oversight

Review of Housing Activities and Related Management Controls, Chippewa Cree Housing Authority, Rocky Boy Reservation

Published by the Department of Housing and Urban Development, Office of Inspector General on 2000-09-21.

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

                                  Audit Report
                                  District Inspector General for Audit
                                  Rocky Mountain District




          Chippewa Cree Housing
                Authority
        Rocky Boy Reservation, Montana

    Review of Housing Activities
     and Related Management
             Controls

                               00-DE-207-1004
                              September 21, 2000

Department of Housing and Urban Development
District Office of Inspector general For Audit
633 17th Street
14th Floor
Denver, CO 80202-3607
                                         Audit Report
                                         District Inspector General for Audit
                                         Rocky Mountain District
                                         Report: 00-DE-207-1004 Issued: September 21, 2000




TO: Michael Boyd, Acting Administrator, Northern Plains Office of Native American Programs, 8API




FROM: Robert C. Gwin, District Inspector General for Audit, 8AGA

SUBJECT: Review of Housing Activities and Related Management Controls
         Chippewa Cree Housing Authority
         Rocky Boy Reservation

We have completed a review of the Chippewa Cree Housing Authority’s (Authority) administration of its
HUD funded housing programs. We performed the review based upon your staff’s concerns and related
audit request. The objectives of the audit were to evaluate the:

•   Housing Authority’s expenditure of funds for two log homes and management’s involvement in
    developing these log homes;

•   Management controls related to the operations of the Housing Authority and identify any deficiencies
    or potential problem areas in the controls; and

•   Determine if there were questionable, unsupported, or inappropriate transactions.

Subsequent to the completion of our field work, the HUD Northern Plains Office of Native American
Programs conducted a monitoring review of selected activities of the Authority and issued their February
20, 2000 Final Monitoring Review Report and High Risk Designation for the Indian Housing Block Grant.

Our review identified basically the same conditions that was identified and presented in HUD’s report.
The Authority’s management control structure over its various housing operations is deficient and needs to
be established and/or strengthened. Our audit report augments HUD’s review report.
                                             00-DE-207-1004



Within 60 days please furnish to this office, for each recommendation contained in the finding in this
report, a status report on: (1) the corrective action, (2) the proposed corrective action and the corrective
date to be completed, or (3) why action is considered unnecessary. Also, please furnish us copies of any
correspondence or directives issued because of the audit.

We appreciate the courtesies and assistance extended by the management and staff of the Chippewa
Cree Housing Authority, its fee accountants, RAM Enterprises, and the HUD Northern Plains Office of
Native American Programs.

Should you have any questions, please contact me, at (303) 672-5452.




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Executive Summary
We have completed a review of the Chippewa Cree Housing Authority’s administration of its HUD
housing programs. We performed the review based upon your staff’s concerns and related audit request.

Our review identified basically the same conditions that have been presented in reports issued by both
HUD and the Authority’s independent public accountant reports. We identified that the Authority’s
management control structure over its various housing operations are deficient and need to be established
and/or strengthened. One main management area related to the use of HUD program monies to fund a
non-HUD housing program. In addition, we identified deficient management controls over travel,
occupancy and leasing, and cash receipts. Without proper management controls, the Authority has limited
assurances that its housing program is being conducted in conformity with Authority’s and/or HUD’s
requirements.

Various policies and procedures have been established purportedly by the Authority’s Board of
Commissioners. The management procedures implemented by the Authority has been insufficient to
ensure that the requirements and provisions specified by the Board are being fully implemented by the
Authority staff. Also, the management controls have been deficient to provide the Authority with
reasonable assurances that its HUD program monies have been used for eligible and supported program
activities and related costs.

During our review period, the Authority changed policies and procedures based upon discussions by the
Board of Commissioners even though formal policy changes were not officially adopted by the Board.
The impact is that such policies and procedures being followed by the Authority staff may not be in full
harmony with the directives of the Board. Also, without formally adopted policies and procedures, the
Authority staff is handicapped in fully identifying and implementing the Board’s authorized directives, that
can be subject to misinterpretation and inconsistencies.

We are recommending that the Authority Board take action to ensure that all its intended policies and
procedures have been properly adopted and that such actions are fully communicated to the Authority
staff. In addition, the Authority needs to establish and implement adequate administrative and
management controls and procedures to fully implement the directives of the Board. This would include
the proper separation of duties among the Authority staff to segregate the functions of handling Authority
assets from the functions of recording Authority transactions on the Authority’s accounting records. At
the time of our review, all key functions of handling cash receipts were vested in the same Authority
employee. This same employee also controlled the main functions of verifying tenant income, establishing
tenant monthly charges, recording and maintaining tenant records and collecting delinquent amounts.


                                 HUD’s Annual Contributions Contracts with the Authority required the
   Authority must comply
                                 Authority to carry out its HUD-funded housing programs in an economic
   with HUD requirements
                                 and efficient manner, only fund HUD authorized activities, and comply
                                 with the various requirements specified by HUD. Title 24 of the Code of
                                 Federal Regulations, Part 85, requires the Authority to maintain adequate
                                 accounting records, have effective control and accountability, and have



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                                      00-DE-207-1004

                           proper supporting documentation for its housing activities and related
                           costs.

                           During the audit period, the HUD funding for Authority housing programs
                           was changed to funding under the Indian Housing Block Grant program
                           as authorized by the Native American Housing Assistance and Self
                           Determination Act. Under this program the Authority is to adopt and
                           follow various policies and procedures governing the administration of its
                           HUD funded housing program. The Authority certifies to HUD that such
                           policies and procedures have been adopted and they are being followed
                           by the Authority. Also, certain provisions of Title 24, Section 85.20 of the
                           Code of Federal Regulations apply.

                           The objectives of the audit were to evaluate the:
Audit objectives
                           •   Housing Authority’s expenditure of funds for two log homes and
                               management’s involvement in developing these log homes;

                           •   Management controls related to the operations of the Housing
                               Authority and identify any deficiencies or potential problem areas in
                               the controls; and

                           •   Determine if there were questionable, unsupported, or inappropriate
                               transactions.

HUD monies used to         Contrary to the provisions of the Annual Contributions Contracts, the
fund $126,679 of           Authority used HUD program funds totaling $126,679 to finance their
Authority’s non-HUD        separate non-HUD funded housing acquisition program. The Authority’s
housing acquisition        acquisition program was designed to help persons acquire homes. The
program                    monies were used in an attempt to acquire two log homes intended for
                           the former Authority Board Chairman and his brother. In addition, the
                           Authority has incurred legal costs totaling at $24,014 in resolving a
                           contract dispute related to one of the log homes.

                           We found during the audit period, the Authority failed to implement and
Authority lacked proper
                           exercise adequate controls over its travel related activities and
accountability and
                           expenditures. As a result, excessive, unsupported and/or questionable
controls over its travel
                           costs were charged to the HUD-funded housing programs. Any intended
                           controls were negated or minimized. More specifically, the Authority
                           lacked adequate support for its travel related expenditures, incurred
                           excessive and/or questionable travel costs, and lacked a system to
                           properly account for and monitor travel advances and claims.

                           The Authority lacked adequate support for its travel related expenses.
                           Travelers were advanced/reimbursed funds without the submission of
                           appropriate travel documentation. Travelers were not required to submit
                           receipts to support costs claimed or paid. However, when travel



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                         documentation was submitted, it was often either 1) modified; 2) belonged
                         to other travelers; 3) dated outside the travel time to support costs
                         claimed; and/or 4) vague and/or inadequate as to the need and purpose of
                         the travel. As a result, the Authority is unable to identify what actual
                         travel was incurred; whether claimed costs were valid; whether or not
                         travelers were correctly compensated; or whether travelers had been
                         over advanced and owed a refund to the Authority.

                         The Authority has not been adequately implementing its occupancy and
Deficient occupancy      leasing policies and procedures. More specifically, the Authority was not
and leasing procedures   performing certifications in a timely manner, and was not properly
                         verifying tenant income information. Therefore, the Authority was not
                         able to ensure that its tenants were being assessed the correct monthly
                         rental charges. In addition the Authority was deficient in its overall
                         leasing activities. The Authority allowed new move-ins to reside in their
                         units for up to two months free of rent. Also the Authority was not
                         properly filling out many of its housing leasing documents, and was not
                         charging all of its tenants rent.

                         The Authority did not have an effective collection procedure. As of the
                         September 30, 1995, the amount due from its tenants totaled $526,446.
                         However, this amount had increased by twenty-four percent through
                         September 30, 1998 when the accounts receivable totaled $695,017. This
                         total does not take into consideration the $50,728 in costs chargeable to
                         tenants for tenant caused damages that were not recorded on the
                         Authority’s books of accounts as a receivable from the applicable
                         tenants.

                         The Authority has failed to maintain preventive controls over its cash
Better controls are      receipts. The Authority’s implemented cash collection system primarily
needed over cash         vested all the functions of handling Authority monies and the function of
receipts                 recording cash collection transactions on the Authority’s books of
                         account with the same Authority staff member. Normally, a proper
                         system of internal control over cash would separate these two functions.

                         Also, the Authority was not depositing its monies timely and intact. More
                         specifically, Authority collections were held for up to 79 days before
                         being deposited. Cash receipt tickets were not always issued in
                         numerical sequence. As a result, the Authority has limited assurance that
                         its cash collections have been properly deposited into the Authority’s
                         bank accounts and correctly recorded on its books of account.

                         The functions of receiving and handling cash receipts as well as recording
                         and controlling related accounting transactions being performed or
                         controlled primarily by the same Authority employee becomes more
                         significant since this employee is also responsible for maintaining the key
                         functions relating to the occupancy and leasing of Authority’s housing
                         units, as well as collecting delinquent tenant accounts.


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                      Overall, the Authority needs to establish adequate procedures for
Overall, effective    carrying out the directives of the Authority Board and ensuring the
management controls   compliance with HUD housing program requirements. Such procedures
are needed            would relate to the operating areas of the Authority and include the
                      established funded housing programs of housing construction, travel,
                      occupancy and leasing, and cash. Also, the procedures should be divided
                      amount the Authority staff so that the functions of handling an Authority
                      asset are separate from the functions of recording the transactions
                      relating to the asset.

