Telephone: (617) 994-8380 http://www.hud.gov/oig/oigindex.html Fax: (617) 565-6878
U.S. Department of Housing and Urban Development
New England Office of District Inspector General
for Audit, 1AGA
Thomas P. O’Neill ,Jr. Federal Building
Room 370
10 Causeway Street
Boston, Massachusetts 02222-1092
Audit Memorandum
No: 2002-BO-1801
December 20, 2001
MEMORANDUM FOR: Donna J. Ayala, Director, Office of Public Housing, 1APH
FROM: Barry L. Savill, District Inspector General, Office of Audit, 1AGA
SUBJECT: South Kingstown Housing Authority
South Kingstown, Rhode Island
.As requested by your office, we performed a review of the South Kingstown Housing
Authority (Authority). The overall objective of our review was to determine if the
Authority was administering its Public Housing and Section 8 Programs in an efficient,
effective and economical manner. Specifically, our objective was to evaluate the
allegations regarding the misuse of Authority funds by the former Executive Director and
the misuse of the Authority’s credit cards.
Our review disclosed that the Authority does not administer its Public Housing and Section
8 Programs in an efficient, effective and economical manner. Specifically, the Authority
lacks the proper internal controls contributing to the improper use of the Authority’s credit
cards; the poor safeguarding of assets; and the failure to enforce their own travel policies.
Further, the Authority has been unable to adequately recover outstanding tenants’ accounts
receivables.
Within 60 days, please provide us 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 not
considered necessary. Also, please furnish us with copies of any correspondence or
directives issued related to this audit.
If you have any questions, please contact our office at (617) 994-8380.
Background
The South Kingstown Housing Authority (Authority), located at 364 Curtis Corner Road,
Peace Dale, Rhode Island is responsible for oversight and management of 52 family
housing units, 18 elderly units and 138 Section 8 vouchers. A five-member Board of
Commissioners governs the Authority.
On January 16, 2001, the Director, Office of Public Housing, New England District
requested that we perform a review of the Authority’s financial records. Concerns and
third party allegations were that the former Executive Director misused Authority funds
and purchased items for her personal use including gas on Authority credit cards. In
addition, it was alleged that the Authority’s maintenance personnel may have been
involved with the delivery and installation of equipment at the former Executive Director’s
residence.
On November 7, 2000, the Executive Director was terminated. On January 10, 2001, the
Rhode Island Affordable Housing Corporation (Corporation) was hired by the Board of
Commissioners to provide technical assistance to the Authority’s staff, evaluate the staff’s
operations, and to assist in hiring a new Executive Director. On April 16, 2001, a new
Executive Director was hired to run the day-to-day operations of the Authority.
On April 30, 2001, the Corporation issued its report to the Board of Commissioners,
consisting of eleven findings with recommendations for corrective action. The most
significant item reported was that the Authority needs a long range Capital Improvement
Program to address health and safety issues, and statutory and regulatory requirements of
their properties. The Corporation estimated that $560,000 of capital expenditures would be
needed over a three to five year period.
Scope and Methodology
To accomplish the audit objectives, we:
Ø Reviewed the Authority’s organizational and administrative structure, personnel
policies, administrative plans and recorded minutes of the Board of Commissioners
meetings.
Ø Interviewed the Vice President of Rhode Island Affordable Housing Corporation to
determine its responsibilities and goals in accordance with the Corporation’s
contract with the Authority.
Ø Interviewed Authority staff regarding its procedures for accounting, maintenance,
occupancy, travel and cash receipts to determine if the Authority’s procedures were
adequate.
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Ø Interviewed the Massachusetts Office of Public Housing staff concerning the
allegations made against the Authority.
Ø Reviewed charges made on the Authority’s gas credit card for March 1999 through
October 2000 and the Authority’s Visa and national chain credit cards for April
1998 through August 2000 to determine if the charges were reasonable, properly
supported, and related to the operation of the Authority.
Ø Conducted physical inspections on 10 units to ensure that reported Health and
Safety Issues were corrected in accordance with HUD regulations.
Ø Examined from a universe of 170 tenant files, 10 percent or 17 tenant files, (7
Public Housing, 7 Section 8 vouchers and 3 Section 8 certificates) to verify that
tenants’ income was within income guidelines; that Housing Assistance Payments
were calculated correctly; and to determine that re-certifications were performed on
an annual basis.
Ø Examined tenant accounts receivables, March 2000 to January 2001, for 5 out of 41
tenants with accounts receivables to determine if the Authority was taking actions
to collect amounts past due and evict tenants that failed to comply with repayment
plans.
Ø Examined staff training ($22,938) and travel ($33,522) for Fiscal Years 1998
through 2001 to determine if the costs were reasonable, supported and related to the
operation of the Authority.
