oversight

Housing Authority of Independence, Internal Control Review, Independence, MO

Published by the Department of Housing and Urban Development, Office of Inspector General on 2000-10-24.

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

                AUDIT REPORT




           INDEPENDENCE HOUSING AUTHORITY
               INTERNAL CONTROL REVIEW

               INDEPENDENCE, MISSOURI

                     01-KC-202-1001

                   OCTOBER 24, 2000


               OFFICE OF AUDIT, GREAT PLAINS
                   KANSAS CITY, KANSAS




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                                                                       Issue Date
                                                                               October 24, 2000
                                                                      Audit Case Number
                                                                               01-KC-202-1001




      TO:            Andrew L. Boeddeker, Director, Office of Public Housing, 7APH


      FROM:          Roger E. Niesen, District Inspector General for Audit, 7AGA

      SUBJECT:       Housing Authority of Independence
                     Internal Control Review
                     Independence, Missouri

      We completed an audit of the Housing Authority of Independence. We selected the Authority
      based on input from HUD that indicated the Authority lacked adequate internal controls. The
      overall objectives of our audit were to evaluate the Authority’s internal controls and to determine
      whether the Authority complied with applicable laws and regulations.

      We found that the Authority did not always have policies and procedures for its operations; and
      where policies and procedures did exist, they were not always complete, approved by the Board of
      Commissioners, or enforced. We identified deficiencies in the Authority’s control over its assets,
      procurement process and Section 8 program; and determined the Authority had not resolved
      deficiencies in its financial statements for fiscal year ended March 31, 1999. We also determined
      the Board of Commissioners had not always complied with a State statute, and that the Authority
      needs to improve its human resources function.

      Within 60 days please give us, for each recommendation in this report, a status report on: (1) the
      corrective action taken; (2) the proposed corrective action and the 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.

      Should you or you staff have any questions, please contact me at (913) 551-5870.




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      Executive Summary
      We completed an audit of the Housing Authority of Independence. We selected the Authority
      based on input from HUD that indicated the Authority lacked adequate internal controls. The
      overall objectives of our audit were to evaluate the Authority’s internal controls and to determine
      whether the Authority complied with applicable laws and regulations related to disbursements,
      receivables and cash, procurement, inventory, investments, human resources, grant administration,
      Board of Commissioners’ oversight, application processes, public housing evictions, maintenance,
      and the management information system. We assessed the Authority’s efforts to resolve
      deficiencies identified in its financial statement audit for fiscal year ended March 31, 1999. We
      also assessed the Authority’s actions regarding a Section 8 Management Review conducted by
      HUD in 1999, and two consultant reviews also conducted in 1999. Further, we evaluated the
      Authority’s compliance with the “Housing Opportunity Program Extension Act of 1996.”

      We found that the Authority did not always have policies and procedures for its operations; and
      where policies and procedures did exist, they were not always complete, approved by the Board of
      Commissioners, or enforced. Also, the Authority lacked an acceptable system of controls over its
      assets; did not resolve deficiencies identified in its financial statement audit for fiscal year ended
      March 31, 1999; did not ensure Board of Commissioners meetings complied with a Missouri
      statute; lacked adequate controls over its procurement process; and lacked an acceptable system of
      controls over its Section 8 program. Further, the Authority needs to improve its human resources
      function.

      Because of the lack of controls, HUD has minimal assurance the Authority adequately controlled its
      operations and conducted business in the most efficient and effective manner.



                                             The Authority did not always have written policies and
       Authority Lacked Policies             procedures for its operations. Additionally, when policies
       and Procedures                        and procedures did exist, they were not always complete,
                                             approved by the Board of Commissioners, or enforced (see
                                             Finding 1).

                                             The Authority did not have an acceptable system of controls
       Authority Lacked Control              over its assets. The Authority did not: (1) have adequate
       Over Assets                           policies and procedures for investments, (2) properly disclose
                                             or monitor its investments; (3) segregate duties for the
                                             collecting, recording and depositing of receipts; (4) segregate
                                             duties for the control of its fixed asset inventory; and (5)
                                             maintain documentation to support its physical inventory
                                             count and valuation of fixed asset inventory (see Finding 2).

                                             The Authority did not resolve deficiencies identified in its
       Authority Did Not                     financial statement audit for fiscal year ended March 31,
       Resolve Deficiencies in               1999. The independent auditor reported that the account
       Financial Statements
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                                  balances for three tenant-related subsidiary accounts did not
                                  agree with the general ledger account balances at the end of
                                  the fiscal year (see Finding 3).

                                  The Authority’s Board of Commissioners did not always
       Board of Commissioners     comply with regulations of a Missouri statute that governs
       Did Not Always Comply      the conduct of public meetings. For example, the Board
       with Missouri Statute      discussed issues in closed sessions that were not
                                  appropriately identified, or identified at all, in the notices of
                                  public meetings. The Board also conducted business in a
                                  way that could be perceived as improper. For example, the
                                  Board held closed sessions on days other than when
                                  holding regular or special Board meetings, and conducted
                                  telephone voting polls outside of Board sessions to make
                                  decisions on Authority business (see Finding 4).

                                  The Authority did not have adequate controls over its
       Authority Needs to         procurement process. Specifically, the Authority did not: 1)
       Improve Controls Over      require adequate competition; 2) develop formal independent
       Procurement                cost estimates to evaluate bids received; 3) formally delegate
                                  authority for making purchases; 4) use contracts for goods
                                  and services that protected its interests; 5) use written
                                  contract modifications; 6) adequately document
                                  procurement histories; and 7) use a central contract register
                                  to maintain control of all contracts in force (see Finding 5).

                                  The Authority did not have an acceptable system of
       Authority Lacked Control   controls over its Section 8 program. The Authority did not:
       Over Section 8 Program     1) have policies and procedures to ensure that Housing
                                  Assistance Payments made to landlords were appropriate;
                                  2) timely update its Section 8 eligibility/waiting list; 3)
                                  adjust its books and records to properly reflect Section 8
                                  checks returned to the Authority; and 4) follow up on
                                  outstanding Section 8 checks (see Finding 6).

                                  The Authority needs to improve its human resource
       Authority Needs to         function by: 1) updating job descriptions; 2) taking a
       Improve Human Resource     proactive approach to employee training needs; 3) tracking
       Function                   training attended; and 4) improving communication and
                                  flow of information among its staff (see Finding 7).

                                  We recommend that the Director, Office of Public Housing,
                                  ensure the Authority establishes adequate internal controls
                                  for all areas of its operation, including developing and
                                  implementing Board-approved policies and procedures. We

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      Executive Summary


                          also recommend the Office of Public Housing ensure that the
                          Authority takes appropriate action on all other concerns
                          addressed in this report.

                          We provided our draft findings to the Authority’s Executive
                          Director throughout the period of September 6, 2000 through
                          October 3, 2000. The Executive Director provided written
                          comments to our draft findings on several occasions, with the
                          last response received on October 6, 2000. We included
                          excerpts of the comments with each finding. The complete
                          text of the comments are included in Appendix B. We
                          conducted an exit conference with the Authority’s Executive
                          Director on October 10, 2000.




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Management Memorandum                                                              i



Executive Summary                                                                iii



Introduction                                                                      1



Findings

1. The Authority Lacked Policies and Procedures for Its Operations                 3


2. The Authority Lacked Control Over Its Assets                                   11

3. The Authority Did Not Resolve Deficiencies in Its Financial Statements         20

4. The Board of Commissioners Did Not Always Comply with Missouri Statute         23

5. The Authority Needs to Improve Controls Over Its Procurement Process           27

6. The Authority Lacked Adequate Control Over Its Section 8 Program               38

7. The Authority Needs to Improve Its Human Resource Function                     43




Management Controls                                                                49



Follow Up On Prior Audits                                                          51




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Appendices
   A      Schedule of Questioned Costs   52

   B      Audit Comments                 53

   C      Distribution                   65




01-KC-202-1001                Page vi


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      Introduction
      On September 5, 1961, the City Council of Independence, Missouri adopted a City ordinance that
      created the Housing Authority of the City of Independence, Missouri. The ordinance declared the
      need for a housing authority in the City of Independence, based on stipulations of “The Housing
      Authorities Law” of the State of Missouri. The Mayor of Independence proceeded to appoint five
      persons to serve as Commissioners of the Authority. The current Board of Commissioners also
      consists of five persons.

      The Authority contracts with HUD to provide low and moderate income individuals with safe and
      sanitary housing through rent subsidies. The Authority administers 532 public housing units and
      686 Section 8 units. The Authority’s central office is located at 210 South Pleasant, Independence,
      Missouri.



                                            The overall objectives of our audit were to evaluate the
       Audit Objectives                     Authority’s internal controls and to determine whether the
                                            Authority complied with applicable laws and regulations
                                            related to disbursements, receivables, procurement,
                                            inventory,    investments,     human     resources,  grant
                                            administration, application processes, public housing
                                            evictions, maintenance, and the management information
                                            system. We also assessed the Board of Commissioners’
                                            oversight and the Authority’s compliance with the “Housing
                                            Opportunity Program Extension Act of 1996.”

                                            We performed our on-site work from March through
       Audit Scope and                      September 2000.
       Methodology
                                            We interviewed HUD program staff to obtain background
                                            information on the Authority, and Authority employees to
                                            gain an understanding of the Authority’s operational
                                            processes.     We also interviewed the Authority’s fee
                                            accountant to obtain financial data, and Section 8 landlords
                                            to verify tenancy and subsidy payments data.

                                            To determine whether the Authority complied with
                                            applicable laws and regulations, we analyzed HUD files,
                                            consultant reports, Board of Commissioner meeting
                                            minutes, the Commissioners’ Handbook, organizational
                                            charts, employee orientation packets, personnel and payroll
                                            records, policies and procedures, Authority internal
                                            memorandums, bank statements and blank/canceled/voided
                                            checks, cash reconciliations, cash receipts and deposits,
                                            cash disbursements and invoices, journal vouchers, vendor

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                       files and contracts, purchase orders, maintenance work
                       orders, year-end inventory count sheets and fixed asset
                       inventory lists, investment records, management
                       information system manuals, grant files, Section 8 landlord
                       files, tenant files and account ledgers, training records, and
                       lease agreements. We also analyzed the Authority’s year-
                       end financial statements for the period ended March 31,
                       1999, and monthly financial statements, as applicable. In
                       addition, we reviewed the Authority’s Administrative Plan,
                       Admissions and Continued Occupancy Plan, and 5-Year
                       Plan for Fiscal Years 2000 - 2004 / Annual Plan for Fiscal
                       Year 2000.

                       Further, we conducted surprise cash counts of three petty
                       cash funds and verified the accuracy of a sample of the
                       fixed assets from the Authority’s fixed asset inventory list.

                       The audit covered the period from January 1999 through
                       September 2000, and was adjusted as necessary. We
                       conducted the audit in accordance with generally accepted
                       government auditing standards.

                       We provided a copy of this report to the Authority’s
                       Executive Director and the Chairman of the Board of
                       Commissioners.




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                                                                                                Finding 1


        The Authority Lacked Policies and Procedures
                     for Its Operations
      The Housing Authority of Independence did not always have written policies and procedures for
      its operations. Additionally, where policies did exist, they were not always complete, approved
      by the Board of Commissioners, or enforced. Policies and procedures were lacking because
      management did not fulfill its responsibility to establish, implement and maintain effective internal
      controls. Written policies and procedures that are current help ensure Authority personnel
      conduct business according to applicable regulations and guidelines, and manage operations
      efficiently and effectively.



                                            Section 4 of the Consolidated Annual Contributions
       HUD Requirements                     Contract states that housing authorities at all times should
                                            operate projects in a manner that promotes serviceability,
                                            economy, efficiency, stability of the projects, and the
                                            economic and social well-being of tenants. Section 9,
                                            paragraph (C) states that a housing authority must maintain
                                            records that identify the source and application of funds in
                                            such a manner as to allow HUD to determine that all funds
                                            are and have been expended in accordance with each
                                            specific program regulation and requirement. Section 15,
                                            paragraph (A) says that the Authority must maintain
                                            complete and accurate records to permit timely and
                                            effective audits.

                                            HUD Handbook 7460.8, paragraph 4-4 (C) says that the
                                            Executive Director should establish procedures for periodic
                                            audits of the petty cash fund operation.

                                            HUD Directive Number 96-33, paragraph 2 says housing
                                            authorities are required to establish cash management
                                            procedures, which include maximizing the yield from the
                                            investment of temporarily surplus funds.

                                            24 CFR Part 85.20 states that the financial management
                                            systems of other grantees and subgrantees must meet internal
                                            control standards. The regulation also says that effective
                                            control and accountability must be maintained for all grant
                                            and subgrant cash, real and personal property, and other
                                            assets. Grantees and subgrantees must adequately safeguard


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      Finding1


                                 all such property and must assure that it is used solely for
                                 authorized purposes.

                                 24 CFR Part 85.32 (d)(1) requires grantees of federal funds
                                 to maintain property records for equipment that includes a
                                 description of the property, serial number or identification
                                 number, source of the property, titleholder, acquisition date,
                                 cost of the property, federal participation in the cost of the
                                 property, location, use and condition of the property, and
                                 any ultimate disposition date, including the date of disposal
                                 and sales price of the property. Paragraph (d)(2) requires
                                 grantees to conduct a physical inventory of the property and
                                 reconcile results with property records at least once every
                                 two years.

