AUDIT REPORT
HOUSING AUTHORITY OF THE CITY OF UVALDE
SECTION 8 AND LOW RENT PROGRAMS
UVALDE, TEXAS
01-FW-203-1003
DECEMBER 18, 2000
OFFICE OF AUDIT, SOUTHWEST DISTRICT
FORT WORTH, TEXAS
Issue Date
December 18, 2000
Audit Case Number
01-FW-203-1003
TO: Diana Armstrong
Director, Office of Public Housing, 6JPH
SIGNED
FROM: D. Michael Beard
District Inspector General for Audit, 6AGA
SUBJECT: Section 8 and Low Rent Programs
Housing Authority of the City of Uvalde
Uvalde, Texas
As requested by your office, we conducted an audit of the Section 8 and Low Rent Programs of
the Uvalde Housing Authority. Before the audit, your office had already identified significant
Annual Contributions Contract violations and the severe financial condition of the Authority.
Specifically, the Authority had over-requisitioned Section 8 funds and had incurred excessive
administrative expenses over what they had earned. During this audit, we focused on the
concerns you identified. This audit contains one finding.
Within 60 days, please furnish this office, for each recommendation in this report, a status on:
(1) corrective action taken; (2) the proposed corrective action and the date to be completed; or (3)
why action is not considered necessary. Also, please furnish us copies of any correspondence or
directives issued related to the audit.
If you have any questions, please contact Jerry Thompson, Assistant District Inspector General
for Audit, at (817) 978-9309.
Management Memorandum
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01-FW-203-1003 Page ii
Executive Summary
We have completed an audit of the Housing Authority of Uvalde, Texas. The objectives of
the audit were to: (1) identify the purposes for which the Authority used unearned Section
8 administrative fees; (2) determine whether the Authority complied with its Annual
Contribution Contracts (ACC) in the use of certain Section 8 and Low Rent funds; (3)
determine whether the Authority used its Low Rent or Comprehensive Improvement
Assistance Program (CIAP) funds for other purposes; and (4) determine whether the
Authority duplicated payments of certain travel or other administrative expenses in the
Section 8 or Low Rent Programs that may have been paid by the Authority’s affiliate, the
Uvalde Housing Development Corporation. We found the Authority violated provisions of
the ACCs by spending unearned Section 8 funds and Low Rent funds for other purposes.
The former Executive Director ignored HUD’s instructions
The former Executive and violated HUD requirements by using $563,702 in HUD
Director spent $563,702 Program funds to pay for excessive and questionable
in HUD funds on expenses. The Authority incurred $375,552 in excessive
questionable costs. administrative costs in the Section 8 Program and $188,150
in questionable costs in the Low Rent Program. The
excessive or questionable costs are: (1) $188,284 used to
undertake various projects not related to the operation of
these programs, including the construction of an affiliate’s
apartment complex; (2) $85,012 paid in excessive salaries;
(3) $167,960 in Low Rent funds transferred to Section 8;
(4) $38,023 in unsupported costs; and (5) $84,423 in
additional administrative expenses in excess of the amount
earned.
The former Executive Director had an objective to develop
properties not related to the Section 8 and Low Rent
Programs. To do this, he manipulated the Section 8
requisition process. The former Executive Director was
also the Secretary/Treasurer of the affiliate from which he
arranged to receive a rent-free apartment. Therefore, a
conflict of interest appears to be evident. However, the
former Executive Director of the Authority, acting as the
Executive Director of the Authority and the
Secretary/Treasurer of the affiliate, severed the affiliate
from the Authority in 1999. As a result, the Authority is
currently in a severe financial condition. The Authority has
reimbursed $224,194 to the Section 8 and Low Rent
Programs, but the Authority still owes HUD $262,925 in
unearned Section 8 funds and $76,583 to the Low Rent
Page iii 01-FW-203-1003
Executive Summary
Program for the excessive administrative expenses and
questionable costs.
We are making recommendations for corrective actions,
including a recommendation for HUD to consider taking
administrative sanctions against the former Executive
Director.
We also looked for duplicative payments from the Section
We did not find 8, Low Rent, HOME, and CIAPs that the Authority’s
duplicated payments for affiliate may have paid. Our review did not disclose such
administrative or travel duplicative payments.
costs
We provided a copy of this report to the interim Executive
Director of the City of Uvalde Housing Authority on
September 26, 2000, and they issued their response on
October 13, 2000. We had an exit conference with current
Authority Officials on October 19, 2000. We also
requested a response to our preliminary findings from the
former Executive Director, which we received on
December 22, 1999, while he was still employed by the
Authority. The responses generally agreed that the
Authority used HUD program funds for other purposes.
The former Executive Director attributed the Authority’s
severe financial condition to an embezzlement that
occurred prior to his employment. The Authority’s current
management said they are taking action to improve the
efficiency of the operations and to collect the funds owed to
HUD programs. The complete responses are contained in
Appendix B.
01-FW-203-1003 Page iv
Table of Contents
Management Memorandum i
Executive Summary iii
Introduction 1
Finding
1 The Former Executive Director Ignored HUD’s 5
Instructions and Spent $563,702 in Excessive and
Questionable Costs
Management Controls 21
Appendices
A Schedule of Questioned Costs 23
B Auditee Comments 25
C Distribution 37
Page v 01-FW-203-1003
Table of Contents
Abbreviations
ACC Annual Contributions Contract
CIAP Comprehensive Improvement Assistance Program
CFR Code of Federal Regulations
HOME HOME Investment Partnerships Program
HUD U.S. Department of Housing and Urban Development
OIG Office of Inspector General
OMB Office of Management and Budget
TDHCA Texas Department of Housing and Community Affairs
UHDC Uvalde Housing Development Corporation
01-FW-203-1003 Page vi
Introduction
The City of Uvalde established the Housing Authority of
Background. Uvalde, Texas, in 1971. From 1971 through 1999 the
mayor appointed a five-member Board of Commissioners
to govern the Authority. Because of changes to the state
law in 2000, the mayor now appoints 11 members to the
Board. The Board hires an Executive Director to manage
the Authority’s day-to-day operations. The Board
appointed Virginia Limon as interim Executive Director on
February 14, 2000. The Authority has 48 Low Rent units
occupied and 193 Section 8 units leased. The Authority
keeps its records at its office, 1700 Garner Field Road,
Uvalde, Texas.
