work at
                      night and on weekends when others would not.

                      The Authority did not have adequate controls over cash
Inadequate controls   disbursements. Specifically, the Executive Director did not
over cash             adequately review invoices prior to payment and in some
disbursements         instances she prepared invoices for contractors. As a result,
                      some payments were not supported and contractors were
                      paid for duplicate invoices.

                      For example, a contractor submitted two invoices dated
                      January 6, 1997, for reimbursement of materials; one for
                      $5,715 and one for $5,576, a total of $11,291. The
                      Authority paid the invoices on February 7, 1997. The
                      contractor submitted the same packing slip as support for
                      both charges. The packing slip did not include any cost




                                   Page 5                          00-AT-202-1005
Finding 1

                       amounts. The supplier verified the correct amount of
                       materials purchased was $5,442. The Authority paid the
                       contractor the full $11,291. Thus, it overpaid the contractor
                       $5,849.

                       On another occasion, the same contractor submitted a receipt
                       from a building materials supplier for $7,461. The receipt
                       was for payment on the contractor’s account and did not
                       document what materials were purchased or where they
                       were to be used. Thus, we cannot be assured the materials
                       were purchased for the Authority.

                       We also found the Authority paid contractors three times in 4
                       months to paint the same unit located at 400 Hall Street. The
                       contractors, including the Executive Director’s spouse, were
                       paid a total of $5,203. The Authority could not justify the
                       reasons for painting the unit three times in 4 months.

                       The Executive Director also prepared invoices for a drywall
                       contractor. The Executive Director maintained a file which
                       contained blank invoices for the drywall contractor. The
                       Executive Director prepared the invoices and made the
                       payments to the contractor. She also prepared invoices for
                       payment to her spouse, her cousin, and two Authority
                       employees for painting units.

                       The Authority did not have adequate segregation of duties
 Inadequate controls   over the receipt and deposit of cash. The Occupancy Clerk
 over cash receipts    collected cash receipts, posted receipts to tenants’ account
                       receivable records, prepared and made bank deposits, and
                       reconciled bank statements.

                       Also, the Authority did not deposit funds timely. On three
                       occasions between March 1, 1999, and June 21, 1999, it
                       maintained over $10,000 cash at the Authority. At one point,
                       it had over $16,000 cash on hand. Each day, the Authority
                       placed the funds in a night depository at a bank. However,
                       rather than depositing the funds into its account, an Authority
                       employee picked up the funds the next business day and
                       returned them to the Authority. It did not deposit the funds
                       until the Occupancy Clerk posted the receipts to the tenant
                       accounts.




00-AT-202-1005         Page 6
                                                                      Finding 1

                       Following a January 1997 review, the State Office notified
                       the Authority that its internal controls were not adequate.
                       The State Office recommended the Executive Director verify
                       the accuracy of receipts and deposit funds timely. The State
                       Office cleared the finding based on the Authority’s response
                       that the Executive Director would balance receipts and make
                       the deposits. However, we found the Authority did not
                       implement the procedures.

                       The Executive Director was responsible for maintaining
Inadequate payroll     employee time and attendance records, preparing payroll,
procedures             and signing payroll checks. She also maintained her own
                       time and attendance records. We found the Executive
                       Director did not adequately account for her accrued and
                       used leave. For example, a 1995 memo in the file indicated
                       she had a balance of 380 days of sick leave. According to
                       the Authority’s personnel policy, she could have only earned
                       246 days. Also, a Leave Record Form indicated that she
                       used 88 hours of leave during the period October 21, 1997,
                       through October 31, 1997. This period included weekend
                       days for which leave was not required.

                       The Authority also failed to accrue funds to pay employees
                       for unused leave upon their termination. The personnel
                       policy provides that employees would be paid for
                       accumulated vacation leave upon submission of a signed and
                       dated resignation. However, the Authority has not accrued
                       funds to pay for the leave. Thus, the Authority may not be
                       able to pay employees upon resignation.

                       The Authority did not maintain books and records that
Inadequate books and   permitted timely or effective audit. For example, we found
records                it did not have auditable time and attendance records to
                       support payroll disbursements. The Executive Director said
                       she keeps up with employee time by watching when their
                       cars arrive and when they leave. She wrote down the
                       number of hours either on a Daily Attendance Record, her
                       desk calendar, or on Post-It notes. After payroll checks
                       were distributed, she threw away the Post-It notes.