                                 24 CFR Part 85.42 and related HUD directives state that
                                 financial records and supporting documents pertinent to an
                                 award should be retained for a period of three years from the
                                 date of submission of the quarterly or annual financial report,
                                 as authorized by HUD.

                                 24 CFR Part 85.22 (b) requires State, local, and Indian tribal
                                 governments to follow the Office of Management and
                                 Budget Circular A-87, Cost Principles for State and Local
                                 Governments. A public housing authority is a local
                                 government according to 24 CFR Part 85.3.

                                 Office of Management and Budget Circular A-87,
       Office of Management      Attachment A, paragraph A(2)(a)(1) states that housing
       and Budget Requirements   authorities are responsible for the efficient and effective
                                 administration of federal awards through the application of
                                 sound management practices.

                                 The Committee of Sponsoring Organizations of the
       Other Guidance            Treadway Commission published a report, “Internal Control
                                 Integrated Framework,” that outlines the components of an
                                 organization’s control environment.        One of those
                                 components addressed the need for effective assignment of
                                 authority and responsibility.

                                 The Treadway report pointed out that the assignment of
                                 responsibility, delegation of authority and establishment of
                                 related policies provide a basis for accountability and control,
                                 and set forth individuals’ respective roles.


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                                                                                                    Finding1


                                     The Authority did not always have written policies and
       Policies and Procedures       procedures for its operations. Additionally, where the
       Were Nonexistent,             Authority had policies and procedures, these policies and
       Incomplete, Unapproved,       procedures were not always complete, approved by the Board
       or Not Enforced               of Commissioners, or enforced.

                                     The following table categorizes our findings for the areas of
                                     operation reviewed.

                                                                     Incomplete or                  Policies and
                                                      Nonexistent      Inadequate    Unapproved     Procedures
                                 Area of Operation    Policies and    Policies and   Policies and       Not
                                    Reviewed          Procedures       Procedures    Procedures      Enforced

                                 Disbursements                            X

                                 Receivables/Cash          X

                                 Inventory                                X

                                 Investments                              X

                                 Human Resources                          X
                                 Grant
                                 Administration                           X               X
                                 Board of
                                 Commissioners                            X
                                 Management
                                 Information
                                 Systems                                  X

                                 Tenant Services                          X               X

                                 Procurement                                                             X


                                     The Authority did not have policies and procedures for 1 of
       Policies and Procedures       10 major areas of its operation: receivables/cash. The
       Did Not Exist                 Authority lacked policies and procedures for receiving,
                                     reporting, and depositing receipts (tenant and non-tenant);
                                     collecting debts owed to the Authority; and reporting unpaid
                                     debts to credit bureaus (see Finding 2). Current policies and
                                     procedures are needed for all areas to provide the Authority
                                     and HUD assurance that operations are efficient and
                                     effective, and conducted according to regulations.

                                     The Authority’s policies and procedures were incomplete or
       Policies and Procedures
                                     inadequate for 8 of 10 major areas of its operation. The
       Were Incomplete or
                                     following list describes specific functions within the major
       Inadequate
                                     areas of operation which were performed with incomplete or
                                     inadequate policies and procedures:


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                       1) Disbursements
                             - Policies and procedures were incomplete,
                                lacking policies and procedures for:
                                     •= disbursing Authority funds for public
                                         housing activities, and
                                     •= disbursing Section 8 assistance
                                         payments (also see Finding 6).

                              -     Policies and procedures were inadequate for
                                    petty cash funds. The policies and procedures
                                    for the petty cash funds addressed only the
                                    Central Office fund. However, the Authority
                                    used two other petty cash funds and had Board of
                                    Commissioner authorization for a total of seven
                                    such funds. The policies and procedures for the
                                    Central Office fund were adequate except that
                                    they did not assign control and responsibility for
                                    the    fund     to    a     specific   Authority
                                    employee/position.

                       2) Inventory
                             - Policies and procedures were incomplete,
                                 lacking policies and procedures for:
                                      •= verifying inventory adjustments made to
                                          the management information system,
                                          and
                                      •= retaining records according to federal
                                          requirements.

                              -     Policies and procedures were inadequate to
                                    meet the Authority’s needs. The Authority had
                                    an Operations Procedures Manual; however, the
                                    Authority did not rely on it because it was not
                                    adequate to meet the Authority’s needs.
                                    According to the Director of Operations, the
                                    Authority had been working with a consultant
                                    for the past two years to improve its inventory
                                    and maintenance operations, and efforts were
                                    still ongoing.       These efforts included
                                    documenting the Authority’s policies and
                                    procedures for inventory and maintenance
                                    functions, and developing a preventive
                                    maintenance plan.



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           3) Investments
                 - Policies and procedures were inadequate to
                     protect the Authority’s interests.           The
                     Authority had an Investment Policy, but the
                     policy authorized the Executive Director to make
                     all investment purchase and transfer decisions,
                     without Board of Commissioner approval. In
                     addition, the policy did not provide investment
                     dollar limits or instructions for redeeming
                     investments.

           4) Human Resources
                - Policies and procedures were incomplete,
                  lacking policies and procedures for:
                        •= verifying payroll computations (also see
                           Finding 7),
                        •= identifying and tracking training (also
                           see Finding 7), and
                        •= providing       timely      performance
                           evaluations (also see Finding 7).

           5) Grant Administration
                 - Policies and procedures were incomplete,
                    lacking policies and procedures for:
                         •= ensuring grant activities and expenses
                             complied with grant stipulations.

           6) Board of Commissioners
                 - Policies and procedures were incomplete,
                    lacking policies and procedures for:
                         •= conducting Board of Commissioner
                             meetings within applicable State
                             statutes (also see Finding 4).

           7) Management Information Systems
                - Policies and procedures were incomplete,
                   lacking policies and procedures for:
                        •= controlling overall data integrity and
                            security of the computer system.

           8) Tenant Services
                 - Policies and procedures were inadequate for
                    tenant evictions. The Authority’s Admissions
                    and Continued Occupancy Policy, revised
                    March 21, 2000, provided basic guidelines for

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                                            tenant evictions; however, the policies and
                                            procedures did not address responsibility for
                                            evictions. The Admissions and Continued
                                            Occupancy Policy addressed the reasons for
                                            eviction, timing of notices for evictions,
                                            language to be used in eviction notices, and
                                            mode of delivery and timing of the notices.
                                            However, the policy did not define which
                                            Authority employees were responsible for
                                            performing the eviction functions and whether
                                            senior management approval was necessary
                                            before eviction procedures began. Not having
                                            proper approval levels documented could
                                            unnecessarily put the Authority at risk of legal
                                            actions.

                               The Executive Director implemented policies and
       New Policies and        procedures to better control two functions of the
       Procedures Need Board   Authority’s operations. Although we considered these
       Approval                policies and procedures to be adequate to control their
                               respective functions, the policies and procedures had not
                               been approved by the Board of Commissioners.

                               On February 25, 2000, the Executive Director issued a
                               memo which addressed the need for an audit trail to support
                               drawdown of grant funds from HUD’s Line of Credit
                               Control System. The memo requires Authority staff to use
                               a detailed "Line of Credit Control System Backup
                               Documentation Form" which the Executive Director must
                               approve by signature and date before the drawdown is
                               made. The form details the nature and dollar amount of
                               each expense included in the drawdown. The memo
                               applies to all Line of Credit Control System drawdowns
                               and requires adequate support before the Executive
                               Director will approve the drawdown.

                               On June 14, 2000, the Executive Director issued another
                               memo that addressed the need for improvement in taking
                               applications from potential public housing and Section 8
                               tenants. The policies and procedures for these two areas
                               should be adequate to control the respective operations.
                               However, the Board of Commissioners needs to approve all
                               policies and procedures to ensure they are adequate and meet
                               intended objectives.


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                                 The Authority had implemented a Procurement Policy, but
       Policies and Procedures   did not enforce its requirements. The Authority did not
       Need Enforced             follow its policies and procedures regarding solicitation for
                                 bids, development of independent cost estimates, issuance
                                 of formal delegations of authority, use of written contract
                                 modifications, and maintenance of adequate procurement
                                 histories (see Finding 5).



      Auditee Comments           Excerpts from the Executive Director’s comments on our
                                 draft finding follow. Appendix B contains the complete text
                                 of the comments.

                                 The Authority concurs that there are several major areas of
                                 operation within which policies and implementing
                                 procedures need to be developed. The majority of the
                                 agency’s deficiencies in policies and/or procedures are
                                 addressed within responses to other specific OIG findings.
                                 To summarize, the Authority will develop, adopt and
                                 implement policies and procedures to address all areas of
                                 deficiency. Deficient areas the Authority will address
                                 include disbursements, receivables and cash, inventory,
                                 investments, human resources, grant administration, Board of
                                 Commissioners, Management Information Systems, and any
                                 other deficiencies that come to light during this process.

                                 The Authority will also evaluate and amend, as appropriate,
                                 existing policies and procedures. All new or revised policies
                                 and procedures will be presented to the Board of
                                 Commissioners for consideration of approval, including any
                                 such changes implemented by Executive Order. However, as
                                 it is the Executive Director’s responsibility to ensure that the
                                 Authority operates in compliance with all applicable Federal,
                                 State and local rules, regulations and ordinances, he will not
                                 delay implementing changes in policy or procedure until
                                 formal Board approval has taken place where clear violations
                                 of any such rules, regulations or ordinances may be
                                 occurring. Likewise, the Executive Director will not be
                                 compelled to implement any policy or procedure adopted by
                                 the Board of Commissioners that would, if implemented,
                                 clearly be in violation of any such rule, regulation or
                                 ordinance, or that would not be ethical.




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                          The Executive Director acknowledges also having the
                          responsibility to keep Commissioners informed regarding
                          applicable rules, regulations and ordinances, and any
                          potential conflicts proposed policies or procedures may have
                          with those rules, regulations or ordinances. It is the
                          Executive Director’s responsibility to enforce Board policies.
                          The Executive Director acknowledges that there are several
                          instances where the agency’s procurement policies have not
                          been followed appropriately. The Executive Director is
                          taking steps to ensure future compliance with policy.



      OIG Evaluation of   The actions the Authority has taken and planned should
      Auditee Comments    correct the problems identified in this finding if the actions
                          are followed through to completion.

                          We originally included a recommendation in this finding that
                          addressed enforcement of the Authority’s Procurement
                          Policy. Because we fully addressed this issue in Finding 5,
                          we removed the recommendation from this finding.



      Recommendations     We recommend the Director, Office of Public Housing,
                          ensure the Housing Authority of Independence:

                          1A.      Develops and implements Board-approved policies
                                   and procedures that adequately address the
                                   functions of each major area of operation.

                          1B.      Evaluates and amends, where appropriate, the
                                   policies and procedures already in place.

                          1C.      Obtains approval from the Board of Commissioners
                                   for policies and procedures already implemented
                                   through Executive Director memorandums.




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                                                                                                Finding 2


        The Authority Lacked Control Over Its Assets
      The Housing Authority of Independence did not have an acceptable system of controls over its
      assets. The Authority did not: (1) have adequate policies and procedures for investments; (2)
      properly disclose or monitor its investments; (3) segregate duties for the collecting, recording and
      depositing of receipts; (4) segregate duties for the control of its fixed asset inventory; and (5)
      maintain documentation to support its physical inventory count and valuation of fixed asset
      inventory. These weaknesses occurred because the Authority’s management did not fulfill its
      responsibility to establish and implement effective internal controls. Effective controls are
      necessary to protect against loss or misuse of assets. The lack of control over investments caused
      the Authority to misrepresent its assets on its financial statements and lose accountability over
      investment funds. Also, HUD and the Authority lack assurance that the valuation presented in the
      financial statements accurately reflects the fixed asset inventory.



                                            Section 9, paragraph (C) of the Consolidated Annual
       HUD Requirements                     Contributions Contract requires the Authority to maintain
                                            records that identify the source and application of funds in
                                            such a manner as to allow HUD to determine that all funds
                                            are and have been expended in accordance with each
                                            specific program regulation and requirement. Section 15,
                                            paragraph (A) states that the Authority must maintain
                                            complete and accurate books of account for the projects of
                                            the Authority in such a manner to permit the preparation of
                                            statements and reports in accordance with HUD
                                            requirements, and to permit timely and effective audits.

                                            HUD Directive Number 96-33, paragraph 2 says housing
                                            authorities are required to establish cash management
                                            procedures, which includes maximizing the yield from the
                                            investment of temporarily surplus funds. Paragraph 6(e)
                                            states that an investment register or other record must be
                                            maintained by the Authority or its agent. The register/record
                                            must be maintained in such a manner that a determination
                                            can be made as to the amount of investment securities
                                            purchased from each fund and at a minimum provide for
                                            recording a complete description of investment instrument,
                                            date of purchase, purchase price, interest rate, and applicable
                                            date of sale or maturity. The investment register/record may
                                            also be used to identify the source of funds invested (i.e.
                                            modernization or development funds, tenant security deposit
                                            funds, operating funds).


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                       Paragraph 6(f) requires housing authorities to implement the
                       following internal controls to assist in controlling
                       investments and preventing loss or misuse:

                          •= Investment transactions must be authorized by the
                             housing authority governing board and documented
                             in the board minutes.
                          •= Investment documents shall be kept in a safe fire-
                             resistant locked file cabinet, safe deposit box, or
                             other similarly secured location.
                          •= Individuals responsible for custody of securities
                             must be someone other than an individual
                             maintaining the accounting records.
                          •= Investments must be maintained in a custodian or
                             trust account.
                          •= Investments must be in the name of the housing
                             authority.
                          •= Investments must be recorded in detail in an
                             investment ledger.
                          •= A system must be in place to ensure that all interest
                             earned is collected and credited to the appropriate
                             housing authority records.
                          •= Investments must be reconciled periodically to the
                             detailed record (investment ledger).

