AUDIT REPORT
YPSILANTI HOUSING COMMISSION
SAFEGUARDING MONETARY ASSETS AND
INVENTORY
YPSILANTI, MICHIGAN
2002-CH-1001
March 26, 2002
OFFICE OF AUDIT, MIDWEST
CHICAGO, ILLINOIS
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Issue Date
March 26, 2002
Audit Case Number
2002-CH-1001
TO: Joann L. Adams, Director of Public Housing Hub, Michigan State Office
FROM: Heath Wolfe, District Inspector General for Audit, Midwest
SUBJECT: Ypsilanti Housing Commission
Safeguarding Monetary Assets And Inventory
Ypsilanti, Michigan
We completed an audit of the Ypsilanti Housing Commission. The audit was conducted based
on the Michigan State Office of Public Housing Hub’s concerns about the Housing
Commission’s controls over monetary assets and inventory. The primary objective of our audit
was to determine whether the Housing Commission had sufficient controls for safeguarding cash
and other monetary assets and inventory.
We found that the Housing Commission’s controls over cash and other monetary assets and
inventory were weak. Specifically, the Housing Commission: (1) improperly claimed $98,466 in
operating subsidy since the Commission did not adjust its subsidy claims for long-term vacant
units and inflated the number of occupied units claimed; (2) failed to maintain an acceptable
level of occupancy that resulted in the Commission losing an estimated $157,286 in rental
income; and (3) did not implement procedures and controls to safeguard its cash and other
monetary assets against possible waste, loss, and misuse. Procedures and controls were lacking
over: cash receipts and deposits; disbursements; equipment; procurement; and financial and
administrative processes.
Within 60 days, please provide us, for each recommendation made 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 provide us copies of any correspondence or
directives issued because of the audit.
Should you or your staff have any questions, please contact me at (312) 353-7832.
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Management Memorandum
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Executive Summary
We completed an audit of the Ypsilanti Housing Commission. The primary objective of our audit
was to determine whether the Housing Commission had sufficient controls for safeguarding cash
and other monetary assets and inventory. The audit was conducted based on the Michigan State
Office of Public Housing Hub’s concerns about the Housing Commission’s controls over monetary
assets and inventory.
The Housing Commission’s controls over cash and other monetary assets and inventory were weak.
The Commission: inappropriately claimed $98,466 in operating subsidy since the Commission did
not adjust its subsidy claims for long-term vacant units and inflated the number of occupied units
claimed; did not maintain an acceptable level of occupancy that resulted in the Commission losing
an estimated $157,286 in rental income; and failed to implement procedures and controls to
safeguard its cash and other monetary assets against possible waste, loss, and misuse. Procedures
and controls were lacking over: cash receipts and deposits; disbursements; equipment;
procurement; and financial and administrative processes.
The Housing Commission improperly claimed an inflated
The Commission’s operating subsidy. The Commission did not adjust its
Operating Subsidy Was subsidy claims for long-term vacant units and it inflated the
Inflated number of occupied units claimed. Because the
Commission improperly claimed an inflated operating
subsidy, HUD paid $98,466 worth of excess operating
subsidies to the Commission from July 1, 1996 to June 30,
2001.
The Housing Commission did not maintain an acceptable
The Commission Needs level of occupancy. Despite a waiting list of 131
To Reduce High Vacancy applicants, the Commission’s vacancy rate at December 31,
Rates 2000 was 17.5 percent. As a result, the Commission lost an
estimated $157,286 worth of rental income from January 1,
1997 to December 31, 2000 because of its high vacancy
rates.
The Housing Commission did not safeguard its cash and
Controls For Safeguarding other monetary assets against possible waste, loss, and
Assets Need misuse. Management controls over cash receipts, deposits,
Strengthening disbursements, equipment, procurement, and financial and
administrative processes were weak. Similar weaknesses
were identified in previous OIG audits of the Commission
for almost 20 years.
We recommend that HUD’s Director of the Michigan State
Recommendations Office of Public Housing Hub assure that the Housing
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Commission implements controls to correct the weaknesses
cited in this report.
We presented our draft findings to the Housing
Commission’s Executive Director and HUD’s staff during
the audit. We held an exit conference with the Commission
on January 29, 2002. The Commission agreed to implement
corrective action to improve its controls over operating
subsidy requests and take action to reduce its high vacancy
rates. The Commission disagreed that controls for
safeguarding assets need strengthening.
We included paraphrased excerpts of the Housing
Commission’s comments with each finding. The complete
text of the comments is in Appendix B.
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Table Of Contents
Management Memorandum i
Executive Summary iii
Introduction 1
Findings
1 The Commission’s Operating Subsidy Was Inflated 3
2 The Commission Needs To Reduce High Vacancy Rates 9
3 Controls For Safeguarding Assets Need Strengthening 15
Management Controls 27
Follow Up On Prior Audits 31
Appendices
A Schedule of Questioned Costs 33
B Auditee Comments 35
C Distribution 47
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Introduction
The Ypsilanti Housing Commission was established under State of Michigan law. The Housing
Commission contracts with HUD to provide low and moderate-income persons with safe and
sanitary housing through rent subsidies. A five member Board of Commissioners governs the
Commission. The President of the Board is Macheryl Jones. The Commission’s Executive
Director is Janine Scott. The Commission's books and records are located at 601 Armstrong Drive,
Ypsilanti, Michigan.