The Authority hired the former Executive Director on
February 22, 1993, and fired him by unanimous vote on
February 10, 2000. Board minutes state various reasons for
his termination. The most significant reasons stated are for
“mismanagement” and “non compliance with the HUD
Annual Contribution Contracts” during his tenure.
During Fiscal Years 1993 through 1999, HUD provided
$4,104,804 to provide assistance under the Authority’s
Section 8 Programs and $290,894 in subsidy to the Low
Rent Program. HUD also provided $861,309 in CIAP grant
funds to improve the Low Rent units.
In June 1994, the Authority created the Uvalde Housing
Development Corporation (UHDC) to operate exclusively
for the benefit of the Authority and to act as an
instrumentality of the Authority. The UHDC’s mission is
to provide decent and affordable housing for lower income
residents in Uvalde. The Board of Directors of UHDC, at
any point in time, would be the serving Board of
Commissioners of the Authority. The former Executive
Director was the Secretary-Treasurer of UHDC in 1994.
In November 1997, the Texas Department of Housing and
Community Affairs (TDHCA) awarded the Authority
$208,000 in HUD HOME funds. Under the HOME Buyer's
Assistance Program, the Authority is to provide, 40
qualifying homebuyers, up to $5,000 in assistance to
purchase a home. In September 1997, TDHCA approved a
$200,000 HOME loan to the Granada Apartments, Ltd. for
the construction of 100 apartments in Uvalde, Texas. The
Page 1 01-FW-203-1003
Introduction
Authority was the original limited partner and the UHDC is
still the general partner of the Granada Apartments, Ltd.
The objectives of the audit were to: (1) identify the
Audit Objectives. purposes for which the Authority used unearned Section 8
administrative fees; (2) determine whether the Authority
complied with its Annual Contribution Contracts in the use
of certain Section 8 and Low Rent funds; (3) determine
whether the Authority used its Low Rent or Comprehensive
Improvement Assistance Program funds for other purposes;
and (4) determine whether the Authority duplicated
payments of certain travel or other administrative expenses
in the Section 8, Low Rent, CIAP, or HOME Programs that
may have been paid by the Authority’s affiliate, the Uvalde
Housing Development Corporation.
To accomplish the audit objectives, we:
Scope and Methodology.
• Reviewed the Audit Request and Supporting
Documentation.
• Reviewed the HUD approved reports and Independent
Public Accountant Audit Reports submitted by the
Authority for Fiscal Years ending June 30, 1993,
through June 30, 1999, for the Low Rent and Section 8
Programs.
• Interviewed HUD Program Staff; Authority Staff, Fee
Accountants, Granada Apartments’ Manager, UHDC
Board Members and Officers, TDHCA Staff, and
current and past serving Board members of the
Authority.
• Reviewed the Section 8 Annual Contributions Contract
and Public and Indian Housing (PIH) Notices to
identify the requirements for the: (1) estimates and
requisitions and (2) maintenance and use of the
Administrative Fee Reserves for housing purposes.
• Reviewed the Low Rent Annual Contributions Contract
to identify the requirements and definitions for: (1)
operating receipts; (2) operating expenditures; and (3)
projects.
• Reviewed the Code of Federal Regulations (CFR) and
OMB Circular A-87, Cost Principles to identify the
requirements: (1) costs eligibility and (2) cost
allocation.
• Reviewed HUD and Authority correspondence files.
01-FW-203-1003 Page 2
Introduction
• Reviewed Authority Board minutes, personnel and
general policies, bank statements, canceled checks,
check vouchers and other supporting documents from
July 1, 1993, through April 2000.
• Reviewed the UHDC: board minutes, bank statements,
canceled checks, check vouchers, contracts, and other
supporting documents from September 1994 through
January 2000.1
• Reviewed the documents provided by the Authority’s
General Counsel and Fee Accountant.
• Reviewed the HOME grant and loan applications and
contracts to identify the program requirements.
• Interviewed the developer and the general contractor of
the Granada Apartments.
• Reviewed the Authority’s bank statements, canceled
checks, check vouchers for the HOME Buyers
Assistance Program account from January 1998 through
April 2000.
• Review the Granada Apartments’ Ltd., the Project
Developer’s and the Project General Contractor’s: bank
statements, canceled checks, invoices, contracts, and
other supporting documents for the HOME
Construction Loan from January 1998 through April
1999.
We conducted the audit from November 1999 through
Audit Period and Sites. August 2000 in accordance with generally accepted
government auditing standards. The audit covered the
Authority’s operations from July 1, 1992, through April 30,
2000.
1
Various bank statements and canceled checks were missing for the period reviewed. The former Executive Director is the
Secretary/Treasurer of the UHDC and the custodian of records. He stated that the missing bank statements and canceled
checks were lost.
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Introduction
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01-FW-203-1003 Page 4
Finding
The Former Executive Director Ignored
HUD’s Instructions and Spent $563,702
in Excessive and Questionable Costs
The former Executive Director ignored HUD’s instructions and used $563,702 in HUD
Program funds to pay for excessive administrative expenses and questionable costs not
directly related to the HUD Programs. He violated provisions of the Annual Contribution
Contracts by spending Section 8 funds requisitioned from HUD but not earned and Low
Rent funds for non-Low Rent purposes. He manipulated the requisitioning process of the
Section 8 Programs. From July 1992 through November 1999, the Authority incurred
$375,552 in excessive administrative expenses in the Section 8 Programs2 and $188,150 in
questionable expenses in the Low Rent Program. The excessive or questionable costs are:
(1) $188,284 used to undertake various projects not related to the operation of these
programs, including the construction of an affiliate’s apartment complex; (2) $85,012 paid
in excessive salaries; (3) $167,960 in Low Rent funds transferred to Section 8; (4) $38,023 in
unsupported costs; and (5) $84,423 in additional administrative expenses in excess of the
amount earned. The former Executive Director had an objective to develop properties not
related to the Section 8 and Low Rent Programs. Also, because the former Executive
Director arranged to receive a rent-free apartment from the affiliate, a conflict of interest
appears to be evident. As a result, the Authority is currently in a severe financial
condition. The Authority has reimbursed $224,194 to the Section 8 and Low Rent
Programs, but the Authority still owes HUD $262,925 in unearned Section 8 funds and
$76,583 to the Low Rent Program for the excessive administrative expenses and
questionable costs.