                      The results of the audit were discussed with officials of the Authority
Auditee Comments      during the course of the audit. The draft audit report was submitted to
                      the Authority on July 27, 2000 for their review and comments. The
                      Authority’s written comments dated August 21, 2000 were received by
                      us on September 22, 2000. We have incorporated the Authority’s
                      comments into the report as applicable and the complete written response
                      in included in Appendix 2.

                      The Authority’s written response pointed out that the Authority staff and
                      Board of Commissioners have spent a great deal of the past four years
                      reviewing, modifying and correcting the Authority’s operations. The
                      latest HUD Monitoring Report did not list any findings but only concerns.
                      Corrective action has been taken to implement the recommendations and
                      to alleviate any further concerns. In addition, the Authority points out that
                      the 1998 independent audit report issued an unqualified opinion for the
                      financial statements and only had one concern dealing a problem in the
                      occupancy area.

                      For each of four major problems areas discussed in the audit finding, the
                      Authority provided a history, related position and resolution action to be
                      taken. Basically, the Authority has initiated steps to correction the
                      conditions cited in the finding and will continue to do so to address our
                      areas of concern. The present goal of the Authority administration and
                      staff is to close the high-risk determination by correcting all outstanding
                      findings/concerns and to finally receive a clean audit.

                      We had incorporated the Authority comments to each of the four key
                      problem areas in the finding. We have also provided any clarifying
                      explanation as necessary.




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Table of Contents
Management Memorandum......................................................................... i

Executive Summary...................................................................................iii

Table of Contents ....................................................................................vii

Abbreviations ........................................................................................ viii

Introduction.............................................................................................. 1

Finding and Recommendations

        1. Deficient Authority Management Controls Over Its
           Housing Operations .................................................................... 5

Management Controls ..............................................................................29

Follow-up on Prior Audits........................................................................31

Appendices

        1. Schedule of Questioned Costs ...................................................33
        2. Auditee Comments ....................................................................35
        3. Distribution ...............................................................................41




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Abbreviations:

HUD              Department of Housing and Urban Development
NAHASDA          Native American Housing Assistance and Self Determination Act




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Introduction
The Chippewa Cree Housing Authority (Authority) was established by the Chippewa Cree Tribal
Business Committee on April 4, 1963. The Authority was created to provide for safe and sanitary
dwelling accommodations for the residents of the Rocky Boy Indian Reservation. The Authority is
governed by a five member Board of Commissioners, appointed by the Chippewa Cree Tribal Council.
The Board has the overall responsibility for the operation and direction of the Authority’s activities. This
includes the formulation of various policies and procedures to be followed in carrying out the Authority’s
housing activities. The Board has established the position of the Executive Director to implement the
Board’s policies and procedures and to direct the overall day to day operation of the Authority.

Through September 30, 1997, the Authority received funding from HUD under three Annual Contributions
Contracts for the development and administration of its Low Rent Housing Program and the two Mutual
Self Help Housing Programs. Under these contracts HUD has provided $33,661,235 to develop 531 units
of housing. The Authority received about $22 million of the $33 million during the forty-four months of our
audit period. In addition, the Authority received $5,031,493 in Comprehensive Improvement and
Assistance Program and Comprehensive Grant funds to modernize a portion of these 531 housing units.

Effective October 1, 1997, the Authority no longer received funding under the HUD Annual Contributions
Contracts but began receiving HUD funding under the Native American Housing Assistance and Self-
Determination Act of 1996 (NAHASDA). Under the provisions of the Act, the Authority was designated
by the Chippewa Cree Tribe as the Tribal Designated Housing Entity to receive and implement housing
grants to provide housing assistance under the Act. The total NAHASDA funding provided to the
Authority for fiscal years 1998 and 1999 was about $4.5 million.

The accounting records of the Authority are maintained by RAM Enterprises of Aberdeen, South Dakota.
The Authority’s administrative office is located on the Rocky Boy Reservation, Montana.

PRIOR ADMINISTRATIVE REVIEWS OF THE AUTHORITY

During fiscal year 1996, the HUD Northern Plains Office of Native American Programs became aware
that the Authority was experiencing financial and administrative difficulties. The Authority was cited by
HUD as having extremely high Tenant Accounts Receivable balances, Line of Credit Control System
draw downs for Comprehensive Grant and Development expenditures that did not have appropriate source
documentation, a minimum amount of cash on hand for a period of time, no investments, improper use of
HUD development funds, and issues with the Authority’s management of the tenant waiting list
procedures. At one point, the Authority’s fee accountant, contacted HUD stating that the Authority had a
negative cash position and asked that subsidy payments for May, 1996 be advanced to cover the cash
shortfall.

The Authority’s financial difficulties during fiscal year 1996 were not only due to their fiscal
mismanagement, but due to the expending of funds for a log home kit and foundation work. These
expenditures, along with other financial obligations, lead the Authority to obtain five lines of credit with two
financial institutions with a combined maximum loan amount of $675,100. These lines of credit were



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established between July, 1995 and September, 1996. The Authority pledged current and future HUD
program funds for four of the five lines of credit. According to Board meeting minutes, part of the lines of
credit were used to cover Comprehensive Grant Program payroll, as well as expenditures related to the
log home kit and foundation work. These issues and/or difficulties eventually led to the issuance of a
HUD’s Corrective Action Order and High Risk Determination on December 19, 1996.

The December 19, 1996 Corrective Action Order declared the Authority High Risk under Title 24, Code
of Federal Regulations, Part 85. The Corrective Action Order identified the existence of regulatory
deficiencies relating to Title 24 Code of Federal Regulations Part 950.135 and Part 85.20. The Corrective
Action Order stated the Authority:

        1) Lacked administrative capability in the area of general financial management, management
           systems and housing development;
        2) Was in non-compliance in the financial administration of grants;
        3) Had not selected housing applicants in accordance with their waiting lists; and
        4) Had other management deficiencies that were supported by audits, on-site reviews or other
           reliable information.

The Corrective Action Order also noted that the Housing Authority did not:

        1)   Hold Board meetings in compliance with its By-laws;
        2)   Have properly trained and competent personnel at key management positions;
        3)   Maintain a stable financial position;
        4)   Maintain an appropriate financial management systems;
        5)   Convert initial development grant for Low Rent Project; and
        6)   Select participants in accordance with the Mutual Help or Low Rent Housing Program
             waiting lists.

In addition, HUD identified five specific management deficiencies at the Authority in the following areas:
1) user fees; 2) budget overruns; 3) tenant accounts receivable; 4) other sources of income; and 5) audit
findings.

During the week of August 30, 1999, staff of the Northern Plains Office of Native American Programs
conducted an on-site monitoring review of the Authority’s Indian Housing Block Grant program funded
under the NAHASDA. Their draft report was submitted to the Authority for comment on November 16,
1999. After receiving the Authority’s comments, the Northern Plains Office of Native American
Programs issued on February 22, 2000 to the Chippewa Cree Tribe their Final Monitoring Review Report
and High Risk Designation for Indian Housing Block Grant on the Authority.

The High Risk designation was for the Authority’s 1998 and 1999 Indian Housing Block Grants and was
based on the Authority’s independent public accountant’s disclaimer of opinion audit report for the 1996
fiscal year. The disclaimer related to the Authority’s financial statements and compliance with general
requirements. The Authority was apprised the High Risk determination would continue until the 1998
independent audit report was received and the auditor issued a unqualified opinion and there were no
significant findings regarding financial management. The audit results would be reviewed by HUD and a
determination made as to whether the High Risk determination would impact the 2000 fiscal year Indian
Housing Block Grant program.



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                                             00-DE-207-1004

HUD notified the Authority on March 21, 2000 that their Indian Housing Plan submitted for their Indian
Housing Block Grant Program was acceptable. In addition, the letter also continued the High Risk
Determination for the Authority.

Subsequent to the issuance of HUD’s Final Monitoring Review Report and High Risk Designation for
Indian Housing Block Grant, the Authority’s independent public accountant issued their report for the 1998
fiscal year. This report. dated May 27, 1999, contained an unqualified opinion. However, the audit report
identified the following findings:

      •   Material weakness identified in the internal control over financial reporting;

      •   Reportable conditions were identified that were not considered to be material weaknesses in the
          internal control over financial reporting; and

      •   Material weakness were identified in the internal control over major programs.

Findings presented in the audit report related to payroll records, tenant and homebuyer receivables, fixed
assets, year 2000 compatible readiness issues, tenant and homebuyer receipts, and tenant and homebuyer
files.

Correspondence in connection with these reports between the Authority and HUD indicate that
improvements are being pursued in the Authority’s internal controls over its housing operations.

OFFICE OF AUDIT REVIEW RESULTS

Our review identified basically the same conditions that have been presented by reports of both HUD and
the Authority’s independent public accountant. We identified that the Authority’s management control
structure over its various housing operations are deficient and need to be established and/or strengthened.


                                 The objectives of the audit were to evaluate the:
 Audit Objectives and
 Methodology
                                 •    Housing Authority’s expenditure of funds for two log homes and
                                      management’s involvement in developing these log homes;

                                 •    Management controls related to the operations of the Housing
                                      Authority and identify any deficiencies or potential problem areas in
                                      the controls; and

                                 •    Determine if there were questionable, unsupported, or inappropriate
                                      transactions.

                                 Our audit approach was to identify and evaluate the management controls
                                 in place over the key areas of operations of the Authority with the
                                 established policies and procedures adopted by the Authority’s Board of
                                 Commissioners. During the review, we examined accounting records and
                                 other documents of the Authority, the Authority’s fee accountant and



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                                 00-DE-207-1004

                      HUD’s Northern Plains Office of Native American Programs. We also
                      conducted interviews with employees of these organizations.

                      Our audit generally covered the period of January 1, 1995 through
Scope
                      September 30, 1998 and was expanded, as necessary, to fully accomplish
                      our audit objectives. We conducted our review from January 1998
                      through October 1999. The performance of our review was interrupted
                      by the uncontrolled changes of assigned audit staff.