                       24 CFR Part 85.20 states that the financial management
                       systems of grantees and subgrantees must meet internal
                       control standards. The regulation also says that effective
                       control and accountability must be maintained for all grant
                       and subgrant cash, real and personal property, and other
                       assets.    Grantees and subgrantees must adequately
                       safeguard all such property and must assure that it is used
                       solely for authorized purposes. This Section also requires
                       the financial management systems of grantees and
                       subgrantees to meet financial reporting standards. The
                       financial reporting must be accurate, current, and provide
                       complete disclosure of the financial results of financially
                       assisted activities, in accordance with the financial
                       reporting requirements of the grant or subgrant. Further,
                       grantees and subgrantees must maintain records which
                       adequately identify the source and application of funds
                       provided for financially-assisted activities. These records
                       must contain information pertaining to grant or subgrant
                       awards and authorizations, obligations, unobligated


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                                 balances, assets, liabilities, outlays or expenditures, and
                                 income.

                                 24 CFR Part 85.32 (d)(1) requires grantees of federal funds
                                 to maintain property records for equipment that includes a
                                 description of the property, serial number or identification
                                 number, source of the property, titleholder, acquisition date,
                                 cost of the property, federal participation in the cost of the
                                 property, location, use and condition of the property, and any
                                 ultimate disposition date, including the date of disposal and
                                 sales price of the property. Paragraph (d)(2) requires
                                 grantees to conduct a physical inventory of the property and
                                 reconcile results with property records at least once every
                                 two years.

                                 24 CFR Part 85.22 (b) requires State, local, and Indian
                                 tribal governments to follow the Office of Management and
                                 Budget Circular A-87, Cost Principles for State and Local
                                 Governments. A public housing authority is a local
                                 government according to 24 CFR Part 85.3.

                                 Office of Management and Budget Circular A-87,
       Office of Management      Attachment A, paragraph A(2)(a)(1) states that housing
       and Budget Requirements   authorities are responsible for the efficient and effective
                                 administration of federal awards through the application of
                                 sound management practices.

                                 As previously mentioned in Finding 1, the Authority did not
       Authority Lacked          have adequate policies and procedures governing
       Adequate Policies and     investments. The Authority’s Investment Policy authorized
       Procedures for            the Executive Director to make all purchase and transfer
       Investments               decisions without Board of Commissioner approval. The
                                 policy also did not provide investment dollar limits or
                                 instructions for redeeming investments.

                                 Further, the Authority’s documentation for Certificates of
                                 Deposit (Certificates) was incomplete or inadequate,
                                 making it difficult to ascertain the history of each
                                 Certificate. Only the signature of the former Executive
                                 Director was present on documentation in the files, such as
                                 on redemption certifications when Certificates were
                                 redeemed or on deposit forms when Certificates were
                                 purchased.




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                                 Adequate policies and procedures are needed to provide
                                 HUD and the Authority assurance investments are
                                 adequately safeguarded against loss, and are managed in an
                                 efficient and effective manner.

                                 The Authority did not properly present investments on its
       Authority Did Not         financial statements, and did not monitor the investments to
       Properly Disclose or      ensure effective cash management. Further, the Authority
       Monitor its Investments   maintained savings accounts that were unused except for
                                 drawing minimal interest revenue, and failed to close out
                                 escrow accounts when the related activities were
                                 completed.

                                 The Authority’s financial statements defined its investments
                                 as savings and money market accounts, escrow accounts
                                 and Certificates. The Authority did not efficiently manage
                                 or accurately account for such investments. Specifically:

                                    •= A public housing savings account was opened in
                                       1984, and the only transactions since July 1993
                                       were to record interest. The balance on April 30,
                                       2000 was $11,771.

                                    •= A public housing escrow account was opened in
                                       1997 with funds held in dispute regarding a
                                       construction contract. The Authority settled the
                                       dispute, but paid the settlement from a different
                                       source and failed to close the escrow account and
                                       repay the other fund. The only transactions since
                                       the escrow account was opened were to record
                                       interest. The balance on April 30, 2000 was
                                       $15,063.

                                    •= A public housing account for $97,898 shown on the
                                       March 31, 1999 year-end financial statements as an
                                       Authority investment was actually the employee
                                       pension account that was a restricted fund (liability)
                                       account. The Authority included it as an investment
                                       because it was cash held in a bank account.
                                       However, including the pension fund as an
                                       investment overstated the Authority’s assets.

                                    •= Another public housing escrow account was opened
                                       in March 1999 with funding to pay for entry doors
                                       at one of the Authority’s properties. The Authority

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              had a dispute with the contractor and eventually
              settled the dispute in July 1999. The Authority paid
              the contractor a lesser amount than originally agreed
              upon, leaving part of the original funding in the
              account. Since the payoff of the contractor, the only
              transactions have been to record interest. The
              Authority failed to close the escrow when its
              purpose ended. The balance on April 30, 2000 was
              $6,776. In addition, the escrow account had a
              balance of $37,254 on March 31, 1999, but was not
              included in the year-end financial statements.

           •= A Section 8 Certificate for $51,925 was improperly
              included on the March 31, 1999 year-end financial
              statement. The Authority liquidated the Certificate
              and re-invested $4,206 in another Certificate prior
              to March 31, 1999, but failed to remove the original
              Certificate from its investment records. As a result,
              the Section 8 assets were overstated by $47,719
              ($51,925 original Certificate amount less the $4,206
              re-investment Certificate). In addition, the failure to
              remove the original Certificate from the investment
              records caused the Authority to include $48,500 of
              the original Certificate on the April 30, 2000 month-
              end financial statement, thereby overstating the
              Section 8 assets by this amount in 2000.

           •= A Section 8 Certificate was improperly duplicated
              when the Authority reported the same Certificate on
              both the Section 8 and public housing month-end
              reports of April 30, 2000. The Authority correctly
              reported the $4,206 Certificate as a Section 8 asset,
              but incorrectly duplicated the Certificate as a public
              housing asset.       The Authority recorded the
              Certificate on the public housing report at a value of
              $4,400 ($4,206 plus interest). This caused an
              overstatement of public housing assets by $4,400.

           •= A $61,936 Certificate was improperly recorded on
              the April 30, 2000 month-end financial statement.
              The financial statement reflected an erroneous
              Certificate number and did not identify the correct
              bank holding the Certificate.



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                          •= The Authority failed to include a Section 8
                             Certificate on its financial statements even though it
                             had held the Certificate since October 16, 1998,
                             thereby understating the Section 8 assets on both the
                             March 31, 1999 and April 30, 2000 financial
                             statements. The Certificate was valued at $12,421
                             on March 24, 2000.

                       In summary, the incorrect reporting of investments caused
                       the public housing assets to be overstated by $60,644 for
                       fiscal year ended March 31, 1999, and $4,400 for the month
                       ended April 30, 2000. Also, the Section 8 assets were
                       overstated by $35,298 for fiscal year ended March 31,
                       1999, and $36,079 for the month ended April 30, 2000.

                       Further, the lack of monitoring and proper cash
                       management caused $33,610 in cash resources to remain in
                       bank accounts, drawing minimal interest revenue, when
                       these funds could have been put to better use. For example,
                       by combining the funds in the dormant savings and escrow
                       accounts, the Authority could invest the funds in a
                       Certificate or Money Market account and earn a higher
                       yield than the savings accounts.

                       The Authority’s process of reconciling investment account
                       information to its general ledger was not adequate to ensure
                       that investments were accurately recorded and reported.
                       Although the Authority performed reconciliation procedures,
                       the employee performing the reconciliation process was not
                       provided sufficient investment information to adequately
                       reconcile the accounts. The former Executive Director
                       controlled    investment      transactions   and      related
                       documentation, but did not properly notify the Accounting
                       department when changes were made to investments.
                       Without proper reconciliation guidelines and processes,
                       HUD and the Authority have no assurance that investments
                       will be accurately recorded and reported.

                       We also determined that the Authority did not have an
                       investment register to track investment activity. The
                       Authority’s former Executive Director maintained all
                       investment documentation in files in his office. The files
                       were incomplete, making it difficult to ascertain the history
                       of the Certificates. To help ensure proper recording and


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                               reporting of investments, the Authority needs to establish an
                               investment register and keep it continually updated.

                               The Authority did not segregate the duties of collecting,
       Authority Did Not       recording and depositing rent and other receipts. One
       Segregate Duties        Authority employee was solely responsible for collecting,
       Regarding Receipts      recording and depositing all tenant-related receipts. This
                               employee collected the rent and other tenant charges for all
                               three public housing properties, then recorded the receipts
                               to the individual tenant accounts, and deposited the
                               receipts. Another employee was solely responsible for the
                               same duties for all non-tenant receipts. Although we did
                               not determine any assets were missing, proper segregation
                               of duties is important to provide HUD and the Authority
                               assurance that resources are properly controlled. The
                               Authority’s inadequate segregation of duties increases its
                               susceptibility to the misuse of funds without detection.

                               The Authority did not adequately segregate the duties of
       Authority Did Not       tracking fixed asset inventory, approving disposals of such
       Segregate Duties        inventory, and making fixed asset adjustments to the
       Regarding Fixed Asset   Authority’s computer records. One Authority employee was
       Inventory               responsible for all of these functions. We did not determine
                               any fixed assets were missing; however, as previously
                               mentioned, proper segregation of duties is important to
                               provide HUD and the Authority assurance that assets are
                               properly controlled.

                               The Authority was not able to provide documentation to
                               support its year-end physical inventory of fixed assets for
                               fiscal year ended March 31, 2000. Although Authority
                               employees said the inventory was taken, the Authority
                               could not provide supporting documentation. Therefore,
                               HUD and the Authority have no assurance that the fixed
                               asset inventory valuation included in its financial
                               statements is accurate.



      Auditee Comments         Excerpts from the Executive Director’s comments on our
                               draft finding follow. Appendix B contains the complete text
                               of the comments.

                               The Authority concurs that the agency’s cash management
                               strategies and Board-approved policies (i.e., Investment

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                          Policy dated April 14, 1994) and procedures need to be
                          upgraded and implemented as soon as possible. Staff is
                          currently drafting revised policies and procedures for Board
                          approval. Staff and the Fee Accountant are currently
                          researching the histories of existing investment accounts and
                          are setting up each investment in an interactive Excel
                          spreadsheet ledger. The entire history of each current
                          investment is being entered into this ledger, which will, when
                          completed, be able to portray the agency’s investment
                          portfolio. All agency savings and escrow accounts are being
                          set up in the ledger and will be evaluated/dissolved as
                          appropriate. The ledger will serve as our investment register.

                          Policies and procedures are in draft whereby the duties of
                          collecting, recording and depositing tenant and non-tenant
                          receipts will be divided between three staff members. This
                          process has been instituted on a temporary basis pending
                          Board approval. Written procedures will be in place by
                          December 31, 2000, which will segregate responsibilities and
                          control of the fixed asset inventory, and implement the
                          Disposition Policy. Further, written policies and procedures
                          are in development that will ensure proper documentation of
                          annual inventory counts as well as provide an accurate audit
                          trail.



      OIG Evaluation of   We were not provided a copy of an investment policy during
      Auditee Comments    our audit and, therefore, concluded one did not exist. In its
                          comments, the Authority indicated that it had an investment
                          policy dated in 1994, but that it needed to be upgraded and
                          implemented. We evaluated the Authority’s Investment
                          Policy of 1994 and changed our finding to state that the
                          Authority did not have adequate policies and procedures
                          rather than had no policies and procedures for investments.

                          The actions planned and taken by the Authority should
                          correct the problems identified in the finding if the actions
                          are followed through to completion.



      Recommendations     We recommend the Director, Office of Public Housing,
                          ensure the Housing Authority of Independence:


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           2A.      Develops and implements cash management
                    strategies and Board-approved policies and
                    procedures to ensure that cash management
                    decisions are in the best interest of HUD and the
                    Authority. These policies and procedures should
                    include guidance for purchasing, tracking, adjusting,
                    and liquidating investments; and address
                    reconciliation of the investment accounts to ensure
                    accurate recording and reporting.

           2B.      Researches all investment accounts, resolves any
                    discrepancies and makes appropriate adjustments to
                    its books to accurately reflect its investments.

           2C.      Researches its savings and escrow accounts and
                    dissolves those that are no longer needed.

           2D.      Develops and implements an investment register to
                    track all Authority investments from origination,
                    through investment transactions, to ultimate
                    disposition to ensure all investment records reconcile
                    to the general ledger and are adequately accounted for
                    at any time.

           2E.      Properly segregates the duties of collecting, recording
                    and depositing of tenant and non-tenant receipts.

           2F.      Properly segregates the responsibilities and control of
                    fixed asset inventory.

           2G.      Maintains appropriate documentation of physical
                    inventory counts and valuations to provide an
                    adequate audit trail.




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       The Authority Did Not Resolve Deficiencies in
                 Its Financial Statements
      The Housing Authority of Independence did not resolve deficiencies identified in its financial
      statement audit for fiscal year ended March 31, 1999. The independent auditor reported that the
      account balances for three tenant-related subsidiary accounts did not agree with the general ledger
      account balances at the end of the fiscal year. The Authority and its fee accountants disagreed
      about the reason for the discrepancies, leaving the deficiencies unresolved. Without proper
      reconciliation between subsidiary and general ledger accounts, HUD and the Authority have no
      assurance the financial reporting mechanisms are functioning properly and providing accurate
      information.