                       We also attempted to ensure CIAP funds were spent only for
                       eligible activities. However, the Authority did not keep
                       adequate records to readily identify and account for the
                       funds. Rather, it commingled the CIAP funds with the
                       operating funds, which prevented timely and effective audit.




                                    Page 7                          00-AT-202-1005
Finding 1

                    The Authority’s Board did not provide adequate oversight of
 Inadequate Board   the Authority’s activities or safeguard Authority assets.
 oversight
                    The Board is responsible for overseeing Authority activities
                    and for establishing policies and procedures that govern the
                    Authority. In addition, the Board should ensure the
                    Executive Director follows established policies and
                    procedures.

                    The Board did not conduct monthly meetings as required by
                    Authority Bylaws. From October 1997 to August 1999, the
                    Board only held 12 of 26 required meetings. The other
                    meetings were either canceled or postponed, generally
                    because there was no business to discuss or because there
                    was not a quorum present to vote on issues. However,
                    during the period October 1994 through August 1998, Board
                    members did meet with Authority employees, contractors,
                    subcontractors, or the Town inspector for meals on 20
                    occasions. The Authority paid about $4,000 for these meals.

                    Also, as Secretary of the Board, the Executive Director was
                    to provide an account of the Secretary’s financial
                    transactions and the Authority’s financial condition at each
                    regular meeting. The minutes from the Board meetings did
                    not show this was done. Thus, the Board was not aware of
                    events occurring at the Authority and could not properly
                    oversee Authority operations.



                    The current Board Chairperson agreed with our assessment
 Authority          that the Authority was mismanaged. He advised that the
 comments           majority of the current Board Commissioners were not
                    present or serving on the Board during most of the audit
                    period. He stated the current Board is aware of conflict of
                    interest requirements, will ensure that no future conflict of
                    interest will occur, and will exercise adequate oversight of
                    all Authority operations. The Authority began depositing
                    cash receipts on a daily basis and improved time and
                    attendance procedures. Also, the Board will hold monthly
                    meetings and will require the Executive Director to advise
                    the Board of the Authority’s financial condition and present
                    all bills and checks to the Board for review.




00-AT-202-1005      Page 8
                                                                Finding 1


                  We commend the efforts to improve Authority management.
OIG response to   However, we remain concerned that current Authority
comments          management may not be able to timely resolve the
                  deficiencies cited in the finding. Our concerns are based on
                  the historical mismanagement of the Authority and the
                  relative inexperience in public housing programs by the
                  current Board members. Also, the current Executive
                  Director has not worked in public housing programs in
                  several years, during which time public housing rules have
                  changed significantly. The Executive Director may not
                  currently have sufficient expertise and is only serving
                  temporarily pending the hiring of a permanent Executive
                  Director.




Recommendations   We recommend you:

                  1A.      Declare the Authority in substantial default of the
                         ACC;

                  1B.    Require the Authority to deliver possession and
                         control of the projects to HUD;

                  1C.    Take appropriate administrative actions against the
                         former Board Chairperson; and,

                  1D.    Take appropriate administrative actions against the
                         former Executive Director.




                              Page 9                           00-AT-202-1005
Finding 1




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00-AT-202-1005            Page 10
                                                                                    Finding 2


    The Authority Made Improper Procurements
           Totaling About $1.6 Million
The Authority made improper procurements totaling about $1.6 million. This occurred because it
did not comply with procurement requirements to ensure free and open competition. Specifically,
the Authority did not solicit bids or proposals for repair work or the purchase of two vehicles.
Thus, it did not have proper assurance the procurements were reasonable or the most advantageous
to the Authority.


                                    Title 24 CFR, Part 85.36, provides procurement
 Criteria                           requirements for public housing authorities. It requires that
                                    all procurement transactions be conducted in a manner that
                                    provides full and open competition. The Authority’s
                                    procurement policy, dated August 7, 1995, provides
                                    requirements for soliciting and documenting bids and quotes.
                                    It requires the Authority to seek full and open competition in
                                    all procurement transactions.

                                    HUD Handbook 7460.8 REV-1, Procurement Handbook for
                                    Public Housing Agencies and Indian Housing Authorities,
                                    Chapter 2, provides that housing authorities should attempt
                                    to obtain full and open competition to ensure that goods and
                                    services are obtained at a reasonable price.