Ø Examined Independent Public Accountant audit reports and monitoring reviews
conducted by the Massachusetts State Office of Public Housing to determine if
there were any indicators of mismanagement.
Ø Reviewed the Corporation’s report to the Board of Commissioners.
For transaction testing methodology, we used a non-representational sample rather than a
statistically valid sample. The non-representational sample methodology was more
appropriate for testing the specific allegations addressed in this report.
During the course of the audit, the finding was discussed with the Authority’s Executive
Director and Board members. On November 28, 2001, an exit conference was held with the
Executive Director and Board members. We received the auditee’s response on December 7,
2001. The Executive Director and the Board of Commissioners generally agreed with the
findings and recommendations.
Audit work was performed between January 2001 and April 2001 and covered the period
April 1999 through March 2001. When appropriate, the review was extended to include
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other periods. The issuance of the report was delayed at the request of the United States
Attorney’s office.
Review Results
The South Kingstown Housing Authority (Authority) does not administer its Public
Housing and Section 8 Programs in an efficient, effective and economical manner.
Specifically, the Authority lacks the proper internal controls contributing to the improper
use of the Authority’s credit cards; the poor safeguarding of assets; and the failure to
enforce their own travel polices. Further, the Authority has been unable to adequately
recover outstanding tenant accounts receivables, which have increased fifty percent over a
ten-month period. The Authority needs to recognize its weaknesses and strengthen its
administration to ensure HUD and the community that they can operate in the most
resourceful manner.
Improper Use of Credit Cards
There were eight credit cards in the name of the Authority (two for gas, three Visas and
three national chain credit cards). The Chairman of the Board of Commissioners stated that
to his knowledge the Authority had only one credit card. In addition, the former Executive
Director declined to talk to us about credit cards.
Our review disclosed that for the period April 1999 through August 2000, the former
Executive Director used the Authority’s Visa credit card for personal use and made
purchases of goods or services of $15,092. Our review of the Authority’s records disclosed
that the Authority did not pay for these items. The former Executive Director paid back
$16,751. The difference resulted in debits/credits received and finance charges owed by
the former Executive Director. The Commissioners did not know that the former
Executive Director was using the Authority’s Visa card for her own personal use.
In addition, the former Executive Director has used the Authority’s credit cards for
unauthorized purchases resulting in $4,796 ($2,311 gas charges and $2,485 Visa and
national chain credit card charges) of inappropriate charges which were not reimbursed by
the former Executive Director. The improper use of the credit cards can be attributed to
the lack of internal controls, including the Board of Commissioners’ failure to monitor the
actions of the former Executive Director. Therefore, HUD has no assurance that the former
Executive Director was conducting the Authority’s programs in an efficient and effective
manner.
OMB Circular A-87, Cost Principles for State, Local, and Indian Tribal Governments,
provides that to be an allowable cost, it must be necessary and reasonable for proper and
efficient administration, and allowable to the extent of benefits received by the program
(Attachment A, paragraphs C.1.a. and C.3.a.).
During the period March 1999 through October 2000, the former Executive Director
improperly used the Authority’s credit card for $2,311 in gasoline purchases. The
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Authority’s policies and procedures state that the Executive Director is entitled to
reimbursement for use of a personal vehicle on official business at the rate of 31.5 cents
per mile. The Authority’s office staff stated that the former Executive Director used a
personal vehicle two or three times a week to travel to the various Authority properties.
The maximum local, round trip travel mileage between the Authority’s main office and the
other developments is estimated to be six miles.
An analysis of the charges by date of gasoline purchase disclosed questionable issues such
as multiple gasoline purchases on the same day, or on consecutive days including
purchases on Saturday and Sunday when the former Executive Director was not on official
duty. The former Executive Director declined to discuss this issue with us. The Chairman
of the Board stated that the former Executive Director only submitted the total gasoline
bill, and not the individual statement to support these charges, and therefore, the Board
never saw the individual charges.
Furthermore, during the period April 1998 through December 2000, the Authority’s
Maintenance Director believes the former Executive Director acquired maintenance items
and supplies for unauthorized purposes through use of the Authority’s credit cards. The
Maintenance Director identified specific items purchased, totaling $2,485, ($2,289 Visa
charges and $196 national chain credit charges) including appliances, customized patio
doors, light fixtures and a toolbox. A maintenance worker advised that he delivered and
installed a refrigerator, stove and doors at the former Executive Director’s home. The
Authority could not provide any written documentation to support these allegations.
The misuse of the Authority’s credit cards can be contributed to Commissioners’ failure to
monitor the actions of the former Executive Director. The Commissioners can make a
difference by being more involved in management of the operation and taking appropriate
action when management problems are apparent.
Controls Over Inventory Needed
The Authority needs to adhere to its internal control procedures regarding inventory of
equipment and accounting for materials expended on each maintenance job. The
Authority’s procedures for Property Records/Inventory Maintenance state that a physical
inventory of non-expendable equipment will be taken every two years and the results
reconciled with property records.