The Low Rent Annual Contribution Contract (ACC)
Requirements. between HUD and the Authority incorporates by reference
the regulations for Public and Indian Housing Authorities
contained in Title 24 of the Code of Federal Regulations
(CFR). Title 24 of the CFR, part 85, establishes the
uniform administrative rules for federal grants and
cooperative agreements and sub-awards to State, local and
Indian tribal governments. This part also establishes OMB
Circular A-873 as the cost principles for housing authorities
to follow when determining allowable costs to federal
programs.
2
Section 8 Programs refers to the Section 8 Voucher and Section 8 Certificate Programs of the Authority.
3
Cost Principles for State and Local Governments.
Page 5 01-FW-203-1003
Finding
Section 11 of the Section 8 ACC provides the requirements
for the use of program receipts. The Authority:
• Must use program receipts only to pay program
expenditures; and
• Must not make any program expenditures, except in
accordance with the HUD-approved budget estimate
and supporting data for a program.
Section 12 of the Section 8 Programs’ ACC provides the
requirements of the establishment and use of the
administrative fee reserve. The Authority:
• Must maintain an administrative fee reserve for a
program. The Authority must credit to the
administrative fee reserve the total of the amount by
which program administrative fees paid by HUD for a
fiscal year exceed the Authority’s administrative
expenses and
• Must use funds in the administrative fee reserve to pay
administrative expenses in excess of program receipts.
If any funds remain in the administrative fee reserve,
the Authority may use the administrative reserve funds
for other housing purposes.
Section 2 of the Low Rent Program ACC provides the
definition of terms. The following definitions are relevant
to this audit:
• “Act” means the United States Housing Act of 1937, as
amended.
• “Operating Receipts” shall mean all rents, revenues,
income, and receipts accruing from, out of, or in
connection with the ownership or operation of such
project.
• “Operating Expenditures” shall mean all costs incurred
by the Authority for administration, maintenance, and
other costs and charges that are necessary for the
operation of the project.
01-FW-203-1003 Page 6
Finding
• “Project” means public and Indian housing developed,
acquired, or assisted by HUD under the Act, other than
Section 8 of the Act, and the improvement of such
housing.
Section 11 of the Low Rent Program’s ACC states the
Authority shall not incur any operating expenditures except
pursuant to an approved operating budget.
Regarding conflicts of interest, the Low Rent Program
ACC, Part A, Section 19, Subsection (A)(1), provides that
neither the Authority nor any of its contractors or their
subcontractors may enter into any contract, subcontract, or
arrangement in connection with a project under this ACC,
in which any employee of the Authority who formulates
policy or who influences decisions with respect to the
projects(s), has interest, direct or indirect, during his tenure
or for one year there after.
OMB Circular A-87, Attachment A, Part C, Basic
Guidelines, requires costs to be necessary, reasonable, and
adequately documented for proper and efficient
performance and administration of federal awards. The
Circular also provides that costs are allocable to a particular
cost objective if the goods or services involved are
chargeable to such cost objectives according to the relative
benefits received. In addition, any cost allocable to a
particular award or cost objective may not be charged to
other federal awards to overcome fund deficiencies, to
avoid restrictions imposed by law or terms of the federal
awards, or for other reasons.
Every year the Authority requisitions Section 8 funds from
HUD to make housing assistance payments, cover audit
costs, hard to house fees, and their Administrative Fee
Earned.4 HUD requires the requisitions to be based on
reasonable estimates of units authorized and leased. At the
end of each fiscal year the Authority submits a yearend
settlement statement showing the actual amount of annual
HUD contributions earned. At this time, HUD adjusts the
amount paid during the year to the actual amount the
Authority earned. If the Authority has requisitioned too
much, funds are due HUD, and if not enough, funds are due
4
The Administrative Fee is published yearly in the Federal Register. The fee rate is multiplied by the number of actual units
leased to determine the total of the Administrative Fees Earned for the fiscal year.
Page 7 01-FW-203-1003
Finding
the Authority. The Authority earns an Administrative Fee
for administering the Section 8 Program based on the
number of units leased monthly. HUD pays the
administrative fee to cover the administrative costs. It’s the
Authority’s responsibility to operate within the limits of the
administrative fee earned and to put into reserve any
amounts earned in excess of its administrative costs.
Beginning January 1, 1995, HUD Notice PIH 94-64
required housing authorities to review, no later than 90 days
into the fiscal year, their estimate of Section 8 annual
contributions required. HUD requires housing authorities
to revise their estimates if it appears that they will receive 5
percent more in total annual contributions than required.
As of January 31, 2000, the Authority had spent $262,9255
The Authority owes
of unearned Section 8 funds. From July 1992 through
HUD $262,925 of Section
January 2000, the Authority requisitioned $944,632 more
8 funds it spent but had
than it earned for its Administrative Fee and program costs.
not earned.
HUD was only able to offset $681,707 of the over-
requisitioned amount because at various times when the
authority had submitted yearend settlement statements, the
Authority had already spent all it had over-requisitioned on
other projects or on excessive administrative expenses. The
table below shows the over-requisitioned amounts, the
funds offset by HUD and the amounts due at the time of
settlement for each fiscal year.