                                            Section 9, paragraph (C) of the Consolidated Annual
       HUD Requirements                     Contributions Contract requires the Authority to maintain
                                            records that identify the source and application of funds in
                                            such a manner as to allow HUD to determine that all funds
                                            are and have been expended in accordance with each
                                            specific program regulation and requirement. Section 15,
                                            paragraph (A) says that the Authority must maintain
                                            complete and accurate books of account for the projects of
                                            the Authority in such a manner to permit the preparation of
                                            statements and reports in accordance with HUD
                                            requirements, and to permit timely and effective audit.

                                            24 CFR Part 85.20 states that the financial management
                                            systems of grantees and subgrantees must meet internal
                                            control standards. The regulation also states that effective
                                            control and accountability must be maintained for all grant
                                            and subgrant cash, real and personal property, and other
                                            assets. Grantees and subgrantees must adequately safeguard
                                            all such property and must assure that it is used solely for
                                            authorized purposes. This Section also says that the financial
                                            management systems of grantees and subgrantees must meet
                                            financial reporting standards. The financial reporting must
                                            be accurate, current, and provide complete disclosure of the
                                            financial results of financially assisted activities, in
                                            accordance with the financial reporting requirements of the
                                            grant or subgrant. Further, grantees and subgrantees must
                                            maintain records that adequately identify the source and
                                            application of funds provided for financially-assisted
                                            activities. These records must contain information pertaining

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                                 to grant or subgrant awards and authorizations, obligations,
                                 unobligated balances, assets, liabilities, outlays or
                                 expenditures, and income.

                                 The Authority did not resolve deficiencies identified in its
       Deficiencies Existed in   financial statement audit for fiscal year ended March 31,
       Financial Statements      1999. The independent auditor alerted the Authority of the
                                 deficiencies on November 14, 1999. The auditor reported
                                 that account balances for three tenant-related subsidiary
                                 accounts did not agree with the general ledger account
                                 balances at the end of the fiscal year. The auditor determined
                                 the Authority failed to maintain an accurate detail of these
                                 accounts and did not have procedures in place to reconcile
                                 the detailed accounts to the general ledger. The Authority's
                                 management did not agree with the cause for the
                                 discrepancies, but believed there was a problem with its fee
                                 accountants’ accounting software system. The Authority did
                                 not resolve the deficiencies by the end of our review.

                                 In addition, the independent auditor reported the Authority
                                 had incorrectly recorded a transaction regarding Federal
                                 Financing Bank Notes and Housing Agency Bonds Issued.
                                 The auditor recommended the Authority make a $225,486
                                 adjusting entry to correct the Authority's records. However,
                                 the Authority's fee accountants did not make the adjusting
                                 entry because the fee accountants considered the entry
                                 unnecessary due to the Authority's anticipated conversion to
                                 generally accepted accounting principles beginning with the
                                 next fiscal year (beginning on April 1, 2000). Upon
                                 conversion to generally accepted accounting principles, the
                                 Bank Notes and Agency Bonds accounts would not be
                                 included on the Authority's financial statements. As a
                                 result, the fee accountants saw no need to adjust accounts
                                 that were going to be removed from the financial
                                 statements in the coming months. The two accounts
                                 remained misstated throughout the remainder of the fiscal
                                 year ended March 31, 2000.



      Auditee Comments           Excerpts from the Executive Director’s comments on our
                                 draft finding follow. Appendix B contains the complete text
                                 of the comments.




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                          The deficiencies noted in the Fiscal Year Ended 1999
                          independent audit have been resolved. The independent
                          auditor will verify this fact during the Fiscal Year Ended
                          2000 audit in November.



      OIG Evaluation of   The actions the Authority has taken and planned should
      Auditee Comments    resolve the deficiencies in this finding.



      Recommendations     We recommend the Director, Office of Public Housing,
                          ensure the Housing Authority of Independence:

                          3A.      Resolves the deficiencies noted in the independent
                                   audit report for fiscal year ended March 31, 1999,
                                   and ensures that the subsidiary and general ledgers
                                   balance in the future.




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        The Board of Commissioners Did Not Always
               Comply with Missouri Statute
      The Board of Commissioners for the Housing Authority of Independence did not always comply
      with regulations of a Missouri statute that governs the conduct of public business. Missouri
      Housing Authorities are required to comply with the statute commonly known as the “Missouri
      Sunshine Law.” We believe the noncompliance occurred because Board members were not
      adequately trained. The noncompliance caused the Authority to be in violation of a State statute.
      Continued noncompliance could lead to sanctions from the State of Missouri and a public
      perception that the Authority’s Board is conducting business improperly.



                                           The Housing Authority of Independence was established in
       State Requirements                  1961 as a public governmental body under “The Housing
                                           Authorities Law” of the State of Missouri, and therefore must
                                           follow the laws of the State of Missouri.

                                           Missouri Statute, Title 39, “Conduct of Public Business,”
                                           (commonly known as the “Missouri Sunshine Law”) Chapter
                                           610, Sections 610.020 through 610.023 state the following:

                                           Section 610.020, says all public governmental bodies shall
                                           give notice of the time, date, and place of each meeting, and
                                           its tentative agenda, in a manner reasonably calculated to
                                           apprise the public of that information. It also states that
                                           notice conforming with all of the requirements of this section
                                           shall be given at least twenty-four hours prior to the
                                           commencement of any meeting of a governmental body
                                           unless for good cause.

                                           Section 610.021 says that except to the extent disclosure is
                                           otherwise required by law, a public governmental body is
                                           authorized to close meetings, records and votes, to the extent
                                           they relate to the following: (1) legal actions, (2) leasing,
                                           purchasing or sale of real estate, and (3) hiring, firing,
                                           disciplining or promoting an employee of a public
                                           governmental body, etc. (law lists 15 specific exceptions).

                                           Section 610.022, states that a public governmental body
                                           proposing to hold a closed meeting or vote shall give notice
                                           of the time, date and place of such closed meeting or vote
                                           and the reason for holding it by reference to the specific

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                                exception allowed under the provisions of Section 610.021.
                                It also says that any meeting or vote closed pursuant to
                                Section 610.021 shall be closed only to the extent necessary
                                for the specific reason announced to justify the closed
                                meeting or vote. Public governmental bodies shall not
                                discuss any business in a closed meeting, record, or vote
                                which does not directly relate to the specific reason
                                announced to justify the closed meeting or vote.

                                The Authority’s Personnel Policies and Procedures contained
       Authority Requirements   minimal references to Board responsibilities.        These
       and Guidance             policies and procedures offered only basic information on
                                the Board's responsibilities as they related to employee
                                issues and the overall operations of the Authority.

                                The Authority’s Commissioner’s Handbook contained the
                                various policies, procedures and plans of the Authority.
                                Although the handbook made references to conducting
                                open and closed sessions, it did not provide specific
                                guidance on conducting meetings in accordance with the
                                “Missouri Sunshine Law” that governs the conduct of
                                meetings of governmental bodies of the State of Missouri.

                                The Housing Authority of Independence operates under a
       Board of Commissioners   Board of Commissioners consisting of five individuals. The
                                Mayor of Independence appoints each member to the Board.
                                The Board holds monthly meetings and, when needed, holds
                                special meetings to act on specific issues of an urgent nature.

                                The Authority’s Board of Commissioners did not always
       Board of Commissioners   follow the regulations of the “Missouri Sunshine Law.”
       Did Not Always Comply    Our review of the Board meeting minutes for January 1999
       with the “Missouri       through March 21, 2000 indicated the Board conducted
       Sunshine Law”            business in a manner inconsistent with the Missouri statute.
                                For example, the Board discussed issues in closed sessions
                                that were not appropriately identified, or identified at all, in
                                the notices of public meetings. Further, the Board
                                conducted business in a way that could be perceived as
                                improper. For example, the Board held closed sessions on
                                days other than when holding regular or special Board
                                meetings, and conducted telephone voting polls outside of
                                Board sessions to make decisions on Authority business.

                                We also found that the Authority records did not always
                                indicate that notices of public meetings were posted;

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                          therefore, there is no assurance proper notification was given
                          to the public.

                          We believe the noncompliance with the Missouri statute
                          resulted from lack of training of Board members. Proper
                          training is necessary to ensure Board members do not violate
                          the State law. Training is also necessary to ensure Board
                          members do not conduct business in a way that leads to a
                          public perception of impropriety.

                          Our review of the Commissioner’s Handbook determined
                          that the Authority’s copy of the handbook had not been
                          updated to contain the most recent policies, procedures and
                          plans. The Administrative Assistant to the Executive
                          Director said she had updated the Board members’ copies in
                          December 1999, but did not update the Authority’s copy.
                          The Assistant said there were no procedures in place to
                          ensure that the handbooks were updated properly and timely.
                          It is important for the Authority to update all handbooks
                          timely so that Board members rely on correct information
                          when making decisions.



      Auditee Comments    Excerpts from the Executive Director’s comments on our
                          draft finding follow. Appendix B contains the complete text
                          of the comments.

                          The Authority concurs with the recommendations regarding
                          the need for Commissioner training in conducting business
                          under the “Missouri Sunshine Law” and the need for written
                          procedures for routinely auditing and updating the
                          Commissioner’s Handbook. Further, the development and
                          implementation of a written Commissioner orientation and
                          training policy will expedite education of new
                          Commissioners on all aspects of their responsibilities.


      OIG Evaluation of   The Authority has taken and planned actions that should
      Auditee Comments    correct the problems identified in this finding if the actions
                          are followed through to completion.




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      Recommendations   We recommend the Director, Office of Public Housing,
                        ensure the Housing Authority of Independence:

                        4A.      Provides training for its Board members, including
                                 but not limited to, training specific to proper Board
                                 conduct and the “Missouri Sunshine Law.”

                        4B.      Develops and implements Board-approved policies
                                 and procedures to ensure Board meetings comply
                                 with the “Missouri Sunshine Law.”

                        4C.      Updates all Commissioner’s Handbooks, including
                                 the Authority’s copy, and develops a procedure to
                                 ensure the continuous updating of the handbooks
                                 when any contents are amended or new items
                                 developed.

                        4D.      Includes specific guidance in its Commissioner's
                                 Handbook regarding conducting Board meetings
                                 within the rules of the “Missouri Sunshine Law.”




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       The Authority Needs to Improve Controls Over
                 Its Procurement Process
      The Housing Authority of Independence did not have adequate controls over its procurement
      process. Specifically, the Authority did not: 1) require adequate competition; 2) develop formal
      independent cost estimates to evaluate bids received; 3) formally delegate authority for making
      purchases; 4) use contracts for goods and services that protected its interests; 5) use written
      contract modifications; 6) adequately document procurement histories; and 7) use a central
      contract register to maintain control of all contracts in force. These weaknesses occurred because
      the Authority’s management did not fulfill its responsibility to establish and implement effective
      internal controls. Adequate controls are needed to ensure the Authority receives the best prices
      and quality for goods and services.



                                           HUD Handbook 7460.8, paragraph 2-3 says that for small
       HUD Requirements                    purchases, housing authorities should use simplified small
                                           purchase procedures. Typically this involves obtaining oral
                                           or written quotations from at least three sources. After
                                           evaluating the quotations, the housing authority normally
                                           awards a purchase order to the lowest acceptable quoter.
                                           Paragraph 2-6 says that the standard for housing authority
                                           procurement is to conduct all procurement by full and open
                                           competition, to allow all responsible sources to compete.

                                           Paragraph 3-2 (A) states that Authority Board of
                                           Commissioners should designate the Executive Director as
                                           the person responsible for carrying out its policy. The
                                           Executive Director should have the authority to formally
                                           delegate the responsibility for certain functions to
                                           positions/individuals based on the organization of the
                                           housing authority and its staffing.          The Board of
                                           Commissioners should state in the minutes of a Board
                                           meeting that the Executive Director, and/or where
                                           appropriate other staff members, are appointed as
                                           Contracting Officers. The Board should also designate
                                           which members of the staff are empowered to make
                                           purchases or sign purchase orders, and the dollar limit each is
                                           allowed.

                                           Paragraph 3-3 (A) and (B) say that the Executive Director
                                           may delegate authority to sign contracts to other housing
                                           authority employees only if granted such permission by the

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                       Board of Commissioners. If the Executive Director decides
                       to appoint an employee of a housing authority as a
                       Contracting Officer, such appointment should be made in
                       writing, stating clearly the limitations on the appointee's
                       procurement authority.

                       Paragraph 3-4 (D) says that only an individual who serves as
                       a Contracting Officer may obligate procurement funds on
                       behalf of a housing authority. Each contract, modification,
                       cooperative purchasing agreement, purchase order, or other
                       purchase should bear the Contracting Officer's signature,
                       typed or printed name, and position title. A housing
                       authority contract is not valid unless an authorized
                       Contracting Officer has signed it.

                       Paragraph 3-6 recommends that in all but the smallest
                       housing authorities, a formal training program should be
                       established to provide training in public contracts to housing
                       authority employees with procurement responsibilities. It is
                       recommended that no person be appointed as a Contracting
                       Officer without training in public contracts/procurement.