                      Our review was performed in accordance with generally accepted
Generally Accepted    government auditing standards taking into consideration the limitation
Government Auditing   specified in the scope paragraph above.
Standards




                                          4
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Finding
Deficient Authority Management Controls Over Its Housing
Operations
Our review of select sections of the Authority’s housing operations identified areas whereby the Authority
was not effectively and efficiently administering its housing program and in conformity with HUD
requirements. Primarily, the Authority had authorized and used HUD funded monies, totaling $126,679, to
fund its own separate non-HUD housing program. In addition, the Authority had not formulated and
implemented proper management controls over its travel, occupancy and leasing, and cash receipts.

Authority travel has been permitted whereby unallowable, undocumented, excessive and improper
documented costs were incurred. Our review of three out-of-town trips taken by Authority Board
members and/or employees disclosed improprieties in the support and reimbursements for the travel. As a
result, the total cost of the three trips of $27,139 is questionable as being valid Authority travel costs.

The Authority has not been adequately implementing its occupancy and leasing policies and procedures.
Primarily the Authority has not performed its tenants’ certifications in a timely manner, and was not
properly verifying tenant income information. In addition the Authority was deficient in its overall leasing
activities. The Authority allowed new move-ins to reside in their units for up to two months free of rent,
leasing documents were improperly filled out, and not all of its tenants were being charged rent.

Cash receipt control procedures have been deficient since all monies have not been deposited timely and
intact. Cash receipt tickets have been issued out of sequence while all receipt tickets have not been
accounted for. In addition, all the functions dealing with the handling and recording of cash receipts have
been vested in or controlled by the same Authority employee. This same employee also administers the
main functions of establishing and calculating tenant charges as well as maintaining and recording the
official Authority tenant files and records.

These deficiencies stem from the failure of the Authority to formulate adequate management control
procedures to ensure that the policies and procedures as adopted and directed by the Board are correctly
implemented and followed by the Authority staff.


                                 HUD’s Annual Contributions Contract with the Authority required the
   Authority must comply
                                 Authority to carry out its HUD-funded housing programs in an economic
   with HUD requirements
                                 and efficient manner, only fund HUD authorized activities, and comply
                                 with the various requirements specified by HUD. Title 24 of the Code of
                                 Federal Regulations, Part 85, requires the Authority to maintain adequate
                                 accounting records, have effective control and accountability, and have
                                 proper supporting documentation for its housing activities and related
                                 costs.




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                                      00-DE-207-1004

                           In addition the Authority is to establish various policies and procedures
                           governing the various aspects of its housing operation. These policies and
                           procedures are established by the Authority Board of Commissioners and
                           form the framework for the Authority staff to administer its housing
                           programs.

                           Our review identified that the Authority has not established adequate
Adequate management        management controls over its various housing operations and activities.
controls have not been     While policies and procedures have been followed, these have not been
established and followed   sufficient to ensure the Authority that its HUD funded housing program
                           and activities are being conducted in accordance with the established
                           HUD and Authority requirements.

                           The Authority used HUD program monies to fund its non-HUD housing
                           program. In addition, the Authority lacked adequate controls over its
                           travel, tenant leasing and occupancy, cash receipts, and maintenance.
                           These items are discussed in the following four sections:

                           1. HUD Funds Totaling $126,679 Used to Finance Non-HUD
                              Housing Activities

HUD monies used to         Contrary to the provisions of the Annual Contributions Contract, the
fund $126,679 of           Authority used HUD program funds totaling $126,679 to finance their
Authority’s non-HUD        separate non-HUD housing acquisition program. The Authority’s
housing acquisition        acquisition program was designed to help persons acquire homes. The
program                    monies were used in an attempt to acquire two log homes and for legal
                           fees in resolving a contract dispute related to one of the log homes. The
                           log homes were to be acquired for the former Authority Board Chairman
                           and his brother.

                           The Authority in November, 1995 inquired of HUD if HUD housing
HUD apprised               development funds could be used to fund their acquisition program. The
Authority not to use       intent was to sell the homes upon completion and then to use the
HUD monies for non-        proceeds to fund other similar housing units. HUD notified the Authority
HUD activities             in February, 1996 that HUD program monies could not be used to fund
                           the Authority’s new acquisition program.

                           Because the Authority was incurring financial difficulty, the Authority
                           established five lines of credit with two financial institutions with a
                           combined maximum loan amount of $675,100. These lines of credit were
                           established between July, 1995 and September, 1996. According to the
                           current Authority Executive Director, the lines of credit were to be used
                           to fund the new acquisition program and pending HUD grant awards.
                           The Authority pledged current and future HUD program funds for four of
                           the lines of credit.




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                              The Authority drew down and used $200,236 of the lines of credit to fund
Ineligible loan interest of   the acquisition of the Chairman’s log home, the foundation for a log home
$7,680 paid on financial      for the Chairman’s brother, and other Authority expenditures. The loans
institution lines of credit   were repaid with HUD program monies. Because of the loans, the
                              Authority paid $7,680 in interest expense. The $7,680 is an ineligible
                              HUD program expense under the provisions of the Annual Contributions
                              Contract and related regulations in Section 85.20(b)(5) of Title 24 of the
                              Code of Federal Regulations and the Office of Management and Budget
                              Circular A-87.

                              On December 30, 1995, the former Board Chairman entered into an
Ineligible acquisition of
                              agreement with the log home company for the acquisition and
log home for $91,508
                              construction of a log home to be built on the former Chairman’s existing
                              foundation. The Agreement specified a purchase price of $89,070. Even
                              though the Authority was not a party to the agreement, the Authority
                              began making periodic payments in February, 1996 on the log home.
                              Four periodic payments totaling $91,508 combined were made by the
                              Authority in 1996. The basis for the additional payment of $2,438 for the
                              log home could not be determined. The total payment of $91,508 is an
                              ineligible HUD program cost since the acquisition was part of the
                              Authority’s own acquisition program and not part of any HUD funded
                              housing program.

                              In June, 1996, a contract dispute began between the log home company
                              and the Authority over the log home. While the Authority continued to
                              make periodic payments, the log home company did not deliver and
                              construct the home. Due to the dispute, the Authority had incurred legal
                              costs of $24,014 as of January, 1999 in trying the resolve the situation.

                              On December 24, 1997, the Authority purchased all rights and title to the
                              log home from the former Board Chairman for one dollar. The former
                              Chairman also agreed to pay the Authority the difference, if any, between
                              the amount the Authority paid for the log home and the amount they
                              received from the sale of the log home since the log home company had
                              purportedly sold the home to another party.

                              The Authority’s attorney apprised HUD in August, 1999, a settlement
                              had been reached with the company whereby the company would repay
                              the Authority $60,000, about $31,500 less than had been paid. However,
                              the company has filed for Chapter 13 Bankruptcy Reorganization and
                              listed the debt to the Authority as part of the reorganization. The
                              Authority’s attorney believes the company will have two years to pay the
                              debt and the Authority will receive the $60,000.

                              The second log home was contracted by the former Chairman’s brother
Ineligible $27,491 paid
                              from the same log home company. However, there was not a foundation
for second log home
                              to place the home. The Authority authorized payments totaling $27,491
foundation
                              for the construction of the foundation.


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                             The use of HUD monies to finance the construction of the foundation for
                             the second property is an ineligible HUD program cost. In May, 1998,
                             the former Chairman’s brother entered into an agreement with the
                             Authority to repay the $27,491 in monthly installments of $50. At the
                             repayment rate of $50 a month, the $27,491 will take 45 years to repay.
                             Also, the Authority has not charged any interest on the $27,491.

                             In total, the Authority has used HUD monies of $126,679 to finance its
                             separate housing acquisition program. These consist of:

                                  Interest on line of credit loans                 $ 7,680
                                  Log home for former Board Chairman               $ 91,508
                                  Foundation for second log home                   $ 27,491
                                      Total ineligible cost                        $126,679

                             This situation occurred because the former Authority Board and
Recovery and proper
                             Executive Director failed to administer the HUD programs under their
use of ineligible costs of
                             control in accordance with HUD requirements but instead used HUD
$126,679 needed
                             monies to finance their separate non-HUD funded housing acquisition
                             program. This was done even though HUD apprised the Authority
                             against the use of HUD monies to finance its separate housing acquisition
                             program. Because of the unauthorized used of HUD program funds,
                             HUD issued administrative sanctions against the former Authority Board
                             members and Executive Director.

                             Since the Authority improperly used HUD program monies for its non-
                             HUD housing activities contrary to specific HUD instructions, the
                             Authority needs to repay the $126,679 from non-Federal funds and use
                             the monies for eligible HUD housing program activities.

                             The Authority in its written comments to the draft audit report (see
Authority Comments
                             Appendix 2) provided detailed information and explanation on their non-
                             HUD housing program and how their program was unsuccessful. The
                             Authority stated that they would follow the recommendations set forth by
                             HUD.

                             2. Inadequate Management Control Over Authority Travel and
                                Related Costs

                             Under the provisions specified in Part 85, Title 24 of the Code of Federal
Travel costs are to be
                             Regulations, the Authority is to have:
properly controlled,
supported and allowable
                             •   Accurate, current and complete disclosure of program financial
                                 activities;

                             •   Accounting records, as specified by HUD, to adequately identify the
                                 source and application of HUD program monies;



                                                 8
                                       00-DE-207-1004

                            •   Effective internal control and accountability of all program cash and
                                other assets that must be safeguarded to ensure that they are used
                                solely for authorized program purposes; and

                            •   Procedures to ensure only HUD allowable costs are charged to the
                                HUD housing programs and are properly supported.

                            We found during the audit period, the Authority failed to implement and
 Authority lacked proper
                            exercise adequate controls over its travel related activities and
 accountability and
                            expenditures. As a result, excessive, unsupported and/or questionable
 controls over its travel
                            costs were charged to the HUD-funded housing programs. Any intended
                            controls were negated or minimized. More specifically, the Authority
                            lacked adequate support for its travel related expenditures, incurred
                            excessive and/or questionable travel costs, and lacked a system to
                            properly account for and monitor travel advances and claims.