                                    We found the Authority did not properly procure repair
 Authority used                     services and materials for rehabilitation work.           We
 improper procurement               reviewed payments the Authority made between October
 procedures                         1994 and May 1998 for rehabilitation work. The Authority
                                    obtained quotes for the installation of vinyl siding and the
                                    exterior renovation of one building. However, it paid about
                                    $1.6 million for rehabilitation work under the CIAP and
                                    Section 23 conversion programs that it procured without
                                    bids or quotes. This included payments for general
                                    construction work, painting, electrical work, heating and air
                                    conditioning installation, cabinets, and other items. Contrary
                                    to the Authority’s procurement procedures, the Executive
                                    Director personally selected all of the contractors and failed
                                    to execute contracts for the services provided. As such, the
                                    Authority was unable to properly monitor the progress of
                                    work performed or ensure funds were properly expended.




                                               Page 11                            00-AT-202-1005
Finding 2

                 Of the $1.6 million, the Authority paid Turnage Construction
                 Company almost $1 million to perform general construction
                 work. The Authority did not solicit bids for the work and
                 did not have a written contract with the company. The
                 owner of the company was also the Authority’s maintenance
                 superintendent during this same period. This situation
                 presented a conflict of interest which was discussed further
                 in Finding 1.

                 We requested documentation from the company to support
                 payments from the Authority. However, while the company
                 paid the owner’s wife $20,000 over a 2-year period for
                 bookkeeping services, it did not maintain business
                 accounting records that identified receipts. In fact, the same
                 bank accounts were used for company and personal
                 purposes. Although we issued a subpoena, the owner did
                 not provide complete records. For example, pages of some
                 bank statements and checks were not provided. Thus, we
                 could not conclude as to whether all payments were proper.

                 The Authority also did not request bids for other work
                 totaling $600,634. Of this amount, the Authority paid
                 $55,996 for painting services, including $24,077 paid to
                 Authority employees. These payments were in addition to
                 the employees’ salaries. It also paid $29,856 to relatives of
                 the Executive Director for painting services.

                 The Executive Director said she had a hard time getting
                 contractors to bid on CIAP work because the Authority only
                 repaired one or two units at a time. Generally contractors
                 were not interested in small jobs. The Authority did not
                 have any documentation to support that it contacted any other
                 contractors regarding the rehabilitation work.

                 The State Office notified the Authority on July 27, 1999, that
                 all on-going work related to the CIAP program was to stop
                 and that all expenditures would be suspended effective July
                 29, 1999. The suspension was attributed to our ongoing
                 audit.




00-AT-202-1005   Page 12
                                                                       Finding 2

                        The Authority purchased two vehicles in February 1997 at a
Bids not obtained for   total cost of $39,875. It purchased a 1997 truck for $19,300
vehicle purchases       and a 1997 car for $20,575. The Authority did not obtain
                        bids or have an invoice to support the truck purchase. It did
                        obtain a written quote of $20,575 for the car. There was
                        also a note in the file indicating it obtained a quote for
                        $20,115 from another dealer; however, there was no other
                        support for the quote. The Authority did not accept the
                        lower quote because the vehicle could not be delivered for
                        about 4 to 6 weeks.


                        The Authority generally agreed with the deficiencies cited in
Authority               the finding. It also was unable to find documentation to
comments                support that bids were properly solicited. The Board
                        Chairperson stated the Authority will follow its written
                        procurement policy and will seek full and open competition
                        in all procurement transactions.


                        We agree the Authority must follow its procurement policy.
OIG response to         However, it must also ensure the policy is in accordance
comments                with HUD requirements and ensure that proper contracts are
                        executed. Further, it must ensure that proper contractor
                        oversight is provided and that payments are made only for
                        properly supported costs.




Recommendations         We recommend you:

                        2A.       Require the Authority to implement procurement
                               procedures that comply with regulations;

                        2B.    Require the Authority to provide proper contractor
                               oversight;

                        2C.    Require the Authority to implement procedures to
                               ensure payments are made only for properly
                               supported contractor costs; and,

                        2D.    Do not release any grant funds to the Authority until
                               you ascertain it has implemented              proper
                               procurement procedures.