                       Paragraph 4-3 (A) says housing authorities must ensure that
                       the price paid for small purchases is fair and reasonable.
                       The most effective way of accomplishing this task is to
                       solicit competitive price or rate quotes from an adequate
                       number of qualified sources. It is recommended that at
                       least three sources be solicited. Paragraph (B) states that
                       housing authorities need not solicit competition if a single
                       quoted price within a specified dollar limitation is known to
                       be reasonable; for housing authorities, this dollar limitation
                       should normally be $1,000. Such purchases should be
                       distributed among qualified sources or rotated to promote
                       competition and avoid repeated use of the same supplier.

                       24 CFR Part 85.36 (b)(9) states that grantees and subgrantees
                       must maintain records sufficient to detail the significant
                       history of a procurement.

                       24 CFR Part 85.36 (c) and (d) state that all procurement
                       transactions must be conducted in a manner providing full
                       and open competition. Procurement for small purchase
                       procedures, purchases that do not cost more than $100,000,
                       shall be conducted by obtaining price or rate quotations from
                       an adequate number of qualified sources.

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                                24 CFR Part 85.36 (f) says that grantees and subgrantees
                                must perform a cost or price analysis in connection with
                                every procurement action, including contract modifications.
                                The method and degree of analysis is dependent on the facts
                                surrounding the particular procurement situation, but as a
                                starting point, grantees must make independent estimates
                                before receiving bids or proposals.

                                24 CFR Part 85.36 (i) provides thirteen specific clauses that
                                government-funded contracts are required to contain,
                                including contracts for goods and services purchased by
                                housing authorities.

                                The Authority's Procurement Policy, Section II, paragraph A
       Authority Requirements   states that all procurement transactions shall be administered
                                by the Contracting Officer, who shall be the Executive
                                Director or other individual he or she has authorized in
                                writing. Paragraph C says that the Board appoints and
                                delegates procurement authority to the Executive Director
                                and is responsible for ensuring that any procurement policies
                                adopted are appropriate for the Authority.

                                Section II, paragraph B.2. says that the Executive Director
                                shall ensure that purchase orders, contracts and contract
                                modifications are in writing, supported by appropriate
                                documentation clearly specifying the desired supplies,
                                services, or repair/construction work, as well as the method
                                of procurement, selection of contract type, and basis for the
                                purchase or contract price. Paragraph B.4. requires the
                                Executive Director to ensure that solicitation procedures are
                                conducted in full compliance with Federal standards stated in
                                24 CFR 85.36. Paragraph B.5. requires the Executive
                                Director to ensure that an independent estimate is prepared
                                for each procurement.

                                Section III, paragraph B.4. states that for purchases less than
                                $25,000, only one quotation need be solicited if the price
                                received is considered reasonable. Such purchases must be
                                distributed equitably among qualified sources. Paragraph
                                B.5. says that for procurement transactions valued at more
                                than $25,000 and less than $100,000 three offerers shall be
                                solicited to submit price quotations, which may be obtained
                                orally, by telephone, or in writing. Award shall be made to
                                the offerer providing the lowest acceptable price, unless
                                justified in writing based on other specified factors. The

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                          names and addresses of the offerers and other persons
                          contacted, and the date and amount of each price quotation
                          shall be recorded and maintained as a public record.

                          The Authority did not always follow its own or HUD’s
       Lack of Adequate   procurement requirements to ensure adequate competition.
       Competition        The Authority’s Procurement Policy requires the Authority to
                          solicit bids from three sources for procurement transactions
                          valued at more than $25,000 and less than $100,000. HUD
                          also recommends solicitation of at least three bids before
                          selecting a contractor.

                          We analyzed the Authority’s procurement process using both
                          contracts and purchase orders. To analyze the Authority’s
                          use of contracts, we reviewed the three largest dollar value
                          contracts completed between January 1, 1999 and August 31,
                          2000. The following table identifies the contracts reviewed:

                                 Contract                                Total Paid to
                               Identification    Service Performed        Contractor
                                                 Repair
                                Contract A       retaining wall            $50,049
                                                 Renovate
                                Contract B       tenant mail room          $37,646
                                                 Provide
                                Contract C       office furniture          $30,984

                          Our review of the three contracts disclosed that the Authority
                          did not follow its own procurement requirements in soliciting
                          bids for 1 of the 3 contracts. The Authority obtained at least
                          three bids for Contracts A and C; however, the Authority
                          entered into Contract B without soliciting at least three bids.
                          In addition, the Authority did not develop an independent
                          cost estimate to determine whether the bid received for
                          Contract B was reasonable, as discussed later in this Finding.

                          The Authority’s contract file indicated the Modernization
                          Coordinator directly contacted only two potential bidders,
                          and only one provided a bid. The other potential contractor
                          was unable to bid on the contract due to its inability to
                          perform the work at that time. Therefore, the Authority
                          effectively obtained only one bid for the services, and the
                          solicitation was not advertised to the public even though the
                          nature of the work indicated it could have been performed by
                          any qualified construction contractor. Adequate competition
                          and independent cost estimates are necessary to ensure the

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                               Authority obtains the best prices and quality for goods and
                               services.

                               We also analyzed the Authority’s procurement process
                               through the use of purchase orders. We reviewed five
                               purchases made between January 1, 2000 and August 30,
                               2000, ranging in value from $19 to $645. We found the
                               Authority properly prepared, documented management
                               approval, and paid for these purchases. Although the
                               purchase orders did not indicate the Authority solicited more
                               than one bid, the items were within HUD’s recommended
                               threshold of $1,000, allowing only one bid if the bid is
                               deemed reasonable.

                               The Authority did not always use formal independent cost
       Independent Cost        estimates to evaluate bids. The Authority’s Procurement
       Estimates Not Always    Policy requires the Executive Director to ensure that an
       Used to Evaluate Bids   independent estimate is prepared for each procurement.
                               Further, federal regulations require housing authorities to
                               perform a cost or price analysis in connection with every
                               procurement action, including contract modifications. The
                               method and degree of analysis is dependent on the facts
                               surrounding the particular procurement situation, but as a
                               starting point, housing authorities must make independent
                               estimates before receiving bids or proposals.

                               As previously mentioned, the Authority’s documentation for
                               Contract B did not contain an independent cost estimate.
                               The Modernization Coordinator told us he prepared an
                               informal estimate, and expected the services to cost about
                               $30,000; however, he did not prepare a written estimate for
                               the contract file. Formal independent cost estimates are
                               necessary to help ensure bids received are properly evaluated,
                               particularly for those purchases where only one bid is
                               received or those under $25,000 for which the Authority’s
                               Procurement Policy requires only one bid to be received if
                               the amount bid is deemed reasonable.

                               For Contract A, the Authority hired an engineering firm to
                               provide a study of needed repairs to a retaining wall, and to
                               offer recommendations and cost estimates for the repair. The
                               contract file contained the study and the related cost
                               estimates for the three options of repair recommended by the
                               engineering firm. The estimates ranged from $16,600 to
                               $129,100 depending on the extent of work performed.

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                                Although the Authority relied on the engineering firm to
                                evaluate the bids received, the Authority’s file did not
                                contain documentation of the comparison of the contractors’
                                bids to the engineering firm’s cost estimates. Authority
                                contract files should contain such information when using an
                                agent to purchase goods and services.

                                The Authority’s documentation for Contract C, showed the
                                Authority received bids from three companies to provide
                                office furniture. We believe the Authority should have
                                prepared an estimate of the cost to ensure the amount paid
                                was reasonable.

                                The Authority did not formally delegate procurement
       Formal Delegations of    authority to any employee other than the Executive Director;
       Authority Not in Place   however, other employees purchased items without the
                                Executive Director’s signature on the related purchase orders
                                and contracts.       According to the Authority’s own
                                Procurement Policy, the Executive Director is the designated
                                Contracting Officer and can delegate such authority, but only
                                through written delegations. In addition, HUD requirements
                                state the Authority’s Board of Commissioners should
                                designate which members of the staff are empowered to
                                make purchases or sign purchase orders, and the dollar limit
                                each is allowed for a single purchase.

                                We determined that neither the Authority’s current or former
                                Executive Director issued written delegations of authority for
                                procurement of goods and services. Further, the Authority’s
                                Procurement Policy did not specifically address the
                                purchasing and dollar limit delegations to other employees,
                                as recommended by HUD.

                                For the five purchase orders analyzed, we found that the
                                Director of Operations approved the purchases, but had not
                                been given a formal delegation to perform the purchasing
                                activities. For the three contracts, in each case the
                                Modernization Coordinator signed the contract as the
                                Authority representative; however, the Modernization
                                Coordinator had not been given a formal delegation to enter
                                into contracts for the Authority. HUD requirements also
                                state that a housing authority contract is not valid unless an
                                authorized Contracting Officer has signed it. Therefore,
                                these contracts could be considered invalid. Formal
                                delegations of authority, including dollar limitations, are

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                                   necessary to ensure Authority staff perform their
                                   procurement functions within the limits prescribed by the
                                   Board of Commissioners and/or the Executive Director.
                                   Further, proper delegations are necessary to protect HUD,
                                   the Authority, and Authority employees in the case of any
                                   legal actions related to the purchases.

                                   For all three contracts reviewed, the Authority made the
       Contracts Did Not Protect   purchases using the contract provided by the vendor instead
       Authority’s or HUD’s        of a contract developed by the Authority. None of these
       Interests                   contracts contained or made reference to the clauses required
                                   by federal regulations when federal funds are used to contract
                                   for goods and services. Standard contracts that meet federal
                                   requirements are necessary to ensure the Authority’s and
                                   HUD’s interests are properly protected.

                                   The Authority increased the scope of work to be performed
       Written Contract            and the related costs without proper contract modifications.
       Modifications Not Used      According to both the Authority’s and HUD’s requirements,
                                   contract modifications must be in writing and properly
                                   approved. We found that the Authority increased the scope
                                   of work and related costs for 2 of the 3 contracts, but did not
                                   document the increases in formal contract modifications.

                                   For Contract B, the contract file indicated the Authority
                                   significantly increased the scope of services and related
                                   costs, but did not document the increases in formal contract
                                   modifications. In addition, the contract file did not contain
                                   an explanation for the increases or the related costs. The
                                   original contract was issued for renovation of a tenant mail
                                   room, at an agreed upon price of $28,792. The Authority
                                   ultimately paid the contractor $37,646. According to the
                                   Modernization Coordinator, the contractor encountered
                                   unforeseen problems that increased the scope of work and
                                   related costs. Also, the Authority increased the scope of
                                   services and related costs to include renovation of a
                                   manager’s office. Therefore, the contract was increased
                                   significantly without formal contract modifications.

                                   For Contract A, the contract file indicated the Authority
                                   significantly increased the scope of services and related
                                   costs, but did not document the increases in formal contract
                                   modifications.      As in Contract B, the Authority’s
                                   documentation did not contain an explanation for the
                                   increases or the related costs. The original contract stated the

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                               agreed upon price was $30,925. The Authority paid the
                               contractor this amount in July 1999, but paid the contractor
                               an additional $19,124 ($9,562 in October and $9,562 in
                               November 1999) under the same contract. The contract file
                               contained a certification from the engineering firm acting as
                               the Authority’s agent that referred to contract modifications,
                               but the Authority’s file did not contain any formal
                               modifications. The only documentation supporting the
                               additional work and costs was a basic invoice from the
                               contractor that totaled the additional costs of $19,124. Even
                               though the Authority used an agent on this purchase, the
                               Authority remained responsible for approving increases in
                               services and related costs through contract modifications.
                               Formal contract modifications are needed to ensure the
                               additional work is necessary, related costs are reasonable,
                               and competition is not circumvented.

                               The Authority’s contract files did not contain adequate
       Procurement Histories   histories of the procurements, although required by both the
       Were Inadequate         Authority’s Procurement Policy and federal regulations. As
                               previously mentioned, for Contract A, the Authority enlisted
                               the assistance of an engineering firm to accomplish the
                               repairs needed on a retaining wall. The engineering firm, as
                               the Authority’s agent, performed a significant portion of the
                               contracting process for the Authority.        However, the
                               Authority’s documentation for the contract should have
                               provided a complete history of the procurement, but did not.

                               The firm originally solicited bids from three contractors, but
                               informed the Authority it received no response from two
                               contractors and a negative response from the third. The
                               Authority’s files did not contain a copy of the refusal letter
                               from the one responding contractor; therefore, the Authority
                               has no assurance the response was indeed negative.
                               Although the firm recommended a fourth contractor, the
                               Authority’s files did not contain documentation of the firm’s
                               evaluation and recommendation of the fourth contractor. In
                               addition, the scope of work and related costs were increased,
                               but the file did not contain justification for these increases.
                               An increase of nearly $20,000 should have been fully
                               explained and properly approved in the Authority’s
                               documentation; however, the file did not contain a formal
                               contract modification.




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                                  The contract file for Contract B was also incomplete. As
                                  previously mentioned, the file did not contain an independent
                                  cost estimate used in evaluating the bids. The file also did
                                  not contain formal contract modifications when the scope of
                                  services and related costs were increased. Complete
                                  procurement histories are critical to effective management of
                                  the Authority’s procurement process to ensure the
                                  procurement was conducted within the applicable
                                  requirements and guidelines.

                                  The Authority did not have a central contract register
       Lack of Central Contract   available to monitor all contracts in force at any point in
       Register                   time. During our review, the Modernization Coordinator
                                  prepared a contract register, but the register included only
                                  those contracts within the Coordinator’s responsibility. The
                                  Executive Director told us that the Authority had not
                                  implemented a centralized contract register. Central contract
                                  registers help the Authority monitor its contracts to ensure it
                                  is rotating contractor selections, therefore practicing full and
                                  open competition. A centralized contract register can also
                                  help monitor contract data, such as the timeframes and
                                  amounts of all contracts.