                            The Authority lacked adequate support for its travel related expenses.
                            Travelers were advanced/reimbursed funds without the submission of
                            appropriate travel documentation. Travelers were not required to submit
                            receipts to support costs claimed or paid. More specifically, when travel
                            documentation was submitted, it was either 1) modified; 2) belonged to
                            other travelers; 3) dated outside the travel time to support costs claimed;
                            and/or 4) vague and/or undocumented as to the purpose of the travel. As
                            a result, the Authority is unable to identify what actual travel was
                            incurred; whether claimed costs were valid; whether or not travelers
                            were correctly compensated; or if travelers had been over advanced and
                            owed a refund to the Authority.

                            These deficiencies are illustrated in the following three examples:

                            Washington, DC - February 29 through March 1, 1996 The Authority
Questionable travel
                            paid $10,148 for six Authority officials to attend the National American
costs of $10,148 for
                            Indian Housing Council’s 2nd Annual Legislative Conference in
conference in
                            Washington, DC on February 29 through March 1, 1996. The Authority
Washington, DC
                            paid per diem for the travelers for travel beginning as early as February
                            23, 1996, some six days prior to the start of the conference. Any time in
                            excess of one day for travel before the conference would be considered
                            personal travel and ineligible for funding by the Authority.

                            Three travelers submitted a Travel Claim for their travel. However, the
                            three used the same hotel receipt to support their lodging cost. If the
                            travelers did not incur any lodging costs, then they would not be entitled to
                            the full per diem for which they were paid. The other three travelers did
                            not submitted any Travel Claim nor receipts for their travel.




                                                9
                                  00-DE-207-1004

                       Information furnished by the National American Indian Housing Council
                       showed that only two of the travelers attended the conference. As a
                       result, a determination could not be made as to what actual travel was
                       incurred and how such travel was for official Authority related activities.
                       The travelers that did not attend the conference needed to reimburse the
                       Authority for the travel expenditures they were paid. We were unable to
                       substantiate that the necessary reimbursements were made to the
                       Authority.

                       Due to the lack of adequate supporting documentation for the travel costs
                       paid, the total cost of $10,148 is questionable as a valid HUD housing
                       program cost.

                       Reno, Nevada - April 15 through April 18, 1996 Eight Authority staff and
Questionable travel
                       Board Members were paid a combined total of $13,181 to attend the
costs of $13,181 for
                       South Western Indian Housing Association and United Native American
meeting in Reno,
                       Housing Association Quarterly Meeting held in Reno, Nevada on April 15
Nevada
                       through 18, 1996. All eight travelers were paid for the use of their
                       personal vehicles to travel to Reno and given six days of per diem that
                       included a day before and a day after the conference for travel.

                       Supporting documentation for the trip was very limited. Of the eight
                       travelers, only four submitted a Travel Claim upon return. Of the four,
                       two submitted the same lodging receipts. If lodging costs were not
                       incurred by the one traveler, then the traveler would not have been
                       entitled to the full day per diem.

                       The following are some discrepancies noted in the review of the available
                       documentation:

                       •   Traveler 1 was paid per diem for the six days of travel. While the
                           per diem includes the cost of lodging, the traveler was also
                           reimbursed an additional $278 for lodging that was charged on the
                           traveler’s personal credit card. In addition, the traveler did not submit
                           a Travel Claim nor receipts to support the initial advance and
                           reimbursement for lodging costs. Therefore, the total amount of
                           $1,743 paid for Traveler’s travel costs is questionable.

                       •   Traveler 2 was provided an advance to use a personal vehicle to
                           attend the conference. In addition, the Authority paid $680 for air
                           fare to the conference when the traveler changed his mode of travel.
                           The Travel Claim submitted by the traveler did not indicate whether
                           the traveler drove or flew to the conference.

                           Traveler 2 was paid for seven days of per diem rather than for six
                           days that would be needed to attend the conference. A lodging
                           receipt submitted by the traveler indicated the traveler only attended



                                          10
                                      00-DE-207-1004

                               the conference on September 16, 1999. However, this receipt was
                               for another Authority traveler.

                               Traveler 2 also included with the Travel Claim receipts for lodging in
                               Dillon, Montana on April 17, 1996, which was the second day of the
                               conference in Reno, Nevada. The Dillon lodging receipts which
                               appeared to have been modified indicating two rooms were rented.
                               The need for two lodging rooms for a single night by the traveler is
                               unknown. As a result, a determination could not be made as to the
                               exact nature and extent of travel incurred by this traveler and the
                               total travel amount of $1,725 paid for the travel is questionable.

                           •   Traveler 3 received a total of $1,395 to attend the conference. The
                               lodging receipts submitted by the traveler were the same as for
                               Traveler 2. More specifically, the traveler submitted a receipt for
                               lodging in Dillon, Montana on April 17, 1996 that was the same as for
                               Traveler 2 except that the occupant’s name and arrival and departure
                               dates had been modified. Accordingly, the nature and extent of the
                               travel incurred by Traveler 3 could not be determined and the total
                               travel amount of $l,395 paid is questionable as a proper Authority
                               program cost.

                           Due to the conflicting nature and lack of specific travel documentation,
                           the extent of travel costs incurred for the conference is unclear.
                           Therefore, the costs of $13,181 paid by the Authority is questionable as a
                           valid housing program expenditure.

                           Tampa, Florida - June 8 through 10, 1998 The Executive Director and
Questionable travel
                           two Authority Board members were paid $3,810 to attend the National
costs of $3,810 for trip
                           American Indian Housing Council’s 24th Annual Convention and Trade
to Tampa, Florida
                           Show in Tampa, Florida from June 8 through June 10, 1998. However,
                           the Authority paid the travelers per diem for three days before and two
                           days after the conference. These days in part would be considered
                           personal travel and not reimbursable by the Authority.

                           The supporting documentation was very limited. Only two of the three
                           travelers submitted a Travel Claim. Only one of these two travelers
                           submitted receipts to support the costs claimed. The following
                           discrepancies were noted in the review of the available supporting
                           documentation.

                           •   Lodging receipt submitted for four nights in Tampa, Florida from June
                               6 through June 10, 1998 by Traveler 1 detailed that the room was
                               registered to Traveler 2. Therefore, Traveler 1 would not be entitled
                               to the full per diem amount that was paid.




                                              11
                                       00-DE-207-1004

                            •   A submitted gas receipt ticket showed Traveler 1 in Great Falls,
                                Montana on June 10, 1998, the last day of the conference in Tampa.
                                However, the Travel Claim submitted by Traveler 1 indicated the
                                traveler was in Tampa until June 12, 1998. The appropriateness of
                                the two additional days of per diem claimed by Traveler 1 is
                                questionable.

                            •   Traveler 2 submitted a Travel Claim but no receipts were provided to
                                support the travel costs claimed. In addition, Traveler 3 did not
                                submit any Travel Claim. As a result, the nature and extent of the
                                travel incurred by these two travelers is questionable.

                            Due to the conflicting nature of supporting documentation that was
                            provided as well as unsupported or missing Travel Claims, the extent of
                            the travel incurred could not be determined and the total amount of $3,810
                            paid is questionable as a valid housing program expenditure.

                            These sampled Authority travel and related costs illustrate that the
Authority lacks
                            Authority lacks sufficient meaningful control over its travel activities.
adequate control over
                            Mainly, the Authority is unable to determine whether planned travel by an
its travel activities and
                            Authority official actually occurred; travel cost reimbursement was
related costs
                            properly supported and in accordance with the Authority’s official travel
                            policy; and any excess advances paid to a traveler were repaid to the
                            Authority.

                            For the travelers that do submit a Travel Claim, the Authority does not
                            reconcile by individual traveler the estimated travel costs to actual travel
                            costs incurred. Amounts claimed by travelers who file Travel Claims are
                            the total amount advanced rather that the actual amount incurred. The
                            Travel Claim form is a recap of amounts advanced per the individual
                            Application for Travel rather that the actual travel costs incurred and
                            allowed. This makes it difficult for the Authority to identify: 1) the exact
                            amount of travel costs incurred; 2) whether travelers were properly
                            compensated; and 3) whether the Authority is owed monies due to over
                            advancement. The Authority’s procedures negate the need for
                            supporting documentation, resulting in excessive and/or questionable
                            travel costs.

                            We identified that the Authority does maintain an informal manual record
Informal manual travel
                            relating to the repayment of advances by those Authority travelers who
record is partially used
                            do not take a trip for which the traveler was advanced travel funds.
                            However, we noted the following deficiencies in the recording and use of
                            the informal manual record in controlling and receiving travel advance
                            prepayments:

                            •   Manual records are not reconciled to the Authority’s official books of
                                account;



                                               12
                                        00-DE-207-1004



                             •   Manual records do not identify all trips by which the traveler did not
                                 take an authorized trip;

                             •   Some travelers do not make any repayments or only pay for a portion
                                 of the entire amount advanced; and

                             •   Some travelers have taken up to three or more years to repay the
                                 travel advance resulting in an interest free loan to the traveler.

                             As a result, the manual record is inadequate in identifying and controlling
                             the repayment of travel advances for those individuals who do not take an
                             authorized trip.

                             We also identified that the Authority posts the travel advance directly as
Travel costs not clearly
                             an expense while any repayment are classified as other income. The
identified in the official
                             impact is that the Authority can only identify whether a traveler has
books of account
                             properly repaid any excess advances by performing a detailed analysis of
                             the Authority’s accounting records.

                             No records are established and maintained by the Authority to identify
                             those travelers who fail to submit a Travel Claim with the proper
                             documentation for each trip that a travel advance is made.

                             The Authority’s inadequate control over its travel costs stems from the
Proper internal controls
                             following causes:
over Authority travel
and related costs
                             •   Specific procedures are not established for the traveler to be required
                                 to submit a Travel Claim immediately after a trip is taken detailing the
                                 actual travel incurred supported with accurate detailed
                                 documentation;

                             •   Travel Claims are not reviewed for proper support and conformity
                                 with the established Authority Travel Policy; and

                             •   Travel advances are not recorded as a receivable on the official
                                 books of account until the Travel Claim is received and correctly
                                 processed.

                             Only with proper internal controls over its travel related activities and
                             expenditures can the Authority be assured that costs incurred are indeed
                             appropriate, necessary and eligible. This becomes more important since
                             the Authority under the present Indian Housing Block Grant Program has
                             limited resources with which to administer its travel related activities and
                             costs and to maintain its housing stock.