                                   Page 13                           00-AT-202-1005
Finding 2




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00-AT-202-1005            Page 14
                                                                                   Finding 3


      The Authority was Deprived of $37,000 in
                   Rental Income
The Authority did not properly determine tenant rent amounts. As a result, it was deprived of
about $37,000 of rental income. Specifically, the Authority did not include appropriate household
income when determining rent. This occurred because the Authority did not have adequate
controls to verify tenant information and did not determine rent based on income and household
information it had available.


                                     United States Code Title 42, Section 1437a, Rental
 Criteria                            Payments, provides procedures for determining tenants’
                                     monthly rent. All family members living in a unit must be
                                     included on the lease. Generally, rent is the higher of 30
                                     percent of total family monthly adjusted income or 10
                                     percent of unadjusted monthly income.

                                     According to 24 CFR, Part 960, the Authority must have
                                     adequate procedures to obtain and verify tenant information.
                                     Also, the head of the household must certify that the
                                     information given to the Authority concerning household
                                     composition, income, net family assets, and allowances and
                                     deductions are accurate and complete to the best of their
                                     knowledge.

                                     We reviewed the Authority’s tenant certifications and rent
 Rents improperly                    calculations for seven households during periods between
 computed                            August 1996 and August 1999. The seven households
                                     included tenants who were either Authority officials or
                                     employees. In fact, one of the tenants was a former Board
                                     Chairperson. We found the Authority did not properly
                                     determine the rent in any of the seven cases.

                                     For two of the seven cases, employees lived in units but
                                     were not included on the leases. Thus, their incomes were
                                     not used in determining unit rents. The Authority’s
                                     personnel and payroll records showed the employees lived
                                     in the units. Therefore, the Authority knew they were not
                                     included on the leases and knew their incomes were not used
                                     in determining the unit rents.




                                               Page 15                            00-AT-202-1005
Finding 3

                 One of these cases involved the former Chairperson. Her
                 son, an Authority employee, lived in her unit during the
                 period April 1997 through August 1999 but was not included
                 on the lease. Thus, his income of $46,357 was not included
                 in the rent calculation. Also, the former Chairperson did not
                 report $23,346 of her income nor did she report $3,776 in
                 income from her daughter who also lived in the unit.
                 Further, the Authority improperly calculated the former
                 Chairperson’s rent. The Authority calculated the rent based
                 on net income of $874 from a questionable Verification of
                 Employment (VOE) rather than gross income of $1,617 from
                 a certified VOE. As a result of these actions, the Authority
                 was deprived of over $20,000 of unpaid rent by the former
                 Chairperson and her family members.

                 In four of the seven cases, the Authority either did not
                 include the employees’ income or did not include a portion
                 of the income when determining rent. This occurred even
                 though the employees were reported on the leases. In one of
                 these cases, the Authority excluded the entire income of
                 $13,368 for one tenant and did not include $4,725 of an
                 Authority employee’s income for the period August 1996
                 through March 1997. It calculated the rent based on $10,000
                 income even though it knew the employee’s income from the
                 Authority was $14,725. Once again, this employee was the
                 former Chairperson’s son. As a result of this case, the
                 Authority was deprived of $3,263 of rent income.

                 We found other examples of questionable activities
                 regarding employee rent calculations. Appendix A of this
                 report is a schedule of problems found with the seven cases.

                 The Executive Director hired Authority employees,
                 maintained personnel records, and prepared payroll. The
                 records showed the employees lived in Authority units.
                 Thus, she knew the employees lived in the units. Further, the
                 Executive Director was responsible for ensuring that tenants
                 properly certified their income and family composition and
                 that rents were properly determined and paid.




00-AT-202-1005   Page 16
                                                                       Finding 3

                       The State Office identified similar problems during a
North Carolina State   January 1997 management review. In February 1997, the
Office previously      State Office reported the Authority used the incorrect
reported rent          employee income when determining their rents. The
discrepancies          Authority determined the rents based on $10,000 income for
                       all employees regardless of their actual income. The report
                       also stated the Authority improperly used net income rather
                       than gross income when determining the former Board
                       Chairperson’s rent.

                       The State Office required the Authority to obtain certified
                       income verifications for all tenants and recalculate the rents
                       in accordance with 24 CFR, Part 913. The Authority was to
                       provide tenants with a 30-day notice of any changes to their
                       rent. The report also recommended the Authority recompute
                       the rents of the Board Chairperson and another tenant based
                       on their gross incomes.