      Auditee Comments            Excerpts from the Executive Director’s comments on our
                                  draft finding follow. Appendix B contains the complete text
                                  of the comments.

                                  The Authority concurs with the facts of this finding and
                                  intends to become fully compliant with the rules and
                                  regulations governing public procurements and the agency’s
                                  procurement policies as soon as possible. Each deficient area
                                  will be addressed by the development of written procedures
                                  and identification/provision of staff training needs. The
                                  Authority will practice full and open competition on all
                                  procurements and will develop and include an independent
                                  cost estimate in each procurement file, whenever possible.
                                  The Authority also will: develop, adopt and institute the use
                                  of a standard construction contract form; use a formal means
                                  of contract modification effective immediately and develop,
                                  adopt and institute the use of a standard form; develop, adopt
                                  and institute the use of a standard procurement file checklist;
                                  and develop a central contract register that provides basic
                                  information on all contracts in force.

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      OIG Evaluation of   The actions the Authority has taken and planned should
      Auditee Comments    correct the problems identified in this finding if the actions
                          are followed through to completion.



      Recommendations     We recommend the Director, Office of Public Housing,
                          ensure the Housing Authority of Independence:

                          5A.      Adequately trains procurement personnel and
                                   requires them to follow all applicable procurement
                                   policies, procedures and regulations.

                          5B.      Is practicing full and open competition by enforcing
                                   solicitation of at least three bids for procurements
                                   over $25,000.

                          5C.      Requires development and use of independent cost
                                   estimates for evaluating bids received, whenever
                                   possible.

                          5D.      Develops and implements formal delegations of
                                   authority for procurement, including dollar limits
                                   for each delegation.

                          5E.      Uses a standard contract which includes the
                                   necessary information required by federal
                                   regulations, including the required procurement
                                   clauses.

                          5F.      Enforces the use of formal contract modifications
                                   for any changes in scope of work and/or increases in
                                   related costs.

                          5G.      Develops and implements a checklist of all
                                   documents to be maintained in individual contract
                                   files to present a complete history of the
                                   procurement.




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           5H.      Develops and implements a central contract register
                    that provides basic information on all contracts in
                    force.




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        The Authority Lacked Adequate Control Over
                   Its Section 8 Program
      The Housing Authority of Independence did not have an acceptable system of controls over its
      Section 8 program. The Authority did not: 1) have policies and procedures to ensure that
      Housing Assistance Payments made to landlords were appropriate; 2) update its Section 8
      eligibility/waiting list timely; 3) adjust its books and records to properly reflect Section 8 checks
      returned to the Authority; and 4) follow up on outstanding Section 8 checks. These weaknesses
      occurred because the Authority’s management did not fulfill its responsibility to establish and
      implement effective internal controls over the Section 8 program. This lack of effective controls
      caused the Authority to overpay landlords, forced unnecessary delays on potential Section 8
      tenants, and allowed outstanding disbursements to remain unresolved. Adequate controls are
      necessary to ensure Section 8 payments are proper and the Authority’s books and records
      accurately reflect Section 8 financial information.



                                            24 CFR Part 85.20 (b)(3) requires financial management
       HUD Requirements                     systems of other grantees and subgrantees to provide
                                            effective control and accountability for all grant and subgrant
                                            cash, real and personal property, and other assets.

                                            24 CFR Part 85.22 (b) requires State, local, and Indian
                                            tribal governments to follow the Office of Management and
                                            Budget Circular A-87, Cost Principles for State and Local
                                            Governments. A public housing authority is a local
                                            government according to 24 CFR Part 85.3.

                                            Office of Management and Budget Circular A-87,
       Office of Management                 Attachment A, paragraph A(2)(a)(1) states that housing
       and Budget Requirements              authorities are responsible for the efficient and effective
                                            administration of federal awards through the application of
                                            sound management practices.

                                            The Authority did not have policies and procedures to
       Authority Overpaid                   ensure that Section 8 Housing Assistance Payments to
       Section 8 Landlords                  landlords ceased when the tenants moved out of the
                                            subsidized units. To test the appropriateness of Housing
                                            Assistance Payments, we analyzed the Authority’s move-
                                            out data and Section 8 subsidy payments for 15 former
                                            tenants. These tenants moved out of the subsidized units
                                            between January 1, 1999 and August 14, 2000. We found
                                            that the Authority overpaid landlords for 2 of the 15 former

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                                    tenants because it continued to provide subsidy payments
                                    after the tenants moved out of the units. The Authority
                                    continued to make subsidy payments for two months for
                                    one former tenant and one month for the other former
                                    tenant, causing a total overpayment of $879. As of the end
                                    of our review, the Authority had begun efforts to recoup the
                                    overpayments. Policies and procedures are needed to
                                    ensure the Authority does not provide subsidy payments
                                    that are not owed to landlords.

                                    The Authority did not have policies and procedures to
       Authority Did Not Timely     ensure it updated its eligibility/waiting list for potential
       Update Eligibility/Waiting   Section 8 tenants in a timely manner. We analyzed the
       List                         Authority’s move-out and eligibility/waiting list data for the
                                    15 former tenants previously mentioned, and found that the
                                    Authority did not remove 2 of the 15 individuals from the
                                    eligibility/waiting list in a timely manner. In one case, the
                                    Authority allowed the former tenant to remain on the list
                                    for 10 months longer than necessary, and 3 months for
                                    another tenant. Waiting lists should be timely updated to
                                    avoid delays caused when attempts are made to contact
                                    individuals who should not be on the list.

                                    The Authority did not adequately resolve Section 8 checks
       Authority Did Not            that were returned uncashed. When the Section 8 department
       Adequately Resolve           received returned checks, the employees placed the uncashed
       Section 8 Checks             checks in the Section 8 vault without notifying the
       Returned to Authority        Accounting department. As a result, these checks remained
                                    on the Authority’s books and records as outstanding even
                                    though they were in the Authority’s possession.

                                    From the May 31, 2000 list of outstanding Section 8 checks,
                                    we selected and reviewed 25 checks outstanding more than
                                    two months after issuance. We found that 8 of the 25 were
                                    returned to the Authority uncashed and held in the Section
                                    8 department vault. Of these eight, we found that three
                                    were returned because the tenant no longer lived in the unit,
                                    one was returned by the landlord because the tenant’s lease
                                    was not renewed, and one was returned but reissued under
                                    another check number. We could not determine the reason
                                    the remaining three checks were returned uncashed.

                                    Although the Section 8 supervisor did not ensure the checks
                                    were voided from the Authority's books, the supervisor
                                    made manual adjustments to the related landlord accounts

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                                  to reflect that the landlord did not negotiate the check. She
                                  made the landlord account adjustments to ensure that the
                                  Internal Revenue Service Forms 1099 correctly reported the
                                  Authority’s payments to the individual landlords.
                                  However, the Authority's accounting system is set up to
                                  automatically adjust landlord payment histories when
                                  checks are properly voided. Therefore, when the Authority
                                  properly voids the checks, the system will automatically
                                  duplicate the adjustments to individual landlord accounts
                                  and understate the payments made. Proper controls over
                                  returned checks are necessary to ensure disbursements are
                                  properly recorded on the Authority’s books and records.

                                  The Authority’s fee accountant performed the monthly
       Authority Did Not Follow   bank reconciliation for the Section 8 bank account and
       Up On Outstanding          provided a list of outstanding checks to the Authority.
       Section 8 Checks           However, the Authority did not research and resolve the
                                  outstanding checks. We found that checks outstanding
                                  more than two months nearly doubled from July 31, 1999
                                  through May 31, 2000. The number and value of
                                  outstanding checks increased from 60 checks totaling
                                  $10,549 to 113 checks totaling $20,674.

                                  As previously mentioned, we analyzed 25 Section 8 checks
                                  included on the May 31, 2000 outstanding checks list. We
                                  analyzed checks that had been outstanding for more than two
                                  months. In addition to the eight checks that were returned
                                  uncashed, we found:

                                     •= 6 were never received by the landlords;
                                     •= 4 remained outstanding as of July 31, 2000;
                                     •= 4 had “stop payment” orders issued by the Authority,
                                        but the Authority had not properly voided the check
                                        in its accounting system; and
                                     •= 2 were negotiated after the May 31, 2000 bank
                                        reconciliation and were no longer outstanding.

                                  We were unable to determine the reason the remaining check
                                  was outstanding. As a result, we concluded the Authority
                                  lacked adequate control over its Section 8 payments.

                                  We also noted that the Authority’s checks did not contain a
                                  notice to the payee that the checks were valid for a limited
                                  period of time. Therefore, payees were not encouraged to
                                  cash the checks in a timely manner. Policies and

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                          procedures are needed to ensure the Authority researches
                          and resolves the outstanding checks, and does not miss an
                          opportunity to possibly identify internal control problems
                          that have allowed the issuance of improper payments.



      Auditee Comments    Excerpts from the Executive Director’s comments on our
                          draft finding follow. Appendix B contains the complete text
                          of the comments.

                          Policies and procedures are in draft that will ensure
                          elimination of overpayments to landlords and timely removal
                          of families from the waiting list. Staff will conduct an in-
                          house audit of landlord payment data as compared to tenant
                          move-out data for the fiscal years ended 1999, 2000 and
                          2001, and, when applicable, take steps to recoup
                          overpayments. Policies and procedures will be developed
                          and implemented to provide for adequate review of monthly
                          bank reconciliations, a follow-up process on outstanding
                          disbursements, and coordination between the Section 8 and
                          Accounting      departments       regarding     any  returned
                          disbursements. Staff will adjust the agency’s books and
                          records to properly account for the voided disbursements
                          held in the Section 8 vault and will develop and implement
                          written procedures for processing future voided
                          disbursements. When ordering replacement check stock, we
                          will ask the printer to imprint an expiration date on the
                          checks that reflects the policy of the subject bank.



      OIG Evaluation of   The actions the Authority has taken and planned should
      Auditee Comments    correct the problems identified in this finding if the actions
                          are followed through to completion.



      Recommendations     We recommend the Director, Office of Public Housing,
                          ensure the Housing Authority of Independence:

                          6A.      Develops and implements Board-approved policies
                                   and procedures that ensure elimination of
                                   overpayments to landlords and removal of tenants
                                   from the eligibility/waiting list in a timely manner.

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                       6B.      Compares move-out data to landlord payment
                                histories for years 1998 through 2000, and recoups
                                overpayments.

                       6C.      Develops and implements Board-approved policies
                                and procedures that adequately address resolution of
                                outstanding checks. These policies and procedures
                                should include requirements to review the monthly
                                reconciliations and follow up on outstanding checks,
                                and coordinate efforts between the Section 8 and
                                Accounting departments regarding any returned
                                checks.

                       6D.      Properly adjusts its books and records for the voided
                                checks held in the Section 8 vault and adjusts the
                                individual landlord accounts accordingly.

                       6E.      Encourages timely redemption of checks by limiting
                                the time period for which a check is valid.




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           The Authority Needs to Improve Its Human
                      Resource Function
      The Housing Authority of Independence needs to improve its human resource function by: 1)
      updating job descriptions; 2) taking a proactive approach to employee training needs; 3) tracking
      training attended; and 4) improving communication and flow of information among its staff.
      Efficient and effective human resource functions are essential to an organization’s success. An
      effective human resource function helps ensure key employees who are instrumental in operating
      the Authority’s programs are properly trained and retained.



                                           HUD Guidebook 7460.9G, is not required of housing
       HUD Guidance                        authorities, however, housing authorities are encouraged to
                                           use the guidebook to conduct self-evaluations of their
                                           operations. Section 1.A. of the guidebook states that
                                           organization, management and personnel are functions that
                                           lead and direct the activities of the housing authority,
                                           providing the framework within which the other functions
                                           are performed. These functions help assure that the
                                           housing authority meets its fundamental objective of
                                           serving its customer, the residents. Section 2.C. says that
                                           management must ensure that critical tasks are completed
                                           timely and properly. A housing authority’s operational
                                           activity can be viewed as a series of processes. Housing
                                           authorities need to be able to manage processes by
                                           managing the interface between departments to ensure the
                                           departments work together to complete the processes.

                                           Section D.2. says that management must ensure housing
                                           authority employees have the skills necessary for the
                                           authority to succeed. This section also says that evaluation
                                           of employees by their supervisors, usually in the form of
                                           some periodic, at least annual, performance report is an
                                           important function for ensuring accountability and assessing
                                           and addressing employee skills development needs. The
                                           housing authority should ensure that employee evaluations
                                           are based on identifiable targets and that evaluations are fair.
                                           In addition, accurate descriptions of the duties of positions in
                                           the organization are necessary for purposes of recruitment
                                           and employee evaluation.




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                                 The Committee of Sponsoring Organizations of the
       Other Guidance            Treadway Commission published a report, “Internal Control
                                 Integrated Framework,” that outlines the components of an
                                 effective control environment.

                                 One of these components addresses the entity’s commitment
                                 to competence. The report points out that management must
                                 specify the level of competence needed for particular jobs
                                 and translate the desired levels of competence into requisite
                                 knowledge and skills. Management may specify the
                                 competence needed in formal or informal job descriptions.