                                                13
                                  00-DE-207-1004

                       The Authority in its written comments to the draft audit report (see
Authority Comments
                       Appendix 2) stated that the past administration and Board of
                       Commissioners did not plan their travel well and last minute details of the
                       trips were given to support staff for construction of the travel voucher,
                       resulting in poor management of operating costs. Also, the Authority
                       added that financial staff members had little control of the Commissioners
                       and favored staff that traveled to provide documentation upon their travel
                       return.

                       In connection with attending the Native American organizational
                       meetings, the attending staff and commissioners did not sign in at the
                       meeting so not to be charged the attendance fee. For the Tampa trip, the
                       finance officer determined that a Saturday stay over was necessary.
                       Also the response indicates that receipts for the Tampa trip and a copy of
                       the Travel Policy was attached; but these were not included.

                       The Authority points out that their travel policy does not prohibit sharing
                       the cost of a motel room. Furthermore, the policy followed by the
                       Authority is patterned after the Tribe’s policy and this policy does not
                       require meal receipts.

                       In summary, the Authority stated the new travel policy prohibits the abuse
                       that was evident in the past and the travelers will adhere to the
                       Authority’s Travel Policy. In addition, the Authority will in the future
                       provide better controls over its travel activities and related costs. Travel
                       advances will be recorded on the books of accounts as a receivable and
                       will be offset by the amount of the travel voucher when received.

                       The Authority’s comments indicate that improvements are being made in
Evaluation of
                       its procedures over travel and related costs. The Authority does not state
Authority’s comments
                       whether the policy being followed has been formally adopted by the
                       Authority Board of Commissioners. This becomes paramount if the
                       Authority travelers are to know exactly what policy governs Authority
                       travel. Such adopted policy is a directive from the Board of
                       Commissioners to be followed by all Authority travelers.

                       While it may be a common practice for travelers to attend conferences
                       without registering at the conference in order to forego the payment of a
                       conference fee, the fact remains that the travel vouchers discussed above
                       did not provide any documentation to show the traveler actually attended
                       the meeting or conference. Without the documentation, the Authority can
                       not determine where the travel advances for the trip should be refunded
                       to the Authority.

                       We agree that the policy as followed by the Authority did not prohibit
                       more that one traveler from sharing a lodging room. However, the use of
                       one room rent receipt issued to one traveler by other persons would not
                       entitle the other persons to receive the full amount of per diem. The per


                                           14
                                      00-DE-207-1004

                           diem is provided to pay for both lodging and meals. If no lodging cost is
                           incurred by a traveler, the traveler would only be allowed the meal
                           reimbursement portion of the per diem. The alteration of another
                           person’s lodging receipt to obtain lodging reimbursement of per diem is
                           improper.

                           3. Inadequate Unit Leasing and Occupancy Procedures

                           Under the provisions of HUD’s Annual Contribution Contract and
Authority required to      subsequently under the Native American Housing Assistance and Self
implement occupancy        Determination Act, the Authority is required to establish policies and
and leasing policies and   procedures that govern the occupancy and selection process of it housing
procedures                 tenant. Policies and procedures are to be adopted separately for the Low
                           Rent and Mutual Help housing programs.

                           Authority policies and procedures are to provide that occupancy and
Occupancy and leasing
                           leasing requirements be consistently applied by housing program type.
procedures
                           Low Rent units are not to be treated as Mutual Help units and Mutual
                           Help units are not be treated as Low Rent dwellings. Tenant income is to
                           be properly identified and verified at the time of move-in and annually
                           thereafter. Tenant charges are to be calculated based upon verified
                           income. In addition, tenant lease agreements are to be properly
                           completed and executed with rental charges to be made from the
                           effective date of the lease on a monthly basis.

                           The Authority has not been adequately implementing its occupancy and
Deficient occupancy
                           leasing policies and procedures. More specifically, the Authority has not
and leasing procedures
                           performed certifications in a timely manner, and was not properly
                           verifying tenant income information. Therefore, the Authority was unable
                           to ensure that its tenants were being assessed the correct monthly rental
                           charges. In addition the Authority was deficient in its overall leasing
                           activities. The Authority allowed new move-ins to reside in their units for
                           up to two months free of rent. Also the Authority was not properly filling
                           out many of its housing leasing documents and was not charging all of its
                           tenants rent.

                           Authority and fee accountant records showed that the required annual
Annual Certifications      tenant income certifications were not being performed in a timely
not performed timely       manner. The importance for the annual certifications is to determine the
                           yearly income that a tenant receives. This amount is to be used by the
                           Authority to calculate the amount of monthly rent that the tenant is to
                           pay.

                           As of September, 1998, the Authority had not performed eighty-one
                           percent of its annual certifications. The failure to complete its
                           certifications prevents the Authority from identifying the income that its




                                              15
                                      00-DE-207-1004

                           tenant receive. According, the Authority is unable to properly calculate
                           the amount of monthly rent each tenant is to be charged.

                           During our review, we noted that the Authority was deficient in its
 Deficient tenant income
                           verification of tenant income. Tenant files did not contain sufficient
 verification procedures
                           evidence that the Authority had required all income sources to be
                           reported, independently verified and/or included in calculating the tenant’s
                           annual income.

                           To illustrate, the Authority used only the spouse’s income of an Authority
                           contractor to calculate rent. The tenant’s file did not contain any
                           documentation detailing the annual income realized by the self-employed
                           contractor. The tenant’s monthly rental charge was calculated based
                           solely on the spouse’s income. As a result, the tenant was not assessed
                           the proper monthly rental charge. Had the correct income been
                           determined, the tenant may not have met the low income requirements
                           established by HUD.

                           The Authority failed to verify and properly document tenant income in its
                           tenant files. The majority of tenant files reviewed did not provide
                           sufficient evidence that income information presented was independently
                           verified by the Authority. More specifically, tenant files contained a
                           notation detailing a tenant’s income, however, did not contain any formal
                           documentation (e.g., paycheck stub, W-2’s, etc.) to support the notation.
                           Therefore, the Authority is unable to demonstrate the income reported on
                           related certification documentation was indeed correct and that the tenant
                           was being assessed the correct monthly rental charge.

                           We also noted that the Authority had improperly computed monthly rent
                           charges for some of its tenants. In some cases, the Authority had
                           incorrectly calculated rent as Mutual Help, when the units occupied were
                           Low Rent. The impact is the housing occupant was being undercharged
                           their monthly rent. For example, one tenant based upon the income as
                           reported in the tenant’s file would be charged a monthly rent of $429.50
                           for their Low Rent dwelling. However, the Authority used the Mutual
                           Help program to assess the tenant a monthly charge of $128. As a result,
                           the Low Rent housing unit family was undercharged $301.50 each month.

                           At the time of our review, the Authority was following the practice of not
New tenants allowed at     charging new move-ins tenants rent until two months after they had
least two months free      moved into the unit. For example, if a tenant were to move-in on January
rent                       1, 1999, the Authority would not begin to charge monthly rent until March
                           1, 1999.

                           An Authority official explained that a tenant is allowed to move into a unit
                           before the Authority actually determines the amount of tenant income and
                           related monthly rent. The official further explained that it usually takes



                                              16
                                      00-DE-207-1004

                           about two months to complete the income verification and rent
                           computations.

                           In addition, we noted three instances whereby new move-in tenants were
                           allowed to occupy their units for up to ten months free of rent. This
                           occurred because the Authority had only completed some of the required
                           certification documentation and were unable to determine the tenant’s
                           income and related monthly rental charges. As a result, the tenants were
                           allowed to move into their units at the specified move-in date with a zero
                           dollar rent charge.

                           This practice of allowing new tenant at least two months of free rent is
                           contrary to the lease agreement with the tenant and is not in conformity
                           with the Authority occupancy policies. The real impact is that the tenant
                           is not required to pay their appropriate rent from the effective date of the
                           lease and thereby reducing the amount of revenues the Authority can
                           receive and use.

                           At the time of our review, we noted that the Authority was not assessing
Tenants not charged for    its tenants for the cost of repairs for tenant caused damages. Authority
repairs of tenant caused   records show that for the nineteen month period ending September 30,
damages                    1998, the cost of housing repairs for tenant caused damages totaled
                           $50,728 and these charges had not been recorded on the Authority’s
                           books of account and assessed against the applicable individual tenants.
                           The Authority’s election to not charge its tenants for tenant caused
                           damages is contrary to the provisions of its Maintenance Policy and the
                           provisions of the lease agreements with its tenants.

                           In addition, the Authority procedures did not fully account for all issued
                           work orders, ensure that all repair work and related costs were correctly
                           recorded on the individual work orders and assessed against the tenants
                           for tenant caused damages. As a result, the Authority has limited
                           assurance that all necessary repair work is being performed and that its
                           tenants are funding the costs of all repairs for which the tenant is
                           responsible.

                           At the time of our review, the Authority had formulated a procedure for
                           not making repairs on units until the tenant had prepaid the cost of the
                           needed repair. For example, in January 1998, the Authority had 55 work
                           orders it was holding and was suspending any repairs on tenant caused
                           damages until such time as the tenant prepays the cost of the repairs. By
                           following this practice, the number of suspended work orders will
                           probably increase since the Authority is not actively pursuing the
                           collection of the repair prepayments. The result of not performing the
                           repairs can only help to further deteriorate the condition of the
                           Authority’s dwelling units.




                                              17
                                      00-DE-207-1004

                           At the time of our review, we found that many tenant lease agreements
 Deficient tenant lease
                           were not completely filled out. In some cases, tenant leases were blank
 agreements
                           forms that had been signed by the housing tenants. In some cases, the
                           tenant files contained both Mutual Help and Low Rent Housing Program
                           leases even though the unit was a Low Rent Housing Program house.
                           Without properly executed rental leases, the Authority is severely
                           hampered in enforcing the provisions of the lease and the Authority’s
                           occupancy requirements.