Fiscal Section 8 HUD Amount Funds Current
Year Funds Scheduled Over- Offset Amount
End Required Payments Requisitioned by HUD Due HUD
06/30/1993 $ 628,940 $ 698,877 $ -69,937 $ 69,937 $ 0
06/30/1994 596,765 617,492 -20,727 -16,944 37,671
06/30/1995 588,432 607,841 -19,409 0 19,409
06/30/1996 516,260 710,649 -194,389 37,669 156,720
06/30/1997 517,037 710,649 -193,612 177,660 15,952
06/30/1998 485,690 710,290 -224,600 107,004 117,596
06/30/1999 452,793 596,810 -144,017 172,479 -28,462
01/31/2000 323,076 401,017 -77,941 133,902 -55,961
Totals $4,108,993 $5,053,625 ($944,632) $681,707 $262,925
5
This figure is correct through 1/31/2000. The Authority has not submitted the Year End Settlement Statements for 6/30/2000
which were due to the FMC on August 15, 2000. The FMC still has to process and approve the statements to determine the
final amount “Due HUD” through the date of this report.
01-FW-203-1003 Page 8
Finding
The former Executive Director used $188,284 in Section 8
The former Executive
and Low Rent funds on various other housing related
Director over-
projects. He spent $181,176 in unearned Section 8 funds
requisitioned Section 8
and $7,108 in Low Rent funds for these other projects.
funds, ignored HUD’s
Although, the Section 8 ACC allows any funds remaining
instructions, and spent
in the administrative fee reserve to be used for other
$188,284 on housing
housing purposes, the Authority had no administrative fee
projects in violation of
reserve or the Authority owed HUD the amounts it over-
contract provisions.
requisitioned. HUD’s Low Rent contract provisions and
applicable cost principles require the Authority to use Low
Rent funds on costs that are necessary for the operation of
the Low Rent project. The Authority’s use of $7,108 in
Low Rent funds did not benefit the Low Rent project. The
former Executive Director ignored HUD’s instructions and
continued to approve and use the Section 8 and Low Rent
funds for those other projects.
The former Executive Director undertook these housing
projects with Board approval. He used Section 8 and Low
Rent funds to obtain Low Income Housing Tax Credits for
the Granada Apartments, Ltd. This project, as mentioned
earlier, is owned by the UHDC. He tried to obtain HUD
HOME funds from the TDHCA. Also, he attempted to
obtain funds from Rural Development, formerly Farmer’s
Home Administration under the United States Department
of Agriculture (USDA). However, his primary goal was to
build the Granada Apartments using Tax Credits and HUD
HOME funds from the State. The table below shows the
amount of Section 8 and Low Rent funds used for the
UHDC and other housing projects.
Housing Projects Section 8 Low Rent Totals
UHDC Expenses $137,376 $2,785 $140,161
UHDC Salaries 19,692 4,323 24,015
Subtotal UHDC $157,068 $7,108 $164,176
Other Housing Projects 24,108 24,108
Totals $181,176 $7,108 $188,284
Of the $188,284 used for other housing projects, the
Authority used $164,176 to fund UHDC and the Granada
Apartments. Of this $164,176, the Authority used
$140,161 of the funds for travel, legal fees, land, consulting
fees, application fees, training, and seminar costs. The
Authority used $24,015 in salaries for the benefit of
UHDC. The former Executive Director traveled 141 days
Page 9 01-FW-203-1003
Finding
on UHDC business. For calendar years 1994 through 1999,
the Low Rent Program paid for 23 days of travel and the
Section 8 Program paid for 81 days of travel. UHDC paid
for his travel covering a period of 37 days. Although
UHDC paid his travel costs, the Authority paid his salary
during those 37 days. His salary is paid with Low Rent and
Section 8 funds. The Low Rent and Section 8 Programs
did not benefit from his travel for UHDC.
As of November 30, 1999, the UHDC had reimbursed the
Authority $115,033 for the costs the Authority incurred.
The Authority applied $112,627 to the Section 8 Programs
and $2,406 to the Low rent Program, leaving the
Corporation still owing $44,441 to the Section 8 Program
as part of the $262,925 owed HUD and $4,702 to the Low
Rent Program. Therefore, the Authority needs to collect an
additional $49,143 from the UHDC and repay the HUD
Programs in this amount.
The Authority also used $24,108 of unearned Section 8
money on other housing projects besides the Granada
Apartments. Most of these expenses were for travel to
attend training seminars or workshops related to and to
apply for Farm Labor, USDA, and TDHCA HOME
housing programs. We are recommending the Authority
repay the $24,108 to HUD from nonfederal funds as part of
the $262,925 it over-requisitioned from HUD.
From October 1998 through February 2000, the Granada
The Granada
Apartments provided a "rent free" apartment to the former
Apartments provided a
Executive Director. He lived in a three-bedroom apartment
rent-free apartment to
from October 1998 through September 1999 when the
the Director.
average rent charged was $440. He later moved to a two-
bedroom apartment from October 1999 through February
2000 when the average rent charged was $395. The
Granada Apartments also provided UHDC a “rent-free” and
“utility-free” office. The former Executive Director uses
this office for UHDC business. This situation appears to be
a direct conflict of interest for the former Executive
Director.
One of the reasons the Authority had no funds to repay the
The Authority paid
amount of Section 8 funds over-requisitioned from HUD
$85,012 in excessive
was that the Authority used $85,012 in unearned Section 8
salaries with Section 8
funds to pay excessive salaries from 1995 through 1999.
funds.
01-FW-203-1003 Page 10
Finding
The Authority exceeded the HUD approved salaries from
1995 through 1997. Several times, HUD specifically
modified the approved budgeted salaries to reflect the
salary comparability information and the financial
condition of the Authority. HUD did not require approval
and did not approve the operating budgets for 1998 and
1999 because the Authority had passed the Public Housing
Management and Performance financial indicators. We
estimated the excessive salaries using the highest salaries
HUD had previously approved. The excessive salaries are
allocated between the Low Rent and Section 8 Programs.