                                 A second component, organizational structure, addresses the
                                 need for adequate definitions of key managers’
                                 responsibilities and their understanding of these
                                 responsibilities. Further, managers must have the required
                                 knowledge, experience and training to perform their duties.
                                 Also part of this component, an effective organizational
                                 structure facilitates the flow of information upstream,
                                 downstream and across all business activities.

                                 A third component, assignment of authority and
                                 responsibility, addresses the need for assignment of
                                 responsibility, delegation of authority and establishment of
                                 related policies to provide a basis for accountability and
                                 control, and defining individuals’ respective roles.

                                 In addition, a fourth component, human resource policies and
                                 practices, addresses the need for supervisory personnel to
                                 meet periodically with employees to review job performance
                                 and suggestions for improvement.

                                 Finally, a fifth component, management’s philosophy and
                                 operating style, points out that an effective control
                                 environment includes frequent interaction between senior
                                 management and staff, such as through group or divisional
                                 management meetings.

                                 The Authority did not always have job descriptions in place
       Authority Needs to        that accurately reflected the duties performed by its
       Update Job Descriptions   employees. We interviewed seven key employees, and three
                                 expressed concerns that their job descriptions did not
                                 adequately describe the duties they performed. Two of the
                                 employees said additional responsibilities were added to
                                 their job duties, but their job description had not been

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                               updated to include the additional responsibilities. The third
                               employee said she was hired to fill a newly created position
                               and the job description was no longer accurate because the
                               job duties had evolved over time.

                               Although job descriptions should be general enough to
                               define basic job duties, the descriptions must be detailed
                               enough to provide adequate guidance for employees to
                               perform the duties within their realm of responsibility.
                               Accurate job descriptions eliminate confusion as to
                               assigned duties and help ensure employees are evaluated on
                               their assigned responsibilities when undergoing
                               performance evaluations.

                               The Authority did not have formal procedures to identify the
       Proactive Approach to   training needs of its employees, but relied on an informal
       Training Needed         process. The process in place consisted of managers
                               identifying training opportunities and offering the training to
                               staff, or staff identifying training and requesting approval to
                               attend. Although this process provided an avenue to training,
                               it did not ensure necessary training was identified and made
                               available. Three of the seven key employees had not been
                               fully trained on the HUD programs they administered or on
                               the computer programs used by the Authority. Formal
                               procedures to identify and obtain needed training provides
                               the Authority and HUD assurance that employees are
                               adequately trained to properly administer HUD programs.

                               The Authority did not have formal procedures to track
       Proper Tracking of      training attended by its employees. We reviewed the
       Training Needed         personnel files of 12 employees (7 current and 5 former) and
                               determined the files were not complete. The Authority’s
                               annual report for the period April 1, 1996 through March 31,
                               1998 listed training taken by the 12 employees; however, not
                               all of the training was reflected in the employees’ personnel
                               files.

                               During our review, the Administrative Assistant to the
                               Executive Director developed a process to track training;
                               however, the process was not implemented as a formal
                               procedure. Accurate and up-to-date training records provide
                               the Authority and HUD assurance that Authority employees
                               are qualified to perform their job duties and are provided
                               continuing education to stay abreast of new regulations and
                               information.

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                                  The newly hired Executive Director has improved
       Communications and         communications and flow of information. For example,
       Flow of Information Need   recently implemented departmental meetings have improved
       Improvement                coordination of Authority operations among employees. In
                                  addition, the current Executive Director provides detailed
                                  financial information to the Board of Commissioners at the
                                  monthly Board meetings, a practice not followed by the
                                  former administration. The Executive Director also has
                                  implemented a policy of allowing employee feedback on
                                  Authority operational issues. This has improved employee
                                  morale by making them more a part of the management
                                  team.

                                  Although      the    current      administration improved
                                  communication and the flow of information, the Authority
                                  needs to continue to expand such improvements. For
                                  example, communication between senior management and
                                  the staff needs to be improved. Department managers had
                                  differing opinions on whether attendance at the monthly
                                  Board of Commissioner meetings was mandatory. Two of
                                  the five key management employees said they did not attend
                                  Board meetings and did not consider attendance at the
                                  meetings mandatory. However, the other managers believed
                                  the meetings were mandatory for management personnel.
                                  The confusion over attendance at Board meetings occurred
                                  because the current administration did not clarify the last
                                  administration’s practice of limited attendance.

                                  Since managers of various areas need to be aware of the
                                  Authority’s overall direction, we believe participation in
                                  monthly Board meetings is essential to effective operations.
                                  Additionally, joint meetings help ensure managers work
                                  together as a team to accomplish the Authority’s goals.



      Auditee Comments            Excerpts from the Executive Director’s comments on our
                                  draft finding follow. Appendix B contains the complete text
                                  of the comments.

                                  Review of all job descriptions is underway at this time. Thus
                                  far, every employee has been provided a copy of their job
                                  description and asked to submit feedback to management
                                  regarding what they feel needs to be changed. Written
                                  policies and procedures setting forth the processes to be

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                          followed by supervisory and administrative staff for
                          identifying and fulfilling employee training needs will be
                          adopted and implemented. As noted by the OIG audit staff
                          in the finding, the Administrative Assistant to the Executive
                          Director has developed temporary procedures for tracking
                          and scheduling staff training needs, and documentation that
                          the training was attended. Formal policies and procedures
                          will be adopted and implemented. We agree that regular
                          joint management staff meetings help ensure managers work
                          together as a team to accomplish the agency’s goals and will
                          continue that practice. In fact, each program manager is also
                          holding regular meetings of their staff for the same reasons.
                          We also agree that frequent effective communication
                          between staff levels and between management and the Board
                          is vital to the success of the organization. However, as we
                          believe that mandatory management staff attendance at all
                          monthly Board meetings is an option for the Board to
                          consider, we are not prepared to state at this time that this
                          requirement will be adopted as policy.



      OIG Evaluation of   Our review showed that employees were performing major
      Auditee Comments    functions that were not included in their job descriptions.
                          For example, the Accounting Assistant had been
                          performing major functions for the last year that were
                          previously performed by the site managers.           These
                          additional job duties were not included in the employee’s
                          job description in effect at the time.

                          In its comments, the Authority indicated it is the Board’s
                          decision as to whether attendance of key managers at the
                          Board meetings should be mandatory. We believe key
                          managers gain valuable information and experience from
                          attending Board meetings and feel part of the team when
                          participating in high-level management meetings.
                          Therefore, we recommend that the Authority require
                          attendance by management when feasible.

                          The actions planned and taken by the Authority should
                          correct the problems identified in the finding if the actions
                          are followed through to completion.




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      Recommendations   We recommend the Director, Office of Public Housing,
                        ensure the Housing Authority of Independence:

                        7A.      Updates job descriptions to reflect the actual duties
                                 performed, and develops a procedure to keep job
                                 descriptions current.

                        7B.      Develops and implements Board-approved policies
                                 and procedures to identify and fulfill the training
                                 needs of employees.

                        7C.      Develops and implements Board-approved policies
                                 and procedures to track training attended, including
                                 requirements for proper documentation that training
                                 was attended.

                        7D.      Requires key managers to attend Board of
                                 Commissioners meetings.




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      Management Controls
      In planning and performing our audit, we considered the management controls of the Housing
      Authority of Independence to determine our auditing procedures, not to provide assurance on the
      controls. Management controls 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 determined the following management controls were
       Relevant Management                 relevant to our audit objectives:
       Controls
                                               •= Developing and implementing policies and
                                                  procedures that reasonably ensure programs meet
                                                  objectives.

                                               •= Assuring effective management information and
                                                  accounting systems.

                                               •= Assuring compliance with laws and regulations.

                                               •= Assuring appropriate expenditure of federal funds.

                                               •= Safeguarding resources.


                                           We assessed the relevant controls identified above.

                                           It is a significant weakness if management controls do not
                                           provide reasonable assurance that the process for planning,
                                           organizing, directing, and controlling program operations
                                           will meet an organization’s objectives.

                                           Based on our review, we believe the following items are
       Significant Weaknesses              significant weaknesses:

                                               •= The Authority did not always have written policies
                                                  and procedures for its operations. Additionally,
                                                  where policies did exist, they were not always
                                                  complete, approved by the Board of Commissioners,
                                                  or enforced (see Finding 1).




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                            •= The Authority did not properly disclose or monitor its
                               investments, causing incorrect reporting of its
                               financial condition. Specifically, public housing
                               assets were overstated $60,644 for fiscal year ended
                               March 31, 1999, and Section 8 assets were overstated
                               by $35,298 for fiscal year ended March 31, 1999 and
                               $36,079 for the month ended April 30, 2000 (see
                               Finding 2). In addition, the Authority did not resolve
                               deficiencies identified in its financial statement
                               audit for fiscal year ended March 31, 1999. The
                               independent auditor reported that the account
                               balances for three tenant-related subsidiary accounts
                               did not agree with the general ledger account
                               balances at the end of the fiscal year (see Finding 3).

                            •= The Authority’s Board of Commissioners did not
                               always comply with regulations of a Missouri statute
                               that governs the conduct of public meetings (see
                               Finding 4).

                            •= The Authority did not have an acceptable system of
                               controls over its Section 8 program; and, as a result,
                               overpaid landlords and allowed outstanding checks
                               to remain unresolved (see Finding 6).

                            •= The Authority did not practice proper cash
                               management, causing $33,610 in cash resources to
                               remain in bank accounts, drawing minimal interest
                               revenue, when these funds could have been put to
                               better use. In addition, the Authority did not
                               segregate duties for the collection, recording and
                               depositing of receipts, or for the control of its fixed
                               asset inventory (see Finding 2).




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      Follow Up On Prior Audits
      This is the first Office of Inspector General audit of the internal controls of the Housing
      Authority of Independence, Missouri.




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                                                                                        Appendix A

      Schedule of Questioned Costs

                                                               Type of Questioned costs
           Issue                                       Ineligible 1/         Unsupported 2/


           Section 8 Overpayments (Finding 6)              $879



      1/   Ineligible costs are costs charged to a HUD-financed or HUD-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 charged to a HUD-financed or HUD-insured program or
           activity and 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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      Finding No. 1. – The Authority Lacked Policies and Procedures for Its
                       Operations

      PHA Response
      1A.      The PHA concurs that there are several major areas of operation within which policies
               and implementing procedures need to be developed. The majority of the agency’s
               deficiencies in policies and/or procedures are addressed within responses to other specific
               OIG findings. To summarize, the PHA will develop, adopt and implement policies and
               procedures to address all areas of deficiency by March 31, 2001. Deficient areas the PHA
               will address include disbursements, receivables and cash, inventory, investments, human
               resources, grant administration, Board of Commissioners and Management Information
               Systems, and any other deficiencies that come to light during this process.

      1B.      The PHA will evaluate and amend, as appropriate, existing policies and procedures by
               March 31, 2001.

      1C.      All new or revised policies and procedures will be presented to the Board of
               Commissioners for consideration of approval, including any such changes implemented
               by Executive Order, no later than March 31, 2001. However, as it is the Executive
               Director’s responsibility to ensure that the PHA operates in compliance with all applicable
               Federal, State and local rules, regulations and ordinances, he will not delay implementing
               changes in policy or procedure until formal Board approval has taken place where a clear
               violations of any such rules, regulations or ordinances may be occurring. Likewise, the
               Executive Director will not be compelled to implement any policy or procedure adopted
               by the Board of Commissioners that would, if implemented, clearly be in violation of any
               such rule, regulation or ordinance, or that would not be ethical. The Executive Director
               acknowledges also having the responsibility to keep Commissioners informed regarding
               applicable rules, regulations and ordinances, and any potential conflicts proposed policies
               or procedures may have with those rules, regulations or ordinances.

      1D.      It is the Executive Director’s responsibility to enforce PHA Board policies. The
               Executive Director acknowledges that there are several instances where the agency’s
               procurement policies have not been followed appropriately. The Executive Director is
               taking steps to ensure future compliance with policy.




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      Finding No. 2. – The Authority Lacked Control of Assets

      PHA Response
      2A.   We concur that the agency’s cash management strategies and Board-approved policies
            (i.e.; Investment Policy dated 4/14/94) and procedures need to be upgraded and
            implemented as soon as possible. Staff is currently drafting revised policies and
            procedures for Board approval. The revised policies and procedures will include
            standardized guidance for purchasing, tracking, adjusting and liquidating investment
            accounts, all designed to ensure accurate recording and reporting, as well as to maximize
            investment income. These policies and procedures will be in place no later than 1/16/01.

      2B.   Staff and the Fee Accountant are currently researching the histories of existing investment
            accounts in order to resolve discrepancies and facilitate appropriate adjustments to the
            agency’s books to accurately portray its investment portfolio. Some of this research and
            resulting adjustments were accomplished during the time the OIG audit team was on site.
            Staff is currently setting up each investment in an interactive Excel spreadsheet ledger.
            The entire history of each current investment is being entered into this ledger, which will,
            when completed, be able to portray the agency’s investment portfolio and position at any
            given point in time (within the limits of the aforementioned history). This spreadsheet
            ledger will be completed no later than 11/17/00. The independent auditor will be able to
            verify this accomplishment in November.

      2C.   All agency savings and escrow accounts are being set up in the above noted spreadsheet
            and will be evaluated/dissolved as appropriate during this process.

      2D.   The aforementioned spreadsheet will serve as our investment register, as the entire history
            of each investment will appear on that investment’s ledger sheet.