                           Prior to April, 1998, the Authority was allowing all of their Low Rent
Inconsistent leasing       Housing Program tenants a utility allowance. This allowance was offset
changes without official   against the monthly rental charge and provided the tenants with reduced
Authority Board action     rents to pay for their utilities. In some cases, the allowance would result
                           in a tenant having a negative rent amount. In such cases, the Authority
                           would pay the amount of negative rent to the tenant.

                           In April, 1998, the Authority staff, after discussions by the Authority
                           Board but without any official Board action being taken, unilaterally
                           reduced all negative rents to a “zero” amount. This was done without
                           formal Authority Board authorization and any amendments to the tenant
                           lease. This in effect was a reduction in the Authority’s utility allowance
                           for the very low income tenants. However, the reduced utility allowance
                           was not granted to those tenant whose monthly rent including the utility
                           allowance was a positive amount (more than zero).

                           This unofficial action by the Authority staff resulted in inconsistent
                           computed rental charges being assessed against its Low Rent Housing
                           Program tenants. The impact is that some tenants are not granted as
                           much a utility allowance as other tenants. Furthermore, some tenants are
                           paying a higher share of their income for their monthly rent than other
                           tenants.

                           Per HUD requirements, the Authority is to assure the prompt payment
Authority to follow a      and collection of monthly rent charges from its tenants by the
collections policy         establishment and implementation of an effective collections policy.

                           The Authority lacked an aggressive collection procedure. The Authority
Lack of an aggressive      was not making a meaningful effort to implement its collection policy or
collection procedures      initiate eviction procedures for the non-payment of monthly rent charges.
                           As a result, tenant accounts receivable continues to increase significantly.

                           This condition was pointed out in the last Independent Public
                           Accountant’s report for the fiscal year ending September 30, 1998. This
                           report states that the increase in tenants accounts receivable has had a
                           crippling affect upon the Authority. The report states that the tenants
                           accounts receivable total as of the audit date of September 30, 1998 was
                           $695,017. When compared to the accounts receivable balance at



                                              18
                                    00-DE-207-1004

                         September 30, 1995 which was $526,446, the Authority’s tenant accounts
                         receivable has increased by twenty-four percent in three years. This
                         amount does not include the $50,728 in repair costs for the nineteen
                         month period ending September 30, 1998 the Authority had incurred but
                         had not charged the applicable tenants for the cost of repairs for tenant
                         caused damages.

                         The following table details the average Tenant Accounts Receivable
                         balance per tenant as of September 1998 for the three types of Authority
                         housing program:

                                                                  Average Receivable
                                    Housing Program               Balance Per Tenant
                                 Low Rent                                  $249.32
                                 New Mutual Help                           $986.81
                                 Old Mutual Help                         $2,464.08

                         One Board member had an accounts receivable balance of $14,725 as of
                         September 1998. The last payment for this Board member had been
                         $37.50 in January 1997. The Authority file for this Board member did not
                         contain any evidence that the Authority had made a meaningful effort to
                         collect the balance owed.

                         The Authority has not formulated any meaningful collection efforts and/or
Authority failed to      eviction procedures. The Authority practice has been to send tenants
formulate meaningful     with accounts in arrears a letter asking them to come into the Authority to
collection efforts and   establish a pay back agreement. Types of pay back agreements included
eviction procedures      an increase in the tenant’s monthly payment, and/or a request for direct
                         deduction of monthly rent charge from the tenant’s paycheck.

                         During our audit, we reviewed tenant files to determine whether or not
                         the Authority was establishing and enforcing pay back agreements with
                         tenants whose accounts were in arrears. In most cases, the Authority
                         had sent a letter to tenants notifying them that they were in arrears and
                         needed to establish a pay back agreement with the Authority. However,
                         the Authority failed to enforce established pay back agreements. In most
                         cases, tenants reverted back to non-payment of their monthly rent
                         charge. In addition, there was no evidence in the tenant files that the
                         Authority had followed up or obtained any response from tenants
                         regarding their accounts thereafter.

                         According to Authority occupancy policies and procedures, failure to
                         meet monthly rent charges, can be cause for eviction. We found that the
                         Authority did not exercise the use of eviction for non-paying tenants.
                         Instead, tenants were allowed to remain in their units, while their tenant
                         accounts receivable balances continued to increase.




                                            19
                                       00-DE-207-1004

                            These deficiencies have a significant impact upon the operation of the
Deficient occupancy         Authority since the leasing of its housing units is not consistently and
and leasing procedures      adequately administered. The practice of improperly verifying income
impact Authority’s          and calculating the related monthly rental charge, allowing free rent for
needed revenues             new tenants, improperly executed leases agreements and following an
                            incomplete and ineffective collection and eviction policy greatly hampers
                            the Authority in assessing and receiving rental income from its housing
                            occupants. Such revenues are necessary for the effective operation of
                            the Authority and its housing programs.

                            These deficiencies stem from two basic causes. The first is lack of
Key causes are lack of
                            formal policies being adopted by the Board. The second is that the
formal Board
                            Authority staff has not implemented proper procedures to consistently
Occupancy and Leasing
                            and properly administer is housing occupancy and leasing activities.
Policy and proper
administrative
                            As part of the Native American housing Assistance and Self
procedures
                            Determination Act, the Authority certified to HUD as part of its Annual
                            Housing Plan that the Authority had formally adopted occupancy and
                            leasing policies and that these were being followed by the Authority. Our
                            review as discussed above indicate that the policies have not been
                            formally adopted by the Authority Board and that the implementation of
                            the occupancy and leasing activities has been inconsistent and
                            ineffectively administered.

                            The Authority’s occupancy and leasing procedures are being
Key occupancy               administered without the proper administrative controls. Normally, the
activities vested in same   functions of handling program assets and recording of the program
Authority employee          transactions are separated. However, at the time of our review, all
                            functions relating to occupancy and leasing were vested in the same
                            Authority employee. This employee carried out the following tenant
                            occupancy and leasing functions:

                            •   Verified tenant income and calculated tenant monthly rents;

                            •   Determined when a new tenant would begin to be charged rent;

                            •   Implemented the Authority’s collection and eviction procedures;

                            •   Maintained the Authority’s official tenant files and records; and

                            •   Recorded and maintained the Authority’s official tenant accounting
                                records.

                            This same Authority employee also has the responsibility for assessing
                            tenants for the cost of repairs for tenant caused damages and for
                            collecting such repair cost payments.




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                       The Authority in its written comments to the draft audit report (see
 Authority Comments
                       Appendix 2) stated the Authority as well as other Tribal housing
                       authorities have had a history of noncompliance by occupants of their
                       Low Rent and Mutual Help Housing Program units. In addition, the past
                       administration, staff members and Tribal Council members advocated
                       non-payment of housing payments and compliance to recertification to
                       help or protect their families and relatives from paying rents according to
                       all income of the household. The trend is ingrained in the present tenants
                       and homebuyers as the Tribal Council and Tribal justices would not allow
                       the Authority to evict tenants, terminate homeowners for non-payment or
                       non-compliance of lease and/or Mutual Help Occupancy Agreements.
                       This has been done even though Tribal resolutions have been passed
                       previously mandating all employed individuals to pay their rents and home
                       payments to the Authority.

                       The Authority’s written comments state that it will take years of
                       correcting and re-educating Tribal members the skill of self-reliance.
                       HUD, through past regulation, and the Tribe have only taught the people
                       co-dependency on the Authority and Tribal programs to take care of their
                       needs. Now the Authority must wean them from depending on the
                       Authority to take care of their unit maintenance and from being the
                       source of housing, by providing them with the assistance to help
                       themselves through education, counseling, and home ownership.

                       The Authority indicates that changes have been make to provide better
                       separation of management controls over its tenant and occupancy
                       procedures. Also, the Authority will review and implement the current
                       Admission, Occupancy, and Internal Control policies. These will be
                       formally adopted by the Board so the staff will have governing documents
                       with which to adhere to. Lastly, the Authority states that the
                       recommendation given will be considered for implementation.

                       4. Improved Controls Needed Over Cash Receipts

                       Section 85.20 of Title 24 of the Code of Federal Regulations details the
Proper controls over   financial administrative standards for program assets that are to be
cash receipts to be    implemented by the Authority. The Authority is to maintain effective
followed               controls and accountability over its cash. Adequate procedures are to be
                       utilized to safeguard the Authority’s cash as well as to ensure that such
                       monies are used solely for authorized purposes.

                       A basic component of any internal control system is the separation of
                       functions for handling and recording cash. The separation of duties
                       serves as a protection of Authority employees by fixing responsibility and
                       accountability, and also serves as a deterrent to possible misappropriation
                       or diversion.




                                          21
                                     00-DE-207-1004

                          Prudent business practices for collecting cash receipts dictate that, as a
                          minimum, the collection and deposit of cash receipts be performed by
                          different employees. Such separation of functions is necessary if the
                          Authority is to properly handle and account for its cash receipts as well
                          as to protect the integrity of its employees.

                          The Authority has failed to maintain preventive controls over its cash
Better controls are       receipts. The Authority’s implemented cash collection system primarily
needed over cash          vested all the functions of handling Authority monies and the function of
                          recording cash collection transactions on the Authority’s books of
                          account with the same Authority staff member. Normally, a proper
                          system of internal control over cash would separate these two functions.
                          Also, the Authority was not depositing its monies timely and intact. More
                          specifically, Authority collections were held for up to 79 days before
                          being deposited. Cash receipt tickets were not always issued in
                          numerical sequence. As a result, the Authority has limited assurance that
                          its cash collections have been properly deposited into the Authority’s
                          bank accounts and correctly recorded on its books of account.

                          At the time of our review, the functions of receiving and handling cash
Main cash receipt         receipts as well as recording and controlling related accounting
functions vested with     transactions were handled primarily by the same Authority employee.
the same employee         The employee performed the key duties for collecting, depositing and
                          recording cash receipts. The employee accepted tenant payments, issued
                          cash receipt tickets, maintained custody of the supply of cash receipt
                          tickets, posted cash collected to the Authority’s automated tenant ledger
                          system, maintained custody of issued cash receipts, and prepared bank
                          deposits. In addition, the same person sent accounting information and
                          records to the Authority’s fee accountant for posting to the Authority’s
                          official books of account.