HUD Approved Salaries Excessive Excessive
Salaries for Paid by Salaries Salaries
Calendar Authority Authority Per Paid Chargeable to
Year Employees W2 Forms by Authority Section 8
1995 $ 95,490 $ 96,588 $ 1,098 $ 900
1996 76,775 99,834 23,059 18,908
1997 97,490 109,496 12,006 9,845
1998 97,490 136,349 38,859 31,865
1999 97,490 126,141 28,651 23,494
Totals $464,735 $568,408 $103,673 $85,012
The former Executive Director ignored HUD’s instructions
and paid the excessive salaries anyway. Consequently, the
Authority paid $85,012 in excessive salaries with unearned
Section 8 funds when they did not have any Administrative
Fee Reserves to cover these costs. We are recommending
the Authority repay the $85,012 to HUD from nonfederal
funds as part of the $262,925 in unearned funds the
Authority still owes HUD.
The Authority used $38,023 program funds on unsupported
The Authority records expenditures. The Authority spent $24,941 in unearned
lack adequate support Section 8 funds and $13,082 of Low Rent funds on these
for $38,023 in expenditures. The Authority records did not contain
administrative expenses. adequate supportive documentation to show that these costs
were eligible or necessary for the operation of the Section 8
and Low Rent Programs. For example, we found instances
where payments had: no invoices, no purpose stated on the
check voucher, no names of the individual traveling on the
check voucher, and no supporting documents for the
amount of the check. OMB Circular A-87 says that all
costs must be necessary, reasonable, and adequately
documented for proper and efficient performance and
Page 11 01-FW-203-1003
Finding
administration of federal awards. Since the Authority could
not provide adequate support for these costs, we are
recommending the Authority repay the $13,082 to the Low
Rent Program from nonfederal funds. The Authority needs
to repay HUD $24,941 as part of the $262,925 in unearned
Section 8 funds they spent on these unsupported costs from
nonfederal funds.
The Authority spent $84,423 in unearned Section 8 funds
The Authority paid on other miscellaneous administrative expenses in the
$84,423 for operating Section 8 Programs. These expenses represent the amount
costs with funds they of administrative expenses incurred and paid with money
had not earned. they over-requisitioned and spent during the period. The
$84,423 does not include costs identified for the various
housing related projects, excessive salaries, and
unsupported costs. These administrative expenses would
be considered program operating costs and could have been
paid with Section 8 Administrative Fees Earned if the
Authority had any. We are recommending the Authority
repay HUD the $84,423 from nonfederal funds as part of
the $262,925 in unearned Section 8 funds they spent on
these miscellaneous administrative expenses.
The former Executive Director authorized and approved the
The Authority transfer of $167,960 of Low Rent funds to the Section 8
transferred $167,960 in Programs during the period beginning July 1993 through
Low Rent funds to cover February 2000. The Low Rent funds covered the shortfalls
Section 8 shortfalls. in the Section 8 Program. According to the interim
Executive Director, they needed the funds to make housing
assistance payments. The Authority has reimbursed the
Low Rent Program $109,161 from Section 8 funds and
currently owes the Low Rent Program $58,799. OMB
Circular A-87 says funds from one federal award cannot
cover fund deficiencies in other federal awards. Also, the
Low Rent ACC definition of a “project” specifically
excludes any project under Section 8 of the Act. We are
recommending the Authority repay the Low Rent Program
$58,799 from nonfederal funds.
HUD staff responsible for processing Section 8 yearend
HUD could not offset the settlement statements said HUD could not offset the entire
entire amount because over-requisitioned amount for several reasons including a
the Authority had spent HUD system conversion that occurred during 1995 and
the money. 1996. HUD did not process the offset for the over-
01-FW-203-1003 Page 12
Finding
requisitioned amount for Fiscal Year 1994 until during the
fiscal year ended June 30, 1996. By the time HUD
processed and approved the Year End Settlement
Statements, HUD could not offset the entire amount that
was over-requisitioned. The main reason they could not
offset the entire amount due for each fiscal year was
because the Authority had already spent the over-
requisitioned funds. If HUD had offset the entire amounts,
the Authority would not have had enough money in the
bank to pay Section 8 landlords the remaining housing
assistance payments during each fiscal year.
The Fee Accountant that prepared the 1993 through 1997
The Fee Accountant and Section 8 estimates and requisitions said that the former
HUD increased Section 8 Executive Director said several times that the Authority
requisitions with would be fully leased up in the next fiscal year. The former
information provided by Executive Director said the Authority was getting Low
the former Executive Income Housing Tax Credits. He said the tax credits would
Director. allow UHDC to construct the Granada Apartments and this
would increase the housing stock in Uvalde for Section 8
applicants. The fee accountant, relying on the statements
by the former Executive Director, estimated more leased
units than necessary during 1993 through 1997.
On one occasion, the former Executive Director did not
agree with the Fee Accountant’s 1999 estimate and
requisition. The former Executive Director contacted a
HUD Financial Management Specialist and told her that the
Fee Accountant’s estimate was too low. He said the
Authority would be fully leased up by October 1998
because the Granada Apartments would be in operation.
The HUD Financial Management Specialist, also relied on
his statements and revised and increased the 1999 fiscal
year estimate and requisition. However, the completion of
the Granada Apartments did not increase the number of
units leased in the HUD Section 8 Programs. The
Authority had leased 170 Section 8 units as of June 30,
1998, and only leased 158 units by June 30, 1999, including
33 units at the Granada Apartments. The Authority actually
leased 12 less units than the prior fiscal year.
We interviewed various Authority Commissioners that
The former Executive served from 1993 through 1999. The Commissioners
Director did not inform acknowledged that they approved the housing related
Commissioners of HUD projects, including the Granada Apartments, initiated by the
requirements.
Page 13 01-FW-203-1003
Finding
former Executive Director. They also recall positive
reports and comments from HUD saying that the Authority
went from a “Troubled” agency to a “High Performer”6
during the tenure of the former Executive Director. The
former Executive Director told the Commissioners that they
could use Section 8 funds for those housing projects.