Our review disclosed that both the Maintenance Director and the Administrative Assistant
maintain manual logs to track non-expendable equipment. However, the logs were missing
information such as date of installation, item purchased, model and serial number, and the
purchase price. We have identified instances where the Maintenance Director and the
Administrative Assistant did not know the unit in which the items had been installed.
Further, the Authority uses a computerized work order system to track maintenance work
by job. The Authority’s procedures require that material used on each job be tracked as
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well. Our review of completed work orders disclosed that materials used were not entered
into the system. To ensure that the Authority’s assets are properly safeguarded, the
Authority needs to maintain overall compliance with its policy and procedures in tracking
inventory and materials.
Training and Travel Needs to be Supported
The Authority’s Training and Travel policy requires travel vouchers to be completed for all
authorized travel showing any payments relative to each trip. The cost of travel necessary
to perform the Authority’s business is considered reimbursable with submitted receipts.
Without submitting detailed travel vouchers upon completion of the travel, expenditures
may not be valid and reasonable.
The Authority spent over $56,000 on training and travel during the past four fiscal years.
Charges included hotels, airline tickets, car rentals, and deposits for conferences. We have
determined that members of the Board of Commissioners went on many trips along with
Authority staff members. In the absence of supporting documentation justifying the need
for the travel, the staff attending, and the cost, we cannot be assured that these costs are
reasonable and necessary.
Further, in May 2000 the Authority prepaid the hotel lodging charges totaling $2,190, for
the former Executive Director and three of the Board of Commissioners to attend a
conference on Martha’s Vineyard in September 2000. None of the four persons went to the
conference, and the reservations were never cancelled thereby forfeiting the entire lodging
charge. However, hotel documentation explicitly stated that the reservations could be
canceled up to fifteen days prior to the event.
There was no documentation to support reasons the four members did not attend the
conference, or the date that it was determined the members were not going. The Authority
needs to strengthen control over their travel procedures, not only to ensure that costs are
reasonable and necessary, but also that funds are not needlessly wasted.
Collection of Tenants’ Accounts Receivable is not Adequate
The amount of tenant accounts receivables have significantly increased from $38,804 to
$57,565 in the last two fiscal years, even though the Authority wrote off $38,547 of
tenants’ accounts receivables during fiscal years 1999 and 2000. These conditions
occurred because the Authority does not enter into repayment agreements with tenants on a
timely basis, and does not enforce court decisions to evict tenants for non-payment of rent.
As a result, the Authority is not collecting the rent it needs to operate effectively and
efficiently.
The Authority’s tenant lease procedures state that rent is due and payable on the first day of
each month. If the tenant does not pay the rent by the fifth day of the month, the Authority
will send a “Notice of Intent to Terminate Tenancy for Non-Payment of Rent” and “Notice
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of Grievance Rights”. After receipt of these notices, the tenant has fourteen days to file a
grievance or pay the rent due. If the rent is not paid within fourteen days, the Authority
sends out a demand notice to the tenant. The demand notice states that, if rent is not paid
within five days, the Authority will begin the eviction process. If the tenant still does not
pay the overdue rent, then the Authority has the option to evict or enter into a court ordered
repayment plan with the tenant. The policy is to evict the tenant if they do not meet the
terms of the plan.
Our review disclosed that the Authority did not follow its own policies regarding over due
rent. As a result, tenants’ accounts receivables increased to $57,565 as of January 31,
2001. The tenant accounts receivable of $57,565 is comprised of $17,204 due from 12
vacated tenants, and $40,361 due from 41 active public housing tenants. We identified
examples of no action taken against tenants who did not pay rent for periods of up to two
years. When court ordered repayment plans were finally entered into, the plans were not
enforced.
For example, the Authority’s records indicate that a tenant entered into a Judgment
Stipulation on January 31, 2000 owing approximately fourteen months back rent. The
stipulation stated that the tenant must pay a monthly rent of $178, and an additional $100
per month towards arrearage of $2,492. Further, the tenant was required to pay $50 per
month towards utility arrearage of $2,165. Our review indicated that the tenant failed to
comply with the stipulation, and the Authority took no action against the tenant to enforce
the judgment. The total arrearage initially decreased to $4,337 before subsequently
increasing to $5,892 by February 2, 2001.
Immediate Improvement is Needed
The Board of Commissioners has the ultimate responsibility for the Authority’s operations
to ensure that the Authority is acting legally with integrity in its daily operations. Instances
of poor internal controls contribute to the Authority’s inability to operate efficiently,
effectively and economically. The Authority not only needs to develop proper internal
control procedures, but also needs to implement such practices to ensure appropriate
administration and compliance with HUD regulations.