                          This weakness is probably more significant since this employee is also
                          responsible for maintaining the key functions relating to the occupancy
                          and leasing of Authority’s housing units as discussed in the previous
                          section. These key functions include the verification of tenant income,
                          calculating monthly tenant rents, and maintaining the official tenant files.
                          In addition, this same employee also performed or controlled the main
                          functions relating to assessing tenants for tenant caused damages. This
                          involves the calculation, recording, collecting, and depositing the amount
                          of charges for tenant caused damages.

                          During the audit period, the Authority did not always deposit its cash
Cash receipts not         collections timely or intact. We noted that monies were held on an
always deposited timely   average from a period of three days to sixteen days. In one instance,
and intact                monies received from one tenant were held for 79 days before being
                          deposited.




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                         The Authority was following the practice of not depositing cash
                         collections for new tenants until such time as all the required
                         documentation relating to their occupancy is received and processed
                         and/or the Authority’s fee accountant had established a tenant account
                         number for the new resident. This practice greatly reduces the
                         Authority’s control and accountability over its cash collections and related
                         deposits by allowing amounts of cash receipts to be kept on hand at the
                         Authority for extended periods of time. The potential for embezzlement
                         or theft is therefore greatly increased.

                         Cash receipts need to be deposited into the Authority’s bank account as
                         frequently as possible, preferably daily, and intact. Monies should not be
                         kept on hand until decisions are reached as to how to record the receipts
                         on the Authority’s books of account.

                         The Authority utilizes both permanent and temporary receipt tickets in its
Better controls needed   cash collection efforts. Permanent receipt tickets are computer issued in
over issued and          numerical sequence and generally used when tenants pay their monthly
unissued cash receipt    rents. A manual temporary receipt ticket is issued basically when the
tickets                  tenant computer system is down. Once the computer system is
                         operational, the temporary receipt ticket is to be voided and a permanent
                         computerized receipt ticket is issued.

                         During the audit period, the Authority had not established proper
                         controls over its issued and unissued cash receipt tickets. The Authority
                         has followed the practice of issuing cash receipt tickets out of numerical
                         sequence and failed to formulate any system to account for its issued
                         tickets. In fact, some issued cash receipts tickets have been missing
                         without any established follow up procedure.

                         For example, the Authority’s fee accountant maintains a listing of
                         permanent receipt tickets that have not been submitted to them for
                         processing and accordingly, the fee accountant considers them as being
                         unaccountable or missing. The list of unaccountable or missing receipts,
                         as of September 1998, listed thirteen receipt ticket numbers. While
                         Authority officials stated that some of these have been missing for over
                         ten years, no documented action has been taken to locate and/or provide
                         the necessary information to the fee accountant for appropriate recording
                         to the books of account.

                         In addition, we noted that:

                         •   Temporary receipt tickets are often issued out of sequence;

                         •   Issued temporary receipt tickets are often not marked to show that
                             they have been replaced by a permanent receipt ticket; and




                                            23
                                     00-DE-207-1004

                         •   Original voided cash receipt tickets are not always kept and
                             forwarded to the Authority’s fee accountant.

                         Without issuing cash receipt tickets in numerical order and properly
                         accounting for all issued and voided tickets, the Authority has reduced
                         accountability over its collections. As a result, errors, unintentional or not,
                         can go undetected.

                         The Authority has established various procedures that lend itself to
Established Authority    formulating a system of checks and balances over its cash receipts.
accountability of cash   However, these procedures fall short of providing for adequate controls
receipts is limited      and accountability over its cash receipts.

                         The established Authority procedures consist basically of actual deposit
                         and related cash receipt ticket information being given to the Authority
                         Executive Director and the Bookkeeper for their review and concurrence
                         after a deposit has occurred. This information includes an adding
                         machine tape of the cash receipt tickets issued, copy of validated deposit
                         slip from the bank and a Cash Receipts Control Sheet that lists the
                         deposit amount and the receipt ticket numbers that were issued.

                         The Authority’s process only accounts for monies once they are
                         deposited. No control procedures are in place in the three vulnerable
                         function areas relating to the receiving of monies collected, issuing and
                         cash receipt tickets, and recording cash transactions.

                         The Authority’s cash control procedures can be greatly improved by
                         separating the functions of handling cash collections from the functions of
                         recording cash transactions. This separation would also need to account
                         for all issued, unissued, and voided receipt tickets. This would provide the
                         Authority with increased assurance that all cash collections are correctly
                         received and deposited and properly recorded in the Authority’s books of
                         account. The revised procedures would also help to protect the integrity
                         of its employees.

                         The Authority in its written comments to the draft audit report (see
 Authority Comments
                         Appendix 2) stated they do not have any history as to why the receipts
                         were recorded out of order not can they explain the missing receipts.
                         Also, Authority administration was not aware that tenants were not
                         charged for work completed on tenant abuse work orders

                         The Authority further commented that steps have been taken to improve
                         its management controls over its cash receipts as well as for its
                         occupancy and leasing activities. The Authority indicated they will
                         incorporate the recommendation suggested in the report.




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                                 00-DE-207-1004

                      In summary, these four sections discuss in detail the need for the
Overall, effective    Authority to establish and implement adequate management controls and
management controls   procedures over its housing program activities. These areas deal with the
are needed            disbursement of Authority program funds without proper authority and/or
                      adequate documentation. HUD program funds totaling at least $126,679
                      were used to finance a separate unauthorized housing program.
                      Authority travel has been permitted whereby unallowable, undocumented,
                      excessive and improper documented costs have been incurred. This is
                      illustrated by the fact that three out-of-town conference or meeting trips
                      we reviewed showed that the cumulative cost of $27,139 is questionable
                      as being valid Authority travel expenditures.

                      The Authority has not been adequately implementing its occupancy and
                      leasing policies and procedures. Primarily the Authority has not
                      performed its tenants’ certifications in a timely manner, and was not
                      properly verifying tenant income information. In addition the Authority
                      was deficient in its overall leasing activities. The Authority allowed new
                      move-ins to reside in their units for up to two months free of rent, leasing
                      documents were improperly filled out, and not all of its tenants were being
                      charged rent.

                      Cash receipt control procedures have been deficient since all monies
                      have not been deposited timely and intact. Cash receipt tickets have
                      been issued out of sequence while all receipt tickets have not been
                      accounted for. In addition, all the functions dealing with the handling and
                      recording of cash receipts have been vested in or controlled by the same
                      Authority employee. This same employee also administers the main
                      functions of establishing and calculating tenant charges as well as
                      maintaining and recording the official Authority tenant files and records.

                      Overall, the Authority needs to establish adequate procedures for
                      carrying out the directives of the Authority Board and ensuring the
                      compliance with HUD housing program requirements. Such procedures
                      would relate to the operating areas of the Authority and include the
                      established funded housing programs of housing construction, travel,
                      occupancy and leasing and cash. Also, the procedures should be divided
                      among the Authority staff that the functions of handling an Authority
                      asset is separate from the functions of recording the transactions relating
                      to the asset.




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RECOMMENDATIONS   We recommend that the Northern Plains Office of Native American
                  Programs require the Authority to:

                  1A   Formally adopt by Board action all policies and procedures that the
                       Board wants the Authority to implement and follow. This will
                       include all policies and procedures the Board has previously
                       intended the Authority to implement but may not have officially
                       adopted them by formal Board action. These policies and
                       procedures will need to include those the Authority certified in their
                       last Indian Housing Block Grant application to HUD as having been
                       formally Board adopted and followed by the Authority.

                  1B   Establish and maintain the appropriate management control
                       procedures over its housing operations to ensure that all the policies
                       and procedures as adopted by the Authority Board are being
                       implemented by the Authority staff. These would specifically apply
                       to (1) housing activities as detailed in the Authority annual housing
                       plan, (2) travel, (3) leasing and occupancy, and (4) cash receipts.
                       This would ensure that the conditions detailed in the finding for the
                       four main areas are remedied and proper safeguards and checks
                       and balances are installed to prevent the reoccurrence of the
                       deficiencies identified.

                  1C   Require the Authority to reimburse from non-Federal sources those
                       HUD program costs of $126,679 that were used to finance its non-
                       HUD housing Activities. Afterwards, these repaid funds would
                       need to be used to fund eligible housing program activities.

                  1D   Provide appropriate controls over its travel activities and related
                       costs. This would involve that travel advances be recorded on the
                       Authority’s books of account as a receivable against the individual
                       traveler that would be offset by the amount of the travel voucher
                       when submitted. Control procedures would include steps to ensure
                       that travel vouchers are properly documented detailing the nature
                       and extent of each trip incurred and that travel expenses are
                       supported by valid travel receipts and documents. In addition, steps
                       should be implemented for each traveler to submit the correct
                       travel voucher immediately after each trip.

                  1E   Obtain and review the necessary travel vouchers with the proper
                       documentation for the three trips discussed in the finding. For any
                       travel advances and applicable travel costs that are not properly
                       documented in accordance with the Authority’s travel policy needs
                       to be refunded the Authority by the traveler. In addition, the
                       Authority needs to review all travel advances and related vouchers
                       granted by the Authority and determine if the travel costs were
                       incurred in conformity the Authority’s travel policy. This review



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          00-DE-207-1004

     needs to include the travel costs and related travel vouchers for all
     trips during the last two complete fiscal years and through the
     current date.

1F   Separate the functions of handling cash receipts from the functions
     of recording cash receipt transactions from the same Authority
     employee. This would need to be expanded to separate the
     functions of establishing and calculating tenant charges from the
     functions of maintaining and recording the official Authority tenant
     files and records. Also, this would involve the separation of
     assessing tenants for tenant caused damages from the function of
     collecting monies for such repairs.

We also recommend the Northern Plains Office of Native American
Programs:

1G   Verify the corrective action taken by the Authority for
     recommendations 1A through 1F after they have been implemented
     and to ensure the appropriate controls are in place and functioning
     and that the Authority is implementing the policies and procedures
     as adopted by the Authority Board; and

1H   Maintain the High Risk Designation for the Authority until the
     recommendations listed above have been fully implemented.