However, the Commissioners said that the former
Executive Director did not fully inform the Board about the
problems with:
• Over-requisitioning Section 8 funds;
• Spending more than administrative fees earned;
• Negative Section 8 Administrative Fee Reserves;
• Spending Section 8 funds for “housing related
purposes” when the Authority had no Administrative
Fee Reserves, violating the ACC requirements; and
• Spending Low Rent funds on non Low Rent housing
projects violating the ACC requirements.
They believe the former Executive Director should have
informed them of the serious financial condition of the
Authority and the ACC violations. Commissioners also
said they would have followed HUD’s instructions and not
undertaken the housing projects if he had adequately
informed them.
Collecting the $49,143 due from the UHDC may present a
The former Executive problem because neither the UHDC nor the Granada
Director severed the Apartments are now affiliated with the Authority. When
Uvalde Housing the Authority established the UHDC, the Authority
Development Commissioners also served on the UHDC Board of
Corporation from the Directors. When they created the limited partnership, the
Authority. Granada Apartments, Ltd., in December 1996, the
Authority was a limited partner with 99 percent interest.
The UHDC was the general partner with a 1 percent
interest. In December 1997, the former Executive Director,
representing both entities as the Secretary/Treasurer of
UHDC and the Executive Director of the Authority, signed
and executed an amendment to the original partnership
agreement. The amendment withdrew the Authority from
the partnership and admitted a new limited partner, THOF
III, whose general partner is the Texas Housing Finance
6
The terms “Troubled” and “High Performer” relate only to HUD’s assessment of the Low Rent Program and not to Section 8.
During that period HUD used the Public Housing Management and Assessment Program to assess the Authority’s
performance in the Low Rent Program.
01-FW-203-1003 Page 14
Finding
Corporation. The Authority Board minutes do not reflect
any record of a vote to withdraw their interest from the
Granada Apartments, Ltd. Thus, it appears the former
Executive Director acted on his own to withdraw the
Authority from the partnership.
On February 23, 1999, the UHDC Directors adopted
resolutions to amend the By-laws of the Corporation,
terminate the terms of and replace certain Directors, and to
not require the Directors to be Authority Board members.
The resolutions passed by a 60 percent vote, although,
based on the original By-laws, such resolutions would have
required a 66 percent favorable vote for passage. Currently
no Authority Commissioners serve on the Board of
Directors of UHDC. The former Executive Director of the
Authority remained the Secretary/Treasurer of the UHDC
and has control of the bank accounts and custody of the
UHDC records.
The resolutions that passed on February 23, 1999, did not
have the required two-thirds votes by the Directors as
required by the original UHDC Corporate By-laws.
Therefore, the resolutions that severed the relationship with
the Authority may not be valid. The Authority may need to
consider legal action against UHDC to collect the $49,143,
regain control of the UHDC Board of Directors, and
recover its interest in the Granada Apartments, Ltd.
Whatever the outcome, we are recommending the Authority
repay HUD $44,441, as part of the $262,925 in unearned
Section 8 funds requisitioned, and $4,702 to the Low Rent
Program from nonfederal funds for funds the UHDC used
and still owes the Authority.
As previously noted, the excessive administrative expenses
Authority travelers did in the Section 8 Program and the questioned costs in the
not follow its Board Low Rent Program included travel. The travel was for the
approved travel policies. former Executive Director, Commissioners, and employees.
The expenses relating to UHDC, other housing projects,
and unsupported costs include $40,490 of the travel costs.
Not only did the Authority violate HUD regulations they
also did not follow their own travel policies regarding
advances. The Authority issued 183 travel advances during
the audit period. The travelers in only eight instances filed
a travel voucher to reconcile the differences between the
advance and actual costs. The Authority personnel policies
Page 15 01-FW-203-1003
Finding
allow travel advances for officials and employees for
traveling out-of-town. The policies require the traveler to
submit a travel voucher no later than 30 days after the travel
is completed. If the traveler does not submit a voucher, the
traveler is abusing the advance system and can be placed on
a reimbursable basis only. We are recommending the
Authority ensure that all travel is eligible under the program
requirements and that they follow their own travel policies.
The former Executive Director’s actions have placed the
The Authority is in Authority in severe financial distress and have bankrupted
severe financial the Authority’s Section 8 Program. The Authority has
condition. consistently increased the deficit in its Section 8 Program
since 1993. Now it owes HUD $262,925 in over-
requisitioned funds and the Low Rent Program $76,583 for
excessive administrative expenses and questionable costs.
At the end of the 1994 fiscal year, the Authority’s Section 8
Programs had a combined deficit of $51,859. This is
because the Authority has consistently charged
administrative expenses to the programs in excess
administrative fees earned. The current financial condition
has affected the Authority’s ability to provide future
housing opportunities for the citizens of Uvalde. The table
below shows the Authority’s expenditures have exceeded
its administrative fee earned each year since 1993 by
$15,000 to $74,000 to reach the current deficit of $370,747
in the Section 8 Programs.
Administrative Total Excessive Administrative
Fee Administrative Administrative Fee Reserve
FYE Earned Expenses Expenses Balance7
06/30/1993 $ 61,721 $ 87,310 ($ 25,589) $47,884
06/30/1994 64,120 107,299 (43,179) ($51,859)
06/30/1995 75,608 90,762 (15,154) ($53,997)
06/30/1996 74,656 106,092 (31,436) ($116,133)
06/30/1997 74,204 118,010 (43,806) ($218,308)
06/30/1998 68,818 92,699 (23,881) ($297,859)
06/30/1999 66,902 140,466 (73,564) ($370,747)
TOTALS $486,029 $742,638 ($256,609)
HUD requested the Authority to submit a workout plan and
rejected the first one the Authority submitted. It called for
a pay back period of 10 years. The workout plan should
7
HUD adjusts the Authority’s Administrative Fee Reserve Balance when they approve the Year End Settlement Statements.