As of February 2002, the Housing Authority operated four programs: (1) a Low-Income Housing
Program consisting of 198 units; (2) a Public Housing Drug Elimination Grant Program; (3)
Comprehensive Improvement Assistance Program; and (4) a Section 8 Housing Assistance
Program. The Low-Income Housing and Section 8 Housing Assistance Programs are designed to
provide housing to low and moderate-income individuals whose annual incomes does not exceed
80 percent of the median income for the surrounding community. HUD’s Drug Elimination Grant
Program provides grants to public housing authorities to reduce drug-related crime in and around
public housing sites. The Comprehensive Improvement Assistance Program funds capital
improvements and related management improvements in public housing developments to upgrade
living conditions, correct physical conditions, and achieve operating efficiency and economy.
The audit objectives were to: (1) determine whether the
Audit Objectives Housing Commission had sufficient controls for
safeguarding cash and other monetary assets and inventory;
and (2) review for waste, loss, and misuse of cash and other
monetary assets and inventory.
We conducted the audit at HUD’s Michigan State Office
Audit Scope And and the Housing Commission’s office. We performed our
Methodology on-site audit work between July 2000 and July 2001.
To accomplish our audit objectives, we interviewed: HUD’s
staff; the Housing Commission’s officials, staff, fee
accountant, and independent public accountant; and one of
the Commission’s tenants.
We analyzed the following items: tenant files; cash
disbursements and invoices; vendor files and contracts;
vacancy reports; Public Housing Drug Elimination Program
Grant vouchers; Board meeting minutes; payroll records and
personnel files; equipment records; cash receipts and
registers; general ledgers; tenant accounts receivable ledgers;
audited financial statements; waiting list; rent rolls; and the
Authority’s policies and procedures. We also reviewed:
HUD’s files for the Commission; Sections 201, 309, 401,
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and 407 of the Annual Contributions Contract between HUD
and the Commission; Parts 24, 85, 901, and 990 of Title 24
of the Code of Federal Regulations; HUD’s Public and
Indian Housing Notice 96-35; Federal Register dated
February 28, 1996, and HUD’s Accounting Guide 7510.1.
The audit covered the period January 1, 2000 to December
31, 2000. This period 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 Housing
Commission's Executive Director and to the President of
the Board.
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Finding 1
The Commission’s Operating Subsidy Was
Inflated
The Ypsilanti Housing Commission improperly claimed an inflated operating subsidy. The
Commission did not adjust its subsidy claims for long-term vacant units and it inflated the
number of occupied units claimed. The Housing Commission’s Executive Director said she was
unaware of HUD’s requirements to reduce subsidy claims on long-term vacant units. She said
she also unaware that the Commission’s fee accountant inflated the number of occupied units.
Because the Commission improperly claimed an inflated operating subsidy, HUD paid $98,466
worth of excess operating subsidies to the Commission from July 1, 1996 to June 30, 2001.
24 CFR Part 990.109 requires that if a Housing
Federal Requirements Commission has a vacancy rate greater than three percent,
it must reduce the subsidy of units that have been vacant for
more than 12 months to 20 percent of the allowable
expense level.
Section 309 of the Annual Contributions Contract, between
HUD and the Ypsilanti Housing Commission, requires the
Housing Commission to submit accurate and complete
financial data to HUD.
24 CFR Part 24 allows HUD to take administrative action
against Housing Commission’s Executive Directors who
violate HUD’s requirements. The administrative action
includes debarment, suspension, and limited denial of
participation.
The Housing Commission did not adjust its operating
Subsidy Not Adjusted For subsidy to account for long-term vacancies from July 1,
Long-Term Vacancies 1996 to June 30, 2000. The Housing Commission’s
Executive Director said she became aware of the long-term
vacancy rule when the Commission’s fee accountant
reported the long-term vacancy adjustment for Fiscal Year
2001. However, the Commission’s Executive Director
contradicted herself in a subsequent interview when she
said she was unaware of the requirement. Regardless, the
Commission’s Executive Director discussed the Fiscal Year
2001 long-term vacancy adjustment with a HUD official.
The Housing Commission also had knowledge of the rule
when HUD distributed Public and Indian Housing Notice
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96-35 to all public housing agencies on June 4, 1996. The
Notice explained the long-term vacancy adjustment
requirement. HUD also published a Final Rule in the
Federal Register on February 28, 1996 that included the
need for housing agencies to reduce their subsidy request
for long-term vacant units. As a result, the Commission
received $98,466 worth of excess subsidies between Fiscal
Year 1997 and Fiscal Year 2001.
The Housing Commission did not adjust subsidy claims to
account for long-term vacancies once the Commission’s
Executive Director had knowledge of the rule.
The Housing Commission reported 26 long-term vacant
units from July 1, 2000 to June 30, 2001. However, HUD
adjusted the number of long-term vacant units to zero
because the Commission’s Executive Director told officials
that the same unit did not remain vacant over the 12-month
period. This made the 26 units eligible for the full subsidy
payment. The actual number of long-term vacant units was
four. Because the Commission’s Director provided
misleading information, HUD paid an additional $5,313
worth of subsidies for Fiscal Year 2001.
The table below illustrates the excess subsidy paid due to
the omission of long-term vacant units from July 1, 1996 to
June 30, 2001. Each Fiscal Year represents an annual
operating subsidy claim. The vacancy rate for Fiscal Year
2001 represents July 1, 2000 to December 31, 2000.