Recommendations
We recommend that you:
1A. Require the Authority to develop and implement internal control procedures
ensuring that the Authority’s credit cards are used only for eligible,
necessary, reasonable and appropriate charges.
1B. Require the Authority to perform an inventory of all non-expendable
equipment and reconcile results with property records.
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1C. Require the Authority to strengthen and implement internal control
procedures ensuring that all inventory is tracked on a periodic basis, and that
all materials and equipment are identified to a specific maintenance job.
1D. Require the Authority to strengthen and implement internal control
procedures ensuring that all training and travel cost are eligible, necessary,
and reasonable.
1E. Require the Authority to develop and implement procedures to aggressively
recover outstanding tenant accounts receivable; including enforcing court
judgments and repayment agreements, and evicting tenants when necessary.
1F. Impose appropriate administrative sanctions against persons responsible for
the misuse of low-income operating funds.
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Appendix A
Distribution
Acting Inspector General, G
Deputy Assistant Inspector General for Audit, GA
Assistant Inspector General for Audit, GA
Assistant Inspector General for Investigation, GI
Acting Director, Program Research and Planning Division, GAP
Director, Information Systems Audit Division, GAA
Counsel to the Inspector General, GC
Central Records, GF
Semi-Annual Report Coordinator, GF
Assistant Inspector General, Office of Management & Policy, GF
Director of Internal Affairs, GF
Secretary, S
Deputy Secretary, S
Chief of Staff, S
Deputy Chief of Staff for Policy & Programs, S
Deputy Chief of Staff for Intergovernmental Affairs, S
Senior Advisor to Deputy Secretary, S
Assistant to the Secretary for White House Liaison, F
Press Secretary/Senior Communications Advisor to the Secretary, W
Executive Officer for Administrative Operations and Management, S
Chief Information Officer, Q
Chief Financial Officer, F
General Counsel, C
Ronald A. Rosenfield , President, Ginnie Mae, T
Assistant Secretary for Congressional and Intergovernmental Relations, J.
Assistant Secretary for Housing/Federal Housing Commissioner, H
Assistant Secretary for Community Planning and Development, 1AHMLAP
Assistant Secretary for Public and Indian Housing, P
Director, Center for Faith-Based and Community Initiatives, AK
Director, Office of Departmental Equal Employment Opportunity, U
Director, Office of Departmental Operations and Coordination, I
Director, Office of Multifamily Assistance Restructuring, Y
Director, Office of Federal Housing Enterprise Oversight, L
Director, Office of Healthy Homes and Lead Hazard Control, L
Director, National Office of Labor Relations, SL
Director, Enforcement Center, DEC
General Deputy Assistant Secretary for Policy Development and Research, H
Acting Assistant Secretary for Fair Housing and Equal Opportunity, E
Acting Assistant Secretary for Administration, AA
Acting Director, Real Estate Assessment Center, X
Acting Secretary’s Representative, 1AS
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Appendix A
Special Agent-In-Charge, 1AGI
Primary Field Audit Liaison Officer, 3AFI
Special Projects Coordinator, HF
Departmental Audit Liaison Officer, FMA
Auditee
Acquisitions Librarian, Library, AS
District Inspector General (2-11)
Sharon Pinkerton, Senior Advisor, Subcommittee on Criminal Justice, Drug Policy &
Human Resources, B373 Rayburn House Office Bldg., Washington, DC 20515
Ms. Cindy Fogelman, Subcommittee on Oversight and Investigations, Room 212, O’Neill
House Office Building, Washington, DC 20515
Stanely Czerwinski, Associate Director, Resources, Community, and Economic
Development Division, United States General Accounting Office, 441 G Street, NW,
Room 2723, Washington, DC 20548
Steve Redburn, Chief, Housing Brach, Office of Management & Budget, 725 17th Street,
NW, Room 9226, New Executive Office Building, Washington, DC 20503
The Honorable Fred Thompson, Ranking Member, Committee on Governmental Affairs,
340 Dirksen Senate Office Building, United States Senate, Washington, DC 20510
The Honorable Joseph Lieberman, Ranking Member, Committee on Governmental Affairs,
706 Hart Senate Office Bldg., United States Senate, Washington, DC 20510
The Honorable Dan Burton, Chairman, Committee on Government Reform, 2185 Rayburn
Bldg., House of Representatives, Washington, DC 20515
The Honorable Henry A. Waxman, Ranking Member, Committee on Government Reform,
2204 Rayburn Bldg., House of representatives, Washington, DC 20515
Andy Cochran, House Committee on Financial Services, 2129 Rayburn H.O.B.,
Washington, DC 20515
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South Kingstown Housing Authority South Kingstown, Rhode Island
Published by the Department of Housing and Urban Development, Office of Inspector General on 2001-12-20.
Below is a raw (and likely hideous) rendition of the original report. (PDF)