01-FW-203-1003 Page 16
Finding
show how the Authority plans to bring the Section 8
Administrative Fees Reserve into a positive balance and
how they plan to reimburse the Low Rent Program for the
funds they used to pay Section 8 housing assistance
payments. They also say it is difficult to gage how long it
will take the Authority to pay back HUD and the Low Rent
Program.
Comments by Former Executive Director
Auditee Comments
The former Executive Director in a written response dated
December 22, 1999, attributes the current financial
situation to a $200,000 embezzlement by his predecessor
(see Appendix B). In addition to the theft, the Authority
paid unpaid vendors, delinquent federal payroll taxes and
penalties, and large amounts of bank overdraft fees. The
Authority also paid the bank $5,000 to reproduce canceled
checks related to the investigation.
The former Executive Director also said that the over-
requisitioning of Section 8 funds was due to the lack of
affordable housing stock in Uvalde. Section 8 customers
had a difficult time finding rental units in Uvalde causing
the Authority to be under leased. The Authority incurred
excessive administrative expenses over administrative fees
earned because of the under leasing of units.
To address the lack of affordable housing in Uvalde, the
former Executive Director used Section 8 and Low Rent
funds. The former Executive Director said HUD told the
Authority to diversify by seeking funding from other
agencies. Thus, the Board and Authority used Section 8
and Low Rent funds to apply for funding for the various
housing projects including the Tax Credits used to
construct the Granada Apartments owned by UHDC.
UHDC borrowed Section 8 funds from the Authority to
purchase the site for the construction of the Granada
Apartments.
Comments by Interim Executive Director
The interim Executive Director provided a tentative
response to the finding on October 13, 2000 (see Appendix
Page 17 01-FW-203-1003
Finding
B). She said the Authority Board of Commissioners and
the former Executive Director responsible for overseeing
the operations during the period of the questionable
expenditures are no longer serving or working for the
Authority.
The Board of Commissioners fired the former Executive
Director on February 10, 2000, and appointed Ms. Virginia
Limon as the interim Executive Director. As the interim
Executive Director she increased Section 8 leasing by 23
percent to maximize income and has initiated several cost
cutting measures to immediately reduce operating cost.
The measures have:
• Reduced administrative office and travel expenses to
keep within budgets;
• Reduced staff salaries to agree with HUD approved
amounts; and
• Eliminated unnecessary expenses that have been
identified.
The interim Executive Director is working closely with the
Board of Commissioners and HUD to keep them informed
of the financial condition of the Authority. She:
• Provided each Commissioners with the appropriate
HUD Contracts, Regulations, Handbooks and OMB
Circulars;
• Instructed the Fee Accountant to monthly prepare for
HUD and the Board reports showing a detailed income,
expense, balance and status for each program; and
• Is working closely with the Fee Accountant and HUD to
establish an acceptable budget and timeline for the
reimbursement of funds to HUD and the Low Rent
Program.
The interim Executive Director will be proposing additional
corrective actions to the Board of Commissioners
concerning the legal action against UHDC including the
collection of the funds owed Authority. A recommendation
will also be made to the Board to revise the current travel
polices to clarify procedures on the issuance of travel funds.
The complete responses from the former and the interim
Executive Director are contained in Appendix B.
01-FW-203-1003 Page 18
Finding
Evaluation of Comments by Former Executive Director
OIG Evaluation of
Comments The response by the former Executive Director does not
change our position in the report. The former Executive
Director agreed the Authority used over-requisitioned
Section 8 funds and Low Rent funds for other housing
purposes and spent more money than they had earned. We
reviewed all available documentation relating to the
embezzlement including the United States District Court
Judgment and Independent Audit Reports of the Authority.
The results of our review did not show that the
embezzlement by the prior Executive Director caused the
current financial condition of the Authority.
Evaluation of Comments by Interim Executive Director
Comments by the interim Executive Director appear
responsive and indicate the Authority has begun taking
positive corrective actions to reduce administrative costs,
increase administrative fees earned, and operate within
program budgets.
We recommend the Office of Public Housing:
Recommendations
1A. Require the Authority repay HUD $262,925 from
nonfederal funds for the Section 8 funds they over-
requisitioned and spent. Also, identify other
additional funds “Due HUD” following HUD’s
approval and revision of the Year End Settlement
Statements for June 30, 2000;
1B. Require the Authority to recover $49,143 from
UHDC for expenses paid on their behalf. The
Authority should reimburse $44,441 to the Section 8
account and $4,702 to the Low Rent account (We
consider the $44,441 that UHDC owes the Section 8
Programs as part of the $262,925 the Authority owes
HUD and included under recommendation 1A.);
1C. Require the Authority to repay the Low Rent Program
$58,799 from nonfederal funds for ineligible transfers
Page 19 01-FW-203-1003
Finding
that have not been reimbursed by the Section 8
Program. The Authority should also reimburse the
Low Rent Program for any transfers that have
occurred from April 2000 to the report date;
1D. Require the Authority to provide support for $13,082
in unsupported costs charged to the Low Rent
Program for the audit period and any subsequent
unsupported costs from the cut-off date in the audit
report. For the amounts the Authority cannot support,
those costs should be considered ineligible and be
repaid from nonfederal funds;
1E. Require the Authority to follow its own travel
policies;
1F. Monitor the administrative expense levels until
satisfied that the Authority is complying with HUD
budgets and program requirements by obtaining
monthly income and expense reports for Section 8
and Low Rent Programs from the Board of
Commissioners;
1G. Monitor the Section 8 estimates and requisitions until
satisfied that the Authority is not over-requisitioning
more annual contributions than is required by
obtaining monthly reports on the amount of Section 8
Administrative Fees Earned and Expended and lease-
up activity; and
1H. Consider taking appropriate administrative sanctions
against the former Executive Director for violations
of the Annual Contribution Contracts that have
affected the integrity of the Section 8 and Low Rent
Programs.