Audited
Long- Claimed Operating Excess
Term Unit Audited Unit Subsidy Paid Audited Subsidy
Fiscal Vacancy Vacant Months Months And Operating Paid And
Year Rate Units Units Available Available Obligated Subsidy Obligated
1997 18% 218 18 2,616 2,400 $359,066 $334,882 $24,184
1998 18% 218 10 2,616 2,496 442,607 428,303 14,304
1999 19% 215 23 2,580 2,304 429,527 398,347 31,180
2000 18% 198 4 2,376 2,328 353,665 348,339 5,326
2001 17% 198 4 2,376 2,328 431,756 426,443 5,313
$2,016,621 $1,936,314 $80,307
The Housing Commission inflated the number of occupied
Occupancy Level Inflated units it claimed for operating subsidy from July 1, 2000 to
June 30, 2001. The Commission claimed 172 occupied
units when it had 159 occupied units. The Housing
Commission’s Executive Director said the Commission’s
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fee accountant prepared the claim. The fee accountant said
the Commission provided the number of occupied units.
The Commission’s Tenant Accounts Receivable Report and
the Vacancy Report both identified 159 occupied units.
Because the Commission inflated the number of occupied
units, HUD paid $18,159 in excess operating subsidy for
Fiscal Year 2001.
The table below illustrates the excess subsidy paid due to
an inflated occupancy level.
Fiscal Year Occupied Operating Adjustment For Excess Operating
2001 Units Subsidy Paid Long-Term Vacancies Subsidy
Claimed 172 $431,756
Audited 159 408,284
Difference 13 $23,472 ($5,313) $18,159
The Housing Commission did not develop procedures and
Management Controls controls to provide reasonable assurance that operating
Over Operating Subsidy subsidy claims were accurate. The Housing Commission’s
Claims Were Weak Executive Director said she relied on the Commission’s fee
accountant to accurately prepare the claim. The fee
accountant said the Commission provided him inaccurate
information. Procedures should identify what information
should be provided to the fee accountant or used in
preparing the claim, whom will review the claim for
accuracy, and how the Commission will ensure the use of
updated rules and regulations.
Auditee Comments [Excerpts paraphrased from the Ypsilanti Housing
Commission’s comments our draft finding follow.
Appendix B, pages 35 to 38, contains the complete text of
the comments for this finding.]
The recalculation of the long-term vacancies by the OIG
appears to be correct; however, the explanation of the
Executive Director’s knowledge is incorrect. The Housing
Commission’s Executive Director was absolutely unaware of
the required adjustment until HUD questioned it as a result
of the 2001 budget submission. The correction has not been
taken because the Commission’s Executive Director was
awaiting the results of the OIG audit.
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Finding 1
The Housing Commission would agree to repay the $98,466
by either de-obligating the funds from the Commission’s
2002 budget, or repayment directly to HUD. The
Commission’s Executive Director does not believe referrals
or administrative actions are necessary under the
circumstances. The cost for both the Federal government
and the Commission would be unwarranted and counter
productive.
The Commission would agree to hire a finance manager to
assist in form preparation, grant writing, and strengthening of
internal controls.
OIG Evaluation Of We disagree that the Housing Commission’s Executive
Auditee Comments Director was unaware of the required long-term vacancy
adjustment until the 2001 budget submission. HUD
distributed Public and Indian Housing Notice 96-35 to all
public housing agencies on June 4, 1996. The Notice
explained the long-term vacancy adjustment requirement.
Additionally, HUD has continually issued notices since 1996
that related to operating subsidy calculations.
HUD should take the appropriate administrative action
against the Housing Commission’s Executive Director
because of her failure to administer the Commission
according to HUD’s requirements.
Recommendations We recommend that the Michigan State Office Director of
Public Housing Hub assure that the Ypsilanti Housing
Commission:
1A. Reimburses HUD $98,466 ($80,307 plus $18,159)
from non-Federal funds for the excess subsidy
payments received for the long-term vacancies and
the inaccurate occupied units reported.
1B. Implements procedures and controls to follow HUD’s
regulation and the Annual Contributions Contract
regarding claims for operating subsidies.
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Finding 1
We also recommend that the Michigan State Office Director
of Public Housing Hub:
1C. Pursues administrative action against the Housing
Commission’s Executive Director based upon the
information cited in this report as permitted by 24
CFR Part 24.
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Finding 2
The Commission Needs To Reduce High
Vacancy Rates
The Ypsilanti Housing Commission did not maintain an acceptable level of occupancy. Despite
a waiting list of 131 applicants, the Commission’s vacancy rate at December 31, 2000 was 17.5
percent. The Commission considers the vacancy rate to be acceptable. The Commission’s
continued failure to reduce vacancies identified in prior OIG audits has resulted in lost
opportunity for low-income families to obtain affordable housing. The Commission lost an
estimated $157,286 worth of rental income from January 1, 1997 to December 31, 2000 because
of its high vacancy rates.
Section 201 of the Annual Contributions Contract, between
Federal Requirements HUD and the Ypsilanti Housing Commission, requires the
Commission to provide public housing in an efficient,
economic, and stable manner to low-income eligible
tenants.
24 CFR Part 901.10 provides indications on how well a
Housing Commission is performing. Part 901.10 states an
actual vacancy rate greater than ten percent is the lowest
score a Commission can receive. The Part also provides
that an average turnaround greater than 50 days is the
lowest score a Commission can receive.
The Housing Commission’s Maintenance Policy requires
Commission’s Policy that vacant units be prepared for occupancy within an
average of seven calendar days from the date vacated.
As of December 31, 2000, the Housing Commission had a
High Vacancy Rate vacancy rate of 17.5 percent when 34 of 194 units were
vacant. The Commission’s Executive Director said the
fundamental problem was due to a shortage of maintenance
employees. The Director also said units remained vacant
because: units were set aside for an activity center; and
applicants did not want to live in the less desirable
Parkridge Homes project. The Housing Commission could
not provide any records to support that the units were
inhabitable. Further, our inspection of five vacant units
disclosed that the amount of work necessary to prepare the
units for occupancy was minimal to moderate. We were
unable to determine if crime rates contributed to the high
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vacancy rate at Parkridge Homes. HUD did not approve
any units to be set aside for an activity center. The
Commission’s Executive Director said she believed the
vacancy rate was acceptable. The following pie chart
illustrates the number of vacant days for the 34 vacant
units. The number next to each segment within the chart
represents the number of vacant units. For example, four
units were vacant for over four years and eight units were
vacant for over one year.
Thirty-Four Vacant Units
Number of Vacant Days
0 to 30 days 4 3
1
31 to 60 days 4
61 to 90 days 8
91 to 180 days
181 to 365 days
2
over 1 year
over 4 years
12
Because the Housing Commission failed to reduce its
Lost Rental Income vacancy rate, the Commission lost an estimated $157,286
($38,606 plus $38,797 plus $42,923 plus $36,960) worth of
rental income from January 1, 1997 to December 31, 2000.
The following table shows our computation of the lost
rental income. The annual unit months were adjusted to
allow for a three percent vacancy rate.
1997 1997 1999 2000
Adjusted Annual Unit Months Available 2,490 2,490 2,335 2,258
Less: Annual Occupied Unit Months 2,069 2,092 1,934 1,883
Equals Lost Unit Months 421 398 401 375
Multiplied by Rent Per Unit Month $91.70 $97.48 $107.04 $98.56
Lost Annual Rental Income $38,606 $38,797 $42,923 $36,960
Low occupancy levels have been a continuous problem at
The Commission Did Not the Housing Commission. In May 1982, an OIG audit
Correct Its Vacancy disclosed the Commission’s vacancy rate was 19 percent.
Problem The Commission cited a lack of funds to rehabilitate the
vacant units as the primary reason for the excessive
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vacancies. In November 1992, another OIG audit revealed
a vacancy rate of 13 percent. The Commission reported
that the high vacancy rate was due to insufficient
maintenance staffing levels. The annual average vacancy
rates for 1998 and 1999 were 18 and 19 percents,
respectively.
As a result of the 1992 OIG audit, the Housing Commission
agreed to assign one maintenance employee to work on
vacant units full time or hire an outside work crew for the
vacant unit preparation. The Commission did not adhere to
the agreement. The Housing Commission’s Executive
Director said it was difficult assigning one worker to
prepare vacant units with only two maintenance employees.
If one maintenance employee was absent or assigned to
other tasks, the second employee was needed to service
work orders. The Executive Director said the Commission
did not have the money to hire an outside crew.
The Housing Commission’s maintenance staff level was
low compared to similar commissions. Three comparable
public housing commissions reported employing a full-time
maintenance supervisor and between two and four
maintenance staff. This is compared to the Housing
Commission’s part-time maintenance supervisor and two
maintenance staff.
The Housing Commission’s Board of Commissioners did
Controls Over not properly monitor the vacancy level. The November
Maintenance Operations 1992 OIG audit resolution required the Commission’s
Were Weak senior management and Board of Commissioners to review
monthly maintenance reports on the status of each unit.
Board meeting minutes revealed that the Commission did
not review the monthly status of each unit. The Housing
Commission’s Executive Director said the Board was not
interested in the details of individual vacant units.
The Housing Commission did not properly supervise its
maintenance activities. The Commission dismissed its full-
time maintenance supervisor in August 1998 for
unacceptable conduct toward tenants. From August 1998
to March 1999, the Commission operated without a
maintenance supervisor. In March 1999, the Commission
contracted with a construction company to provide part-
time maintenance supervision three days a week. The
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Commission’s Executive Director said an employment
vacancy for a maintenance supervisor was advertised, but
no one qualified applied. As an alternative solution, the
Commission employs two full time maintenance staff and
contracts for part-time supervision.
As of December 31, 2000, the Housing Commission’s
Waiting List Was waiting list consisted of 131 applicants. The list was
Sufficient To Fill sufficient to fill 29 of the 34 vacant units. The remaining
Vacancies applicants could have been placed into larger units in
accordance with the Commission’s Admissions and
Occupancy Plan.
Auditee Comments [Excerpts paraphrased from the Housing Commission’s
comments on our draft finding follow. Appendix B, pages
38 and 39, contains the complete text of the comments for
this finding.]
The OIG documented that the Housing Commission has
had a high vacancy rate for several years. This fact is not
being disputed. However, the Commission’s Executive
Director does not agree with the statement that she found
the vacancy rate to be acceptable.
Several obstacles contributed to the Housing Commission’s
inability to correct the vacancy problem. They include: (1)
applicants refusing units due to criminal activity, age of
units, and lack of space; (2) the One Strike Policy resulted
in a large number of evictions; (3) several public housing
residents moved because they received Section 8 assistance;
and (4) a lack of maintenance staff.
The Housing Commission agrees that the controls over the
maintenance operations are weak. This problem is due in
part that the Commission has not had a full time
maintenance supervisor.
The OIG states that the waiting list was sufficient to fill 29
of the 34 vacancies. The Housing Commission’s Executive
Director does not necessarily agree with this statement.
There is no guarantee that every applicant would have been
willing to accept a unit that may have been available at
Parkridge Homes.
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Finding 2
The Housing Commission would agree to hire a full time
maintenance supervisor and sufficient staff to reduce the
high vacancy rate.
OIG Evaluation Of The Housing Commission stated that its Executive Director
Auditee Comments does not agree that she found the vacancy rate to be
acceptable. We disagree. The Commission’s management
controls did not include monitoring, controlling, or
preventing excessive vacancies since first reported by OIG in
May 1982. The reason for the Commission’s high vacancy
rate has remained the same for almost 20 years.
We disagree that the Housing Commission’s waiting list was
insufficient to fill 29 of the 34 vacancies. The waiting list
consisted of 131 applicants at the time of our audit. If an
applicant refuses a unit, then that applicant would be place at
the bottom of the Commission’s waiting list allowing other
applicants to occupy the unit. In addition, the Commission’s
Admissions Policy allows families to be housed in larger size
units provided the applicant agrees to move to the proper size
unit when units become available.
Recommendations We recommend that the Michigan State Office Director of
Public Housing Hub assure the Ypsilanti Housing
Commission:
2A. Hires sufficient maintenance staff to reduce the high
vacancy rate.
2B. Implements a plan to reduce vacancies that includes
filling vacancies from the Commission’s waiting list.
2C Prepares vacant units for occupancy within an
average of seven calendar days from the date vacated
as required by its Maintenance Policy.
2D. Implements procedures and controls to ensure that its
Executive Director and Board of Commissioners
monitors the status of vacant units as necessary to
assure that the Commission finally reduces its
vacancy rate.
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Finding 3
Controls For Safeguarding Assets Need
Strengthening
The Ypsilanti Housing Commission did not safeguard its cash and other monetary assets against
possible waste, loss, and misuse. Management controls over cash receipts, deposits,
disbursements, equipment, procurement, and financial and administrative processes were weak.
The weaknesses can be attributed to the Commission’s lack of knowledge or expertise of HUD’s
requirements, lack of procedures and controls, and errors. As a result, HUD lacks assurance that
the Commission’s cash and other monetary assets were safeguarded against waste, loss, and
misuse.
24 CFR Part 85.20 requires Housing Commissions to
Federal Requirements establish good cash management procedures. Part 85.20
also requires that effective controls and accountability be
maintained for all assets and the assets be safeguarded. The
Commission’s accounting records are to be supported by
source documents and its financial management system is
to be accurate, current, and complete. Part 85.20 states that
records must identify the source and application of funds
provided for financially assisted activities.
24 CFR Part 85.32 requires Housing Commissions to
maintain detailed property records, take a physical
inventory every two years, and reconcile the inventory with
property records. The Commission’s records must show
the property description, source, title, cost, acquisition date,
location, use, and condition.
24 CFR Part 85.36(c) requires Housing Commissions to
conduct all procurement transactions in a manner to
provide full and open competition. Part 85.36(b) requires
Commissions to maintain sufficient records to show the
procurement history.
Section 309 of the Annual Contributions Contract, between
HUD and the Ypsilanti Housing Commission, requires the
Housing Commission to maintain current, complete, and
accurate books of accounts. Section 401 of the Contract
requires the Commission to secure all deposits in excess of
the $100,000 insured amount and execute a Depository
agreement with its bank to give HUD authority over the
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Commission’s accounts. Section 401 also requires the
Commission to invest General Fund monies not needed for
the next 90 days into HUD-approved investment securities
and that all funds received are deposited promptly.
Section 407 of the Annual Contributions Contract prohibits
the Housing Commission from incurring expenditures in
excess of amounts in approved Operating Budgets for
controlled accounts, except for emergencies involving an
immediate serious hazard to life, health, or safety of the
residents.
HUD’s Accounting Guide 7510.1, Section II, states that
procedures over cash should include a segregation of
duties.
Management controls over cash receipts and deposits were
Cash Receipts And weak.
Deposits Were Not
Safeguarded · The Housing Commission did not collateralize bank
balances that exceeded the $100,000 Federal Deposit
Insurance Corporation coverage per the Commission’s
financial institution. The Commission’s Executive
Director said she was unaware of the requirement.
However, the Commission’s independent auditor
reported the same condition in the 1999 financial
statements audit report. The Commission’s Executive
Director said she did not read the entire report. As of
December 29, 2000, the Commission had $575,568
worth of uninsured funds on deposit at one financial
institution.
· The Housing Commission did not execute a Depository
Agreement to give HUD the authority to exercise
control over the Commission’s bank accounts. The
Commission’s Executive Director said a General
Depository Agreement existed, but it could not be
located. However, bank officials could not provide us
with a copy of the Agreement either. Without the
authority, HUD could not exercise control over the
Housing Commission’s bank accounts in the event
HUD declares a breach of the Annual Contributions
Contract with the Commission.
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Finding 3
· The Housing Commission did not invest excess funds
into HUD-approved investment securities. The
Housing Commission’s Executive Director said the
Commission did not have the time or expertise to invest
excess funds and considered its interest-bearing bank
accounts to be sufficient. However, since HUD
provides sufficient investment guidance, the
Commission would not need to spend an excessive
amount of time or require expertise. Additionally, the
Annual Contributions Contract requires the
Commission to invest its excess funds into approved
investment securities. As a result, we estimate that the
Commission lost the opportunity to earn $6,161 worth
of investment interest between January 1, 2000 and
December 31, 2000.
· The Housing Commission did not deposit rents and other
receipts in a timely manner. The Annual Contributions
Contract requires that all funds received be deposited
promptly. The Commission’s Executive Director
believed promptly meant one to three days. We reviewed
260 deposits for the period July 1, 1999 to December 31,
2000. A total of 94 deposits (36 percent) were not made
within five days after the funds were collected. For
example, the Commission collected $10,055 between
June 2, 2000 and June 6, 2000 but did not deposit the
funds until June 12, 2000, a delay of six to ten days. The
Commission’s current Accounting Assistant said she
followed the practice of the prior Accounting Assistant
by making weekly bank deposits. If the Housing
Commission had a written collection policy in place, the
Commission’s Accounting Assistant would have known
to make timely deposits. As a result, the Commission
took increased risks by keeping the receipts on its
premises for an excessive period of time.
Management controls over cash disbursements were weak.
Disbursements Were Not
Safeguarded The Housing Commission did not segregate duties over its
petty cash fund and check disbursements. The
Commission’s Accounting Assistant had custody of the
petty cash fund, blank checks, signature plates, and bank
deposits. The Assistant also maintained custody of the
Commission’s accounting records. In effect, the Housing
Commission’s Accounting Assistant had complete control
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over the Commission’s accounting system, which could
lead to misuse.
In part, the Housing Commission’s petty cash
disbursements were not segregated due to the Executive
Director’s medical leave of absence in February 2001.
Additionally, the Housing Commission’s Executive
Director said the Commission’s small staff size did not
allow for a complete segregation of duties. We determined
that even though the Housing Commission had a small staff
of five, duties could have been segregated to ensure no one
person had complete control over the Commission’s
transactions.
The Housing Commission could not support that all
disbursements were made for reasonable operating
expenses or necessary repairs.
· We reviewed 50 out of 3,167 General Fund invoices for
the period October 1, 1998 to September 30, 2000 to
determine whether the Housing Commission had
supporting documentation. Four invoices lacked
supporting documentation.
· HUD’s Michigan State Office of Public Housing Hub
cited the Housing Commission in its November 29, 2000
monitoring report for unsupported Drug Elimination
Grant expenditures. HUD’s review was conducted on
June 19, 2000 and June 20, 2000. As a follow-up, we
reviewed three subsequent Drug Elimination Grant
vouchers for supporting documentation. Eleven invoices
lacked supporting documentation.
The Housing Commission’s Executive Director said she
believed that the expenditures were supported by source
documentation. However, the Commission lacked
procedures and controls to ensure expenditures were
supported by source documentation. As a result, the
Commission lacked assurance that $11,850 worth of
General Fund disbursements and $5,431 worth of Drug
Elimination Grant disbursements was used for their
intended purpose. The table on page 20 of this report
shows the unsupported expenditures.
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The Housing Commission was reimbursed for duplicate and
ineligible Drug Elimination Grant expenditures.
· Wages for three of the Commission’s employees and the
purchase of signs were double billed. The excess
reimbursement to the Commission totaled $2,827.
· An expenditure of $500 for a parking lot expense was not
eligible for reimbursement, but was paid by the
Commission.
The Housing Commission’s Executive Director said she
believed that the above expenditures were allowable and
supported by source documentation. However, the
Commission’s Director was unaware of the duplicate
reimbursements. HUD previously notified the Commission
that the parking lot expenditure was not allowable. We
determined that the Commission lacked procedures and
controls over expenditures. As a result, the Commission
lacked assurance that $3,327 ($2,827 plus $500) worth of
Drug Elimination Grant disbursements was used for their
intended purpose. The table on page 20 of this report
shows the duplicate and ineligible expenditures.
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Audited
Date Number Amount Payee Payment Explanation Results
Unsupported General Fund Expenses
9/16/99 11584 $2,925 Motor City Asphalt Repair turnaround at Paradise No support
Manor.
9/16/99 11585 2,925 Motor City Asphalt Repair turnaround at Paradise No support
Manor.
9/30/99 11653 2,000 H.A. Hasan, PhD EMU/Vista Program No support
Collaboration.
3/9/00 12368 4,000 H.A. Hasan, PhD Hope VI/Vista Program No support
Supervisor.
Total $11,850
Unsupported Public Housing Drug Elimination Grant Program Expenses
9/28/00 110944 $ 515 Diamond Computers Computer supplies No support
110944 200 Advanced Blind Blinds for Learning Center No support
110944 90 A. Williamson Posters for Learning Center No support
110944 146 Wal-Mart Unknown. No invoice
110944 903 Wal-Mart Unknown. No invoice
110944 348 Wal-Mart Unknown. No invoice
110944 400 Sam’s Club New software, videos, etc. No support
110944 200 Play-It-Again Sports Sports equipment for Hollow No support
Creek Center
110944 2,500 Jordan Tae Kwon Do Karate classes & equipment – No support
30 youth
11/30/00 114227 80 A. Williamson Supplies No support
114227 49 Mattel Interactive Software replacement No support
Total $5,431
Public Housing Drug Elimination Grant Program Duplicate Claim Costs
7/21/99 088469 $2,292 FastSigns Estimate Number 5074 for Duplicate
various signs and wooden Claim
posts.
11/30/00 114227 177 A. Jones (employee) Replacement check for wages Duplicate
Claim
11/30/00 114227 204 R. Frasier (employee) Replacement check for wages Duplicate
Claim
11/30/00 114227 154 C. Ervin (employee) Replacement check for wages Duplicate
Claim
Total $2,827
Public Housing Drug Elimination Grant Program Ineligible Costs
9/28/00 110944 $500 Bateson Farms & Co. Parking lot paving expense. Ineligible
Total $500
Controls over check disbursements were weak. The
Housing Commission’s check register did not reconcile with
source documents. For example, manual check numbers
13110 through 13112 did not include the check amount in
the Commission’s register. The Commission’s Executive
Director said she could not explain why the errors occurred.
We believe the lack of procedures and controls by the
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Commission to ensure that the check register reconciled with
source documents caused the errors to go undetected. As a
result, the Commission could issue checks in excess of funds
on hand.
The Housing Commission’s management controls over
Equipment Was Not equipment accountability were weak for equipment
Safeguarded purchased with Federal funds. The Commission failed to
perform physical inventory reconciliations, itemize donated
equipment, and maintain detailed property records. For
example, one invoice identified the purchase of six
computers on October 29, 1998 for $6,870. The computer
equipment was not recorded in the Commission’s property
ledger. The Housing Commission’s Executive Director
said she was not fully aware of Federal requirements for
safeguarding equipment. However, HUD’s requirements
identified specific record keeping guidance. As a result, the
Commission cannot provide assurance that all equipment
was accounted for and used for its intended purpose.
The Housing Commission did not always conduct
Procurement Controls procurements in a manner to provide full and open
Were Weak competition. For example, the Commission did not
advertise or solicit price quotes for legal services. The
Commission has had legal services provided by the same
law firm since 1992 without advertising or soliciting
competitive price quotes. The Commission paid $16,667
for legal services between January 1, 2000 and December
31, 2000. The Commission’s Executive Director said the
Commission had not always advertised for procurements.
She also said the Commission had been very satisfied with
the services. Regardless, the Housing Commission’s
procurement policy required the Commission to advertise
or mail out invitations to bid on contracts in excess of
$5,000. As a result, HUD lacks assurance that the lowest
price was obtained for the Commission’s procurement
transactions, and that there was full and open competition.
The Housing Commission’s budgetary controls were weak.
Financial And The Commission did not control cost overruns and failed to
Administrative Controls obtain HUD’s approval for the overruns. The
Were Weak Commission’s Fiscal Year 2000 financial statements
showed budget overruns totaling $241,423 in
administration, utilities, ordinary maintenance, employee
benefit contributions, and insurance. The Commission’s
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Executive Director said she could not explain the cost
overruns, but believed high unit repair costs contributed to
the overruns. However, we determined the Commission’s
lack of controls contributed to the budget overruns.
Because of the lack of controls, the Commission did not
know when it reached its budget authority. Accurate
budgeting is important to ensure the efficient and effective
use of funds.
The Housing Commission’s weak management controls over
Controls For Safeguarding petty cash, unsupported disbursements, equipment
Assets Have Been A accountability, and procurement practices have been a
Continuous Problem continuous problem.
In May 1982, an OIG audit revealed that the Commission
had not established effective controls over investments, cash
receipts, cash disbursements, equipment records, and
procurement. In November 1992, another OIG audit
revealed the Commission continued to experience similar
deficiencies. For example, the Commission failed to
establish effective management controls for safeguarding
cash receipts, cash disbursements, procurement, petty cash,
property, and equipment.
In an effort to resolve the previous OIG audits, the Housing
Commission agreed to improve its management controls.
The Housing Commission’s Executive Director said the
Commission had not complied with the agreement. Because
the Housing Commission failed to implement the necessary
controls, HUD lacks assurances that the Commission’s cash
and other monetary assets were safeguarded against waste,
loss, and misuse.
Auditee Comments [Excerpts paraphrased from the Housing Commission’s
comments on our draft finding follow. Appendix B, pages
40 to 45, contains the complete text of the comments for
this finding.]
The Housing Commission disagrees that it did not safeguard
cash and other assets against possible waste, loss, and
misuse. The Commission does have safeguards in place to
protect its cash and other assts from waste, loss, or misuse.
Missing cash or assets were not reported and there are no
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material weaknesses. The Housing Commission agrees that
due to several circumstances, some of the controls were less
than adequate.
OIG suggests that the disbursements were not safeguarded
and that management controls were weak. However, OIG
offers very little to support its statements. The Housing
Commission asserts that disbursements were safeguarded
and management controls were adequate.
OIG’s draft finding states that equipment was not
safeguarded and computers purchased with grant money
were not used for their intended purpose. However, the draft
finding offers no support or basis for the comment. The
Commission’s position is that all equipment is safeguarded
and the computers are being used for their intended purpose.
The draft finding states that procurements were not always
conducted in a manner to provide for full and open
competition. The example used in the finding is for legal
services. The finding states that in calendar year 2000 the
Commission paid $16,667 for legal services and its in
excess of the $5,000 threshold for getting competitive bids.
The Commission believes that its procurement policy was
and is being followed. The amount of money that will be
paid for legal services during any given year is not known
or stated in the contract; therefore, the Commission was not
in excess of the $5,000 limit when it contracted for the
legal services.
The Housing Commission’s new Finance Director is
responsible for reviewing and improving the Commission’s
budgeting and tracking process. The Commission is using
new software and spreadsheets for this process. When the
Housing Commission purchases a new accounting package
and it is installed, there will be new management reports
that will provide the Commission better and timelier
reporting. One such report will show budget-to-actual
comparisons for current months and the year-to-date
expenditures. Included in the new software is a purchase
order system that will improve the Commission’s internal
controls and approval process. Any potential cost overruns
will be detected well in advance and year-end budget
revisions will be made, if necessary.
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OIG makes reference to past audit findings and that the
Commission’s cash and assets were not safeguarded. The
draft finding states this is a continuous problem that the
Commission has not fixed. The Commission believes that
its cash and assets were safeguarded, and this is not a
continuous problem. Again, there were no findings of loss,
waste, or misuse.
OIG Evaluation Of We disagree that the Housing Commission has safeguards in
Auditee Comments place to protect its cash and other monetary assets from
waste, loss, or misuse. In fact, the Commission’s weak
management controls have existed for almost 20 years. In
May 1982, an OIG audit disclosed that the Commission had
not established effective controls over investments, cash
receipts, cash disbursements, equipment records, and
procurement. In our November 1992 audit, OIG reported
that the Commission continued to experience similar
deficiencies.
We disagree that disbursements were safeguarded and
management controls were adequate. We consider the
Housing Commission’s lack of segregation of duties over
petty cash and check disbursements, and the Commission’s
inability to reconcile its check register with source
documents to be a weak management control. The lack of a
system of records to ensure supporting documents were
maintained for disbursements to be a weak management
control. Furthermore, the Housing Commission’s failure to
implement procedures and controls to ensure reimbursements
are not claimed twice, and the payment of ineligible and
unsupported expenses to support the Commission’s weak
controls.
The Housing Commission’s hiring of a new Finance Director
and the purchase of new computer software should improve
its management controls, if effectively implemented.
Recommendations We recommend that the Michigan State Office Director of
Public Housing Hub assure the Ypsilanti Housing
Commission:
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3A. Implements procedures and controls to safeguard
cash receipts, deposits, disbursements, equipment,
procurement, and financial and administrative
processes against waste, loss, and misuse. The
procedures at a minimum should include:
· Investing excess General Fund money into
HUD-approved investment securities;
· Depositing cash receipts in a timely manner;
· Segregating petty cash and disbursement duties
so no one person has complete control over the
petty cash fund, blank checks, signature plates,
bank deposits, and the preparation of accounting
records;
· Supporting all purchases with source documents
to ensure disbursements were used for their
intended purpose;
· Reconciling all checks and the check register
with source documents;
· Maintaining a detailed property ledger and take
a bi-annual physical inventory to account for all
of the Commission’s property;
· Conducting procurement transactions in a
manner to provide full and open competition,
and maintain records to support the rational and
justification of the procurement process;
· Establishing a system of records to separate
accounting activities for the Commission’s
activities/programs;
· Ensuring accounting and financial records are
current, complete, and accurate; and
· Preventing expenditures in excess of approved
budget amounts for controlled accounts.
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3B. Provides training to its staff in procedures and
controls necessary to safeguard cash and other
monetary assets against waste, loss, and misuse.
3C. Executes a collateralization agreement for its bank
accounts that exceed the $100,000 Federal Deposit
Insurance Corporation coverage.
3D. Executes a Depository Agreement with its financial
institution to give HUD authority over all accounts.
3E. Provides documentation to support the $17,281
($11,850 plus $5,431) worth of unsupported
disbursements cited in this finding. If the Housing
Commission cannot provide supporting
documentation, the Commission should reimburse
its appropriate program(s) from non-Federal funds
for the applicable amount.
3F. Reimburses HUD $3,327 ($2,827 plus $500) from
non-Federal funds for the duplicate and ineligible
costs cited in this finding.
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Management Controls
In planning and performing our audit, we considered the management controls of the Ypsilanti
Housing Commission in order 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
· Program Operations - Policies and procedures that
management has implemented to reasonably ensure that a
program meets its objectives.
· Validity and Reliability of Data - Policies and procedures
that management has implemented to reasonably ensure
that valid and reliable data are obtained, maintained, and
fairly disclosed in reports.
· Compliance with Laws and Regulations - Policies and
procedures that management has implemented to
reasonably ensure that resource use is consistent with
laws and regulations.
· Safeguarding Resources - Policies and procedures that
management has implemented to reasonably ensure that
resources are safeguarded against waste, loss, and
misuse.
We assessed all of 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:
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Management Controls
· Program Operations
The Housing Commission was not operated according to
program requirements. Specifically, the Commission:
improperly claimed $98,466 of inflated operating subsidy
since it did not adjust its subsidy claim for long-term vacant
units and it inflated the number of occupied units; did not
maintain an acceptable level of occupancy; failed to
collateralize bank balances that exceeded the $100,000
Federal Deposit Insurance Corporation