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Management Controls
In planning and performing our audit, we obtained an understanding of the management controls that were
relevant to our audit. Management is responsible for establishing effective management controls.
Management controls, in the broadest sense, include the plan of organization, methods and procedures
adopted by management to ensure that its goals are met. Management controls include the processes for
planning, organizing, directing, and controlling program operations. They include systems for measuring,
reporting, and monitoring program performance.


                                We determined the following Chippewa Cree Housing Authority’s
 Management controls
                                management controls were relevant to our audit objectives:
 assessed
                                •   Governing policies and procedures as promulgated by the Authority
                                    Board of Commissioners;

                                •   HUD housing program monies were expended for eligible activities
                                    and costs; and

                                •   Housing program revenues were properly controlled and recorded.

                                The following audit procedures were used to evaluate the management
 Assessment procedures
                                controls:

                                •   Review of Board minutes and formulated policies and procedures;

                                •   Interviews with Authority and its fee accountant officials;

                                •   Review of Authority cash disbursement records and related files
                                    related to the eligibility use of HUD program funds;

                                •   Review of Authority cash receiving, depositing and recording
                                    records;

                                •   Evaluation of the Authority’s established procedures for implementing
                                    its HUD funded housing programs; and

                                •   Interview with HUD Northern Plains Office of Native American
                                    Programs officials and review of HUD records and files.

                                A significant weakness exists if management controls do not give
 Significant Weaknesses
                                reasonable assurance that resource use is consistent with laws,
                                regulations, and policies; that resources are safeguarded against waste,
                                loss, and misuse; and that reliable data is obtained and maintained, and


                                                   29
           00-DE-207-1004

fairly disclosed in reports. Based on our audit, we identified the following
significant weaknesses:

•   The Authority used HUD program monies totaling $150,693 to
    finance its own separate non-HUD housing activities (Finding);

•   Authority travel and related costs were excessive, unsupported
    and/or questionable as eligible HUD-funded housing program costs
    (Finding);

•   Housing units leasing and occupancy were not adequate to ensure
    tenants were properly selected, eligibility certified, correctly verified
    income and rent computations, and fully executed lease agreements
    (Finding);

•   The Authority lacked sufficient controls over the receiving, handling,
    and recording Authority revenues (Finding); and

•   Combined both functions of handling and recording cash receipts
    were vested in the same Authority employee and revenues were not
    always deposited timely and intact (Finding).




                    30
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Follow-up on Prior Audits
This is the first HUD Office of Inspector General for Audit review of activities of the Chippewa Cree
Housing Authority.

However, the Authority has been reviewed and evaluated by HUD Northern Plains Office of Native
American Programs. On December 19, 1996, the Northern Plains Office of Native American Programs
issued a Corrective Action Order and declared the Authority High Risk under Title 24 Code of Federal
Regulations, Part 85. The Corrective Action Order identified the existence of regulatory deficiencies
relating to Title 24 Code of Federal Regulations Part 950.135 and Part 85.20. The Corrective Action
Order stated the Authority:

        1) Lacked administrative capability in the area of general financial management, management
           systems and housing development;
        2) Was in non-compliance in the financial administration of grants,
        3) Had not selected housing applicants in accordance with their waiting lists, and
        4) Had other management deficiencies that were supported by audits, on-site reviews or other
           reliable information.

The Corrective Action Order also noted that the Housing Authority did not:

        1)   Hold Board Meetings in compliance with its by-laws;
        2)   Have properly trained and competent personnel at key management positions,
        3)   Maintain a stable financial position,
        4)   Maintain an appropriate financial management systems;
        5)   Convert initial development grant for Low Rent project; and
        6)   Select participants in accordance with the Mutual Help or Low Rent waiting lists.

In addition, HUD identified five specific management deficiencies at the Authority in the following areas:
1) user fees; 2) budget overruns; 3) tenant accounts receivable; 4) other sources of income; and 5) audit
findings.

During the week of August 30, 1999, staff of the Northern Plains Office of Native American Programs
conducted an on-site monitoring review of the Authority’s Indian Housing Block Grant program funded
under the NAHASDA. Their draft report was submitted to the Authority for comment on November 16,
1999. After receiving the Authority’s comments, the Northern Plains Office of Native American
Programs issued on February 22, 2000 to the Chippewa Cree Tribe their Final Monitoring Review Report
and High Risk Designation for Indian Housing Block Grant on the Authority. The High Risk Designation
had been placed upon the Authority’s 1998 and 1999 Indian Housing Block Grants. Subsequent to the
February 22, 2000 report, HUD notified the Authority that the High Risk Designation would continue for
its subsequent 2000 fiscal year Indian Housing Block Grant.

The High Risk designation was for the Authority’s 1998 and 1999 Indian Housing Block Grants and was
based on the Authority’s independent auditor’s disclaimer of opinion audit report for the 1996 fiscal year.
The disclaimer related to the Authority’s financial statements and compliance with general requirements.



                                                     31
                                             00-DE-207-1004

The Authority was apprised the High Risk determination would continue until the 1998 independent audit
report was received and the auditor issued a unqualified opinion and there were no significant findings
regarding financial management. The audit results would be reviewed by HUD and a determination made
as to whether the High Risk determination would impact the 2000 fiscal year Indian Housing Block Grant
program.

HUD notified the Authority on March 21, 2000 that their Indian Housing Plan submitted for their Indian
Housing Block Grant Program was acceptable. In addition, the letter also continued the High Risk
Determination for the Authority.

Subsequent to the issuance of HUD’s Final Monitoring Review Report and High Risk Designation for
Indian Housing Block Grant, the Authority’s independent public accountant issued their report for the 1998
fiscal year. This report, dated May 27, 1999, contains an unqualified opinion. However, the audit report
identifies the following findings:

      •   Material weakness identified in the internal control over financial reporting;

      •   Reportable conditions were identified that were not considered to be material weaknesses in the
          internal control over financial reporting; and

      •   Material weakness were identified in the internal control over major programs;

Findings presented in the audit report related to payroll records, tenant and homebuyer receivables, fixed
assets, year 2000 issues, tenant and homebuyer receipts, and tenant and homebuyer files.

Correspondence in connection with these reports between the Authority and HUD indicate that
improvements are being made in the Authority’s internal controls over its housing operations.

Our audit report augments the HUD and independent auditor reports.




                                                     32
                                            00-DE-207-1004



Appendices
Appendix 1

Schedule of Questioned Costs

         Finding                            Description                              Amount

              1       Ineligible HUD program funding of non-HUD                       $126,679
                      housing activities

              1       Unsupported, unnecessary or unreasonable                          $27,139
                      travel costs


Questioned costs include ineligible costs, unsupported costs, and unnecessary/unreasonable costs:

1. Ineligible costs are those that are questioned because of an alleged violation of a provision of a law,
   regulation, contract, grant, cooperative agreement, or other agreement or document governing the
   expenditure of funds.
2. Unsupported costs are those whose eligibility cannot be clearly determined during the audit since such
   costs were not supported by adequate documentation.
3. Unnecessary costs are those which are not generally recognized as ordinary, prudent, relevant, and/or
   necessary within established practices. Unreasonable costs exceed the costs that would be incurred
   by the ordinary prudent person in the conduct of a competitive business.




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                34
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Appendix 2

Auditee Comments




                        35
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     38
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     39
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Appendix 3

Distribution
Chippewa Cree Housing Authority
Secretary’s Representative, 8AS (2)
Acting Director, Northern Plains Office of Native American Programs, 8API, (2)
Deputy Assistant Secretary for Native American Programs, 8APINW, , Room 4126
Assistant Secretary for Public and Indian Housing, P, Room 4100
Deputy Secretary, SD, Room 10100
Chief of Staff, S, Room 10000
Assistant Secretary for Administration, A, Room 10100
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
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 for Public Affairs, W, Room 10222
Counselor to the Secretary, S, Room 10234
General Counsel, C, Room 10214
Deputy General Counsel, CB, Room 10220
Office of Policy Development and Research, R, Room 8100
Assistant Deputy Secretary for Field Policy and Management, SDF, Room 7106
Director, Office of Department Operations and Coordination, I, Room 2124
Chief Procurement Officer, N, Room 5184
Chief Information Officer, Q, Room 3152
Chief Financial Officer, F, Room 2202
Deputy Chief Financial Officer for Operations, FF, Room 10166
Director, Office of Budget, FO, Room 3270
Director, Enforcement Center, V, 200 Portals Building
Director, Real Estate Assessment Center, X, 1280 Maryland Ave., SW, Suite 800
Departmental Audit Liaison Officer, FM, Room 2206
Headquarters Audit Liaison Officer, Public and Indian Housing, PF, Room P8202
Field Audit Liaison Officer, 6AF, (2)
Director of Scheduling and Advance, AL, Room 10158
Assistant Deputy Secretary for Field Policy and Management, SDF, Room 7108 (2)
Special Assistant to the Deputy Secretary for Program Management, SD, Room 10100
Acquisitions Librarian, Library, AS, Room 8141
Inspector General, G, Room 8256
The Honorable Fred Thompson, Chairman, Committee on Governmental Affairs, 340 Dirksen Senate
        Office Building, United States Senate, Washington, DC 20510
The Honorable Joseph Lieberman, Ranking Member, Committee on Governmental Affairs, 706 Hart
        Senate Office Building, United States Senate, Washington, DC 20510
Honorable Dan Burton, Chairman, Committee on Governmental Reform, 2185 Rayburn Bldg., House of
        Representatives, Washington, DC 20515




                                               41
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Henry A. Waxman, Ranking Member, Committee on Governmental Reform, 2204 Rayburn Bldg., House
        of Representatives, Washington, DC 20515
Ms. Cindy Fogleman, Subcommittee on Oversight and Investigations, Room 212, O’Neil House Office
        Building, Washington, DC 20515
Director, Housing and Community Development Issue Area, United States General Accounting Office,
        441 G Street, NW, Room 2474, Washington, DC 20548 (Attention: Judy England-Joseph )
Deputy Staff Director, Counsel, Subcommittee on Criminal Justice, Drug Policy and Urban Resources,
        B373 Rayburn House Office Building, Washington, DC 20515
Steve Redburn, Chief, Housing Branch, Office of Management and Budget, 725 17th Street, NW, Room
        9226, New Executive Office Building, Washington, DC 20503




                                                42