                       In its March 24, 1997, response, the Authority stated it
                       corrected the deficiencies for the cases identified by the
                       State Office. However, the response did not indicate the
                       Authority took actions to prevent future occurrences.

                       In summary, the Authority did not properly calculate tenant
                       rents even though it had the necessary income and residency
                       data available. As a result, the Authority was deprived of
                       about $37,600 in rental income.


                       The Board Chairperson stated the Authority is committed to
Authority              proper determination and collection of tenant rents. He
comments               stated that all tenant rents will be re-computed and verified
                       on the anniversary date of the tenants’ lease. The Authority
                       requested that OIG pursue any and all actions against
                       persons who violated HUD regulations. If OIG does not
                       take action, the Board intends to provide a copy of the audit
                       report to the local District Attorney for review.




                                   Page 17                           00-AT-202-1005
Finding 3


                   We recognize the Board’s positive actions to re-compute
 OIG response to   tenant rents and verify information. The Authority must also
 comments          implement and enforce procedures to reasonably prevent
                   future occurrences. This includes taking swift and forceful
                   actions against persons who knowingly fail to report all
                   required information to the Authority regarding household
                   income and composition.



 Recommendations   We recommend that you require the Authority to:

                   3A.           Implement adequate procedures to ensure tenant
                             information is complete, accurate, and timely
                             reported to the Authority;

                   3B.       Implement and enforce procedures to ensure swift
                             and forceful actions are taken against persons who
                             knowingly fail to report all required information to
                             the Authority; and,

                   3C.       Collect underpaid rent amounts shown in Appendix
                             A.




00-AT-202-1005     Page 18
Follow Up On Prior Audits
This is the first OIG audit of the Benson Housing Authority. The Authority’s last independent audit
report covered the period ended September 30, 1997. The report did not contain any findings.
HUD’s North Carolina State Office, Public Housing Division, conducted a review of Authority
operations in January 1997. The report dated February 13, 1997, contained nine findings. Three
of the findings related to internal controls and tenant issues. The other six findings did not impact
our audit objectives. The State Office closed all the findings based on information submitted by
the Authority. Our report shows the Authority did not take adequate actions to resolve internal
controls or tenant issues.




                                                 Page 19                             00-AT-202-1005
Follow Up On Prior Audits




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00-AT-202-1005                 Page 20
                                                                                 Appendix A


Schedule Of Underpaid Rent
                                                                                    Underpaid
Household                        Deficiencies Identified                              Rent

    A       An Authority employee lived in the unit, but was not reported on
            the lease. Thus, the Authority did not use income of $46,357 to
            compute the rent. Another tenant in the household did not report
            $27,122 of income. Also, the Authority incorrectly used a tenant’s
            monthly net income of $874 instead of gross income of $1,617 to
            compute the rent.                                                          $20,152

    B       An Authority employee lived in the unit but was not on the lease.
            Thus, the Authority did not use income of $28,380 to compute the
            rent.                                                                        5,658

    C       An Authority employee’s income of $15,372 was not used to
            compute rent. The tenant also did not report $2,545 of other
            income to the Authority.                                                     4,177

    D       The Authority did not include $4,725 of an employee’s income
            when it calculated the rent. Also, Authority income of $6,531
            reported on Internal Revenue Service Form-1099 was not used.
            Further, the Authority did not use reported income of $13,368 for
            another household member.                                                    3,263

    E       The Authority did not include $6,684 of an employee’s income
            when it calculated the rent.                                                 1,992

     F      The Authority did not use reported tenant income of $3,689 when it
            calculated the rent.                                                         1,195

    G       The Authority did not include $5,424 of an employee’s income
            when it calculated the rent.                                                   597

            Total Underpaid Rent                                                       $37,034




                                           Page 21                               00-AT-202-1005
Schedule Of Underpaid Rent




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00-AT-202-1005                 Page 22
                             Appendix B


Auditee Comments




                   Page 23   00-AT-202-1005
Auditee Comments




00-AT-202-1005     Page 24
          Auditee Comments




Page 25           00-AT-202-1005
Auditee Comments




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00-AT-202-1005              Page 26
                                                                                Appendix C