      2E.   Policies and procedures are in draft whereby the duties of collecting, recording and
            depositing tenant and non-tenant receipts will be divided between three staff members,
            with each person’s work verified by at least one of the other three persons. PHA
            management has already instituted this process on a temporary basis, pending Board
            approval of the final policies and procedures. We plan to have the final policies and
            procedures approved by 12/31/00.

      2F.   Written procedures will be in place by 12/31/00, which properly segregate the
            responsibilities and control of fixed asset inventory, and adequately implement the
            Disposition Policy adopted by the Board in 1996.

      2G.   Written policies and procedures are in development that will insure proper
            documentation of annual physical inventory counts as well as provide an accurate audit
            trail. These policies and procedures will be in place by 1/31/01.



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      Finding No. 3. – The Authority Did Not Resolve Deficiencies in its
                       Financial Statements

      PHA Response
      3A.      The deficiencies noted in the FYE 1999 independent audit have been resolved, meaning
               that as of the compilation of FYE 2000 (March 31, 2000) Tenant Accounts Receivable
               data, the general ledgers maintained locally and by the fee account balanced. The
               independent auditor will verify this fact during the FYE 2000 audit in November.




      Finding No. 4. - Board of Commissioners Did Not Always Comply With
                       Missouri Statute

      PHA Response
      We concur with the recommendations regarding the need for Commissioner training in proper
      Board conduct of business under the “Missouri Sunshine Law” and the need for written
      procedures for routinely auditing and updating the Commissioner’s Handbook, including
      updating the office copy of the Handbook. Further, we believe educating new Commissioners on
      all aspects of Commissioner responsibilities will be expedited by developing and implementing a
      written Commissioner orientation and training policy.

      Specifically, the OIG recommendations have been and/or will be addressed as follows:

      4A.      Each Commissioner was hand delivered a copy of this OIG audit finding and a copy of
               the “Missouri Sunshine Law” on Friday, September 8, 2000. In addition, a qualified
               professional will be commissioned to provide the Board with “Sunshine Law” training
               as soon as practical, but no later than December 31, 2000. Written policies and
               procedures regarding new Commissioner orientation and training will be developed and
               implemented as soon as practical, but no later than December 31, 2000.

      4B.      The agency’s By-Laws will be revised to incorporate the Board policy of conducting
               meetings in compliance with the “Sunshine Law” as soon as practical, but no later than
               December 31, 2000.

      4C.      Written policies and procedures regarding updating Commissioner’s Handbook,
               including the office copy of the handbook, will be developed and implemented as soon
               as practical, but no later than December 31, 2000.




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      4D.       The Commissioner’s Handbook will be revised to include a copy of the law and written
                guidance regarding the conduct of Board meetings in compliance with the “Sunshine
                Law,” no late than December 31, 2000.

      General

      The Administrative Assistant to the Executive Director will establish a written method of
      tracking these tasks and reporting achievement, no later than October 31, 2000.




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      Finding No. 5. – The Authority Needs to Improve Controls Over Its
                       Procurement Processes

      PHA Response
      General

      The PHA concurs with the facts of this finding and intends to become fully compliant with the rules
      and regulations governing public procurements and the agency’s procurement policies as soon as
      possible. The current administration believes that virtually all of the issues raised in this finding
      directly relate to the absence of written procurement procedures designed to ensure, when followed
      to the letter, full compliance with such rules, regulations and policies, and/or to the apparent lack of
      knowledge of acceptable procurement processes/documentation on the part of involved staff.
      Therefore, whether stated or not in the following individual responses, each deficient area will be
      addressed by the development of written procedures and identification/provision of staff training
      needs.

      Individual Responses

      5A.       The PHA will identify the training needs of each staff member involved in any
                procurement activity and will ensure that those training needs are met as soon as practical.
                Although the majority of this training will most probably need to be accomplished on-site,
                the PHA will make every effort to find and procure formalized training from public
                procurement “experts” for specialized staff to attend by no later than March 31, 2001.

      5B.       The PHA will practice full and open competition on all procurements from this day
                forward, including requiring at least three bids or quotations (as appropriate to the
                solicitation) on procurements over $25,000. The Executive Director (Contracting Officer),
                on October 6, 2000, issued a written directive to key management staff requiring full
                compliance with procurement policies. (directive attached)

      5C.       From this day forward, the PHA will develop and include an independent cost estimate in
                each procurement file, whenever possible. (see directive)
      5D.       The Board has adopted a policy (attached) that establishes the Executive Director’s
                procurement approval authority at up to $25,000, and requires Board approval for any
                procurement exceeding that amount, except in cases of emergency. The Executive
                Director will evaluate the approval levels necessary to allow each key management
                member to accomplish their jobs as efficiently as possible and formally delegate such
                authority by November 30, 2000.

      5E.       The PHA will develop, adopt and institute the use of a standard construction contract
                form by November 30, 2000.


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      5F.   The PHA will use a formal means of contract modification effective immediately and will
            develop, adopt and institute the use of a standard form for this purpose by November 30,
            2000.

      5G.   The PHA will develop, adopt and institute the use of a standard procurement file checklist
            by November 30, 2000.

      5H.   The PHA will develop a central contract register by December 31, 2000, that provides
            basic information on all contracts in force.




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      October 6, 2000

      TO:              RICHARD FUGATE, DAWN RUTH, DOROTHY BUCK
                       JOE ANN DAUGHERTY AND DON WAKEFIELD

      FROM:            ED MILLER

      SUBJECT:         DIRECTIVE REGARDING PROCUREMENT ACTIVITIES


      Background

      Attached you will find two documents: a draft of the OIG auditor’s finding regarding deficiencies in
      our past procurement activities and a copy of my response to the OIG on this finding. If you haven’t
      already, I please read the draft finding in detail so you understand the issues and problem areas, and
      then read the response. Note that I have made several commitments on behalf of the agency, not the
      least of which is that we will accomplish our procurements legally now and in the future.
      Specifically note the response to item 5B, wherein I state that staff is being directed to fully comply
      with the procurement policies. The following is that directive.

      Directive

      All key management staff members are hereby directed to familiarize themselves with the
      agency’s procurement policies and to conduct, and ensure their subordinates conduct, any and all
      procurement activities in full compliance with those policies. If you do not have a copy of the
      policies, you may request a copy from Kelly Creek. If you find any process or requirement in
      those policies that you do not understand, request direction from me before proceeding with any
      purchase.

      Closing

      As I am sure you will note in the response, we are committed to accomplishing several task within a
      specified time line, including developing written procurement procedures by March 31, 2001. I will
      be communicating with management staff over the next few weeks as we progress toward
      accomplishing each of those tasks.

      Thank you in advance for your cooperation in complying with this directive.




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      RESOLUTION NO. 938

      A RESOLUTION OF THE BOARD OF COMMISSIONERS OF THE HOUSING
      AUTHORITY OF THE CITY OF INDEPENDENCE, MISSOURI, REVISING THE HAI
      PROCUREMENT POLICY ADOPTED BY RESOLUTION NO. 573 AND PREVIOUSLY
      REVISED BY RESOLUTION NO. 822.


      WHEREAS, the agency’s current Procurement Policy delegates all purchasing authority to the
      Executive Director and establishes no approval level threshold above which procurements must
      be approved by the HAI Board; and

      WHEREAS, the HAI Board desires to establish an approval threshold for the Executive
      Director:

      NOW, THEREFORE, BE IT RESOLVED BY THE HAI GOVERNING BODY that the
      HAI Procurement Policy shall be revised as follows:

           1.   Subparagraph 9. is hereby added to section II. paragraph B., such subparagraph to
                state: “The Executive Director shall have the authority to approve and/or delegate the
                authority to approve any single procurement action totaling less than $ 25,000.”; and

           2.   The sentence “The Board must approve any and all single procurement actions
                totaling $25,000 or more, except in cases where the exigencies of an emergency
                situation do not allow adequate time for the Executive Director to secure Board
                approval prior to committing the HAI to contracts in excess of $25,000, in which
                cases the Executive Director shall make timely full disclosure to the Board the
                justifications and costs of such procurements.” shall be added to the existing language
                appearing at section II, paragraph C.


      THIS RESOLUTION IS ADOPTED this 27th day of June, 2000, and is effective immediately
      upon its adoption.


                                                  ___________________________________
                                                    Cathleen Cackler-Veasey, Chairperson
      Attest:


      ____________________________________
          Edward F. Miller, Secretary                            SEAL




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      Finding No. 6. – The Authority Lacked Adequate Control Over Its Section 8 Program

      PHA Response
      6A.      Policies and procedures are in draft that will ensure elimination of overpayments to
               landlords and timely removal of families from the waiting list. These policies and
               procedures will be implemented as soon as possible, but no later than December 31, 2000.

      6B.      Staff will conduct an in-house audit of landlord payment data as compared to tenant
               move-out data for the FYE 1999, 2000 and 2001 fiscal years, and, when applicable, take
               steps to recoup any overpayments to landlords. The audit will be completed by February
               28, 2001, and, if necessary, the process to recoup any overpayments will be implemented
               by March 31, 2001.

      6C.      Policies and procedures will be developed and implemented as soon as possible, but no
               later than December 31, 2000, to provide for adequate review of monthly bank
               reconciliations, a follow-up process on outstanding disbursements and coordination
               between the Section 8 department and Accounting regarding any returned disbursements.

      6D.      Staff will adjust the agency’s books and records, including the applicable landlord
               accounts, to properly account for the voided disbursements held in the Section 8 vault by
               October 31, 2000, and will develop and implement written procedures for processing
               future voided disbursements that will prevent discrepancies in the future.
      6E.      When ordering replacement check stock, we will ask the printer to imprint an expiration
               date on the checks that reflects the policy of the subject bank. This cannot be totally
               implemented until all check stock has been replaced, which we anticipate to occur over
               the next six to nine months.




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                                                                                               Appendix B


      Finding No. 7. – The Authority Needs to Improve Its Human Resource
                       Function

      PHA Response
      General

      We agree that to be most efficient an employer must have current job descriptions, identify
      employee training needs, ensure that those training needs are met, and require employees to be
      accountable for attending training sessions.

      However, we also believe it is counterproductive to attempt to include every possible task
      assignment in a person’s job description or to represent to staff that all potential task assignments
      appear in their job description. In order to function effectively, any manager must have the authority
      and flexibility to temporarily assign subordinates tasks that do not appear on their job description.
      We can envision no other employee statement more detrimental to management authority, over-all
      employee morale or agency efficiency than “I don’t have to do that because it’s not in my job
      description.”.

      Further, there are occasions where an employee’s tasks are changed on a test basis, to determine
      whether the changes should be made permanent. It would be unreasonable to expect that job
      description to be changed and then changed again, when the change(s) in task assignment prove
      unsuccessful. First we see if the change works, then we revise the job description. This agency has
      been testing several of these types of staff responsibility reassignments for the past few months.
      Virtually all of these test changes are being evaluated as potential improvements in either staff
      efficiency or customer service, or both. We will agree that the entirety of some peoples’ assigned
      tasks do not exactly match their “approved” job description. We don’t agree that it’s always wrong,
      however.

      Our responses to the individual components of this finding are:

      7A.       Review of all job descriptions is underway at this time and should be completed by
                November 30, 2000. Thus far, every employee has been provided a copy of their job
                description and asked to submit feedback to management regarding what they feel needs
                to be changed. To date, we have received feedback from about 75% of all employees.
                Procedures will be developed and implemented by February 28, 2001, wherein job
                descriptions are annually reviewed at the same time that the annual evaluation of job
                classifications and pay ranges are under review.

      7B.       Written policies and procedures setting forth the processes to be followed by supervisory
                and administrative staff for identifying and fulfilling employee training needs will be
                adopted and implemented by February 28, 2001.




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      Appendix B


      7C.      As noted by the OIG audit staff in the finding, the Administrative Assistant to the
               Executive Director has developed temporary procedures for tracking and scheduling staff
               training needs, and documentation that the training was attended. Formal policies and
               procedures will be adopted and implemented by February 28, 2001.

      7D.     We agree that regular joint management staff meetings help ensure managers work
              together as a team to accomplish the agency’s goals and will continue that practice. In fact,
              each program manager is also holding regular meetings of their staff for the same reasons.
              We also agree that frequent effective communication between staff levels and between
              management and the Board is vital to the success of the organization. However, as we
              believe that mandatory management staff attendance at all monthly Board meetings is an
              option for the Board to consider, we are not prepared to state at this time that this
              requirement will be adopted as policy.




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                                                                                      Appendix C

      Distribution Outside of HUD
      Chairman, Committee on Governmental Affairs, 340 Dirksen Senate Office Building,
        United States Senate, Washington, DC 20510
      Ranking Member, Committee on Governmental Affairs, 706 Hart Senate Office Building,
        United States Senate, Washington, DC 20510
      Chairman, Committee on Government Reform, 2185 Rayburn Building,
        House of Representatives, Washington, DC 20515
      Ranking Member, Committee on Government Reform, 2204 Rayburn Building,
        House of Representatives, Washington, DC 20515
      Subcommittee on Oversight and Investigations, Room 212, O’Neil House Office Building,
        Washington, DC 20515
      Associate Director, Resources, Community, and Economic Development Division,
        United States General Accounting Office, 441 G Street, NW, Room 2723,
        Washington, DC 20548
      Chief, Housing Branch, Office of Management and Budget, 725 17th Street, NW, Room 9226,
        New Executive Office Building, Washington, DC 20503
      Director, Office of Federal Housing Enterprise Oversight, 1700 G Street, NW, Room 4011,
        Washington, DC 20552




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