01-FW-203-1003 Page 20
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 the systems for measuring,
reporting, and monitoring program performance.
We decided the following management controls were
Relevant Management relevant to our audit objectives:
Controls.
• Section 8 Estimates and Requisitions Process
• Program Contracts and Administrative Costs
• Cost Eligibility
We assessed all the relevant control categories identified
above, to the extent they impacted on our audit objectives.
A significant weakness exists if management controls do
Significant Weaknesses. not give 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 are obtained, maintained, and fairly disclosed
in reports.
Based on our review, we believe the following items were
significant weaknesses:
• The former Executive Director violated the Section 8
Annual Contribution Contract requirements and spent
Section 8 funds they had not earned on housing related
projects, excessive salaries, unsupported costs, and
other excessive administrative costs (finding).
• The former Executive Director manipulated the Section
8 Estimates and Requisitions process to access
additional Section 8 funds (finding).
Page 21 01-FW-203-1003
Management Controls
• The former Executive Director violated the Low Rent
Annual Contribution Contract requirements and
program regulations and spent Low Rent funds on
ineligible housing projects, ineligible transfers, and
other unsupported costs (finding).
01-FW-203-1003 Page 22
Appendix A
Schedule of Questioned Costs
Type of Questioned Costs
Issue Ineligible 1/ Unsupported 2/
1A Section 8 Funds “Due HUD” $262,925
1B Low Rent (Due from UHDC) 4,702
1C Low Rent (Ineligible Transfers) 58,799
1D Low Rent (Unsupported Costs) $13,082
Totals $326,426 $13,082
1
Ineligible costs are costs charged to a HUD-financed or insured program or activity that the auditor believes are not allowable
by law, contract, or federal, state, or local policies or regulations.
2
Unsupported costs are costs questioned by the auditor because the eligibility cannot be determined at the time of audit. The
costs are not supported by adequate documentation or there is a need for a legal or administrative determination on the
eligibility of the costs. Unsupported costs require a future decision by HUD program officials. This decision, in addition to
obtaining supporting documentation, might involve a legal interpretation or clarification of Departmental policies and
procedures.
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Appendix B
Auditee Comments
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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01-FW-203-1003 Page 36
Appendix C
Distribution
Secretary's Representative, 6AS
Comptroller, 6AF
Director, Accounting, 6AAF
Director, Office of Public Housing, 6JPH
Secretary, S (Room 10000)
Deputy Secretary, SD (Room 10100)
Assistant Deputy Secretary for Field Policy & Mgmt, SDF (Room 7108)
Acting Assistant Secretary for Administration, A (Room 10110)
Deputy Chief of Staff for Programs & Policy, S (Room 10226)
Deputy Asst. Secretary for Public Affairs, S (Room 10222)
Special Asst. for Inter-Faith Community Outreach, S (Room 10222)
Executive Officer for Admin Operations & Management, S (Room 10220)
General Counsel, C (Room 10214)
Director, Office of Federal Housing Enterprise Oversight, O, 9th Floor Mailroom
Assistant Secretary for Housing/FHA, H (Room 9100)
Office of Policy Development & Research, R (Room 8100)
Assistant Secretary for CPD, D (Room 7100)
Government National Mtg. Assoc., T (Room 6100)
Assistant Secretary for Fair Housing & Equal Opportunity, E (Room 5100)
Chief Procurement Officer, N (Room 5184)
Assistant Secretary for Public & Indian Housing, P (Room 4100)
Chief Information Officer, Q (Room 3152)
Director, Office of Departmental Operations & Coordination, I (Room 2124)
Chief Financial Officer, F (Room 2202)
Director, Enforcement Center, V, 200 Portals Bldg., D.C. 20024
Director, REAC, X, 1280 Maryland Ave., SW (Ste.800), D.C. 20024
Director, Office of MF Assistance Restructuring, Y, 4000 Portals Bldg., D.C. 20024
Deputy Chief Financial Officer for Operations, FF (Room 2202)
David Gibbons, Director, Office of Budget, FO (Room 3270)
FTW ALO, 6AF (2)
Public Housing ALO, PF (Room P8202) (2)
Dept. ALO, FM (Room 2206) (2)
Acquisitions Librarian, Library, AS (Room 8141)
Page 37 01-FW-203-1003
Appendix C
DISTRIBUTION (Cont’d)
Director, Hsg. & Comm. Devel. Issues, US GAO, 441 G St. NW, Room 2474
Washington, DC 20548 Attn: Judy England-Joseph
Henry A. Waxman, Ranking Member, Committee on Govt Reform,
House of Rep., Washington, D.C. 20515
The Honorable Fred Thompson, Chairman, Committee on Govt Affairs,
U.S. Senate, Washington, D.C. 20510
The Honorable Joseph Lieberman, Ranking Member, Committee on Govt Affairs,
U.S. Senate, Washington, D.C. 20510
Cindy Fogleman, Subcomm. on Gen. Oversight & Invest., Room 212,
O'Neill House Ofc. Bldg., Washington, D.C. 20515
The Honorable Dan Burton, Chairman, Committee on Govt Reform,
House of Representatives, Washington, D.C. 20515
Deputy Staff Director, Counsel, Subcommittee on Criminal Justice, Drug Policy & Human
Resources, B373 Rayburn House Ofc. Bldg., Washington, D.C. 20515
Steve Redburn, Chief, Housing Branch, Office of Management and Budget
725 17th Street, NW, Room 9226, New Exec. Ofc. Bldg., Washington, D.C. 20503
Inspector General, G
Uvalde Housing Authority
Texas State Auditor
Texas Department of Housing and Community Affairs
Mayor, Uvalde, Texas
Board Chairman of Authority
Board Chairman of Uvalde Housing Development Corporation
01-FW-203-1003 Page 38
Housing Authority of the City of Uvalde Section 8 and Low Rent Programs
Published by the Department of Housing and Urban Development, Office of Inspector General on 2000-12-18.
Below is a raw (and likely hideous) rendition of the original report. (PDF)