Distribution
Executive Director, Benson Housing Authority, Benson, North Carolina
Chairman, Board of Commissioners, Benson Housing Authority, Benson, North Carolina
Deputy Secretary, SD (Room 10100)
Chief of Staff, S (Room 10000)
Special Assistant to the Deputy Secretary for Project Management, SD (Room 10100)
Acting Assistant Secretary for Administration, S (Room 10110)
Assistant Secretary for Congressional and Intergovernmental Relations, J (Room 10120)
Senior Advisor to the Secretary, Office of Public Affairs, S, (Room 10132)
Deputy Assistant Secretary of Administrative Services/Director of Executive Secretariat, AX
    (Room 10139)
Director of Scheduling and Advance, AL (Room 10158)
Counselor to the Secretary, S (Room 10234)
Deputy Chief of Staff, S (Room 10226)
Deputy Chief of Staff for Operations, S (Room 10226)
Deputy Chief of Staff for Programs and Policy, S (Room 10226)
Director, Office of Special Actions, AK (Room 10226)
Deputy Assistant Secretary for Public Affairs, W (Room 10222)
Special Assistant for Inter-Faith Community Outreach, S (Room 10222)
Executive Officer for Administrative Operations and Management, S (Room 10220)
Senior Advisor to the Secretary for Pine Ridge Project, W, (Room 10216)
General Counsel, C (Room 10214)
Director, Office of Federal Housing Enterprise Oversight, O (9th Floor Mailroom)
Assistant Secretary for Housing/Federal Housing Commissioner, H (Room 9100)
Office of Policy Development and Research, R (Room 8100)
Inspector General, G (Room 8256)
Assistant Secretary for Community Planning and Development, D (Room 7100)
Assistant Deputy Secretary for Field Policy and Management, SDF (Room 7108)
Government National Mortgage Association, T (Room 6100)
Assistant Secretary for Fair Housing and Equal Opportunity, E (Room 5100)
Chief Procurement Officer, N (Room 5184)
Assistant Secretary for Public and Indian Housing, P (Room 4100)
Chief Information Officer, Q (Room 3152)
Director, Office of Departmental Equal Employment Opportunity, U (Room 5128)
Director, Office of Departmental Operations and Coordination, I (Room 2124)
Chief Financial Officer, F (Room 2202)
Director, HUD Enforcement Center, V, 451 Portals Bldg, Suite 200, Washington, DC 20140
Director, Real Estate Assessment Center, X, 1280 Maryland Avenue, SW, Suite 800
Director, Office of Multifamily Assistance Restructuring, Y, 4000 Portals Building
Deputy Chief Financial Officer for Finance, FF (Room 2202) (2)
Director, Office of Budget, FO (Room 3270)




                                              Page 27                            00-AT-202-1005
Distribution


State Coordinator, North Carolina State Office, 4FS
Director , Office of Public Housing, 4FPH
Secretary's Representative, 4AS
Audit Liaison Officer, 3AFI
Audit Liaison Officer, Office of Public and Indian Housing, PF (Room P8202)
Departmental Audit Liaison Officer, FM (Room 2206)
Acquisitions Librarian, Library, AS (Room 8141)
Counsel to the IG, GC (Room 8260)
HUD OIG Webmanager-Electronic Format Via Notes Mail (Cliff Jones@hud.gov)
Public Affairs Officer, G (Room 8256)
Director, Housing and Community Development Issue Area, U.S. GAO, 441 G Street N.W.,
  Room 2474, Washington DC 20548 ATTN: Judy England-Joseph
The Honorable Fred Thompson, Chairman, Committee on Governmental Affairs,
  United States Senate, Washington DC 20510-6250
The Honorable Joseph Lieberman, Ranking Member, Committee on Governmental Affairs,
  United States Senate, Washington DC 20510-6250
The Honorable Dan Burton, Chairman, Committee on Government Reform,
  United States House of Representatives, Washington DC 20515-6143
The Honorable Henry A. Waxman, Ranking Member, Committee on Government Reform,
  United States House of Representatives, Washington, DC 20515-4305
Ms. Cindy Fogleman, Subcommittee on Oversight and Investigations, Room 212,
  O'Neil House Office Building, Washington, DC 20515-6143
Steve Redburn, Chief, Housing Branch, Office of Management and Budget, 725 17th Street, NW,
  Room 9226, New Executive Office Bldg., Washington, DC 20503
Sharon Pinkerton, Deputy Staff Director, Counsel, Subcommittee on Criminal Justice, Drug
  Policy and Human Resources, B373 Rayburn House Office Bldg., Washington, DC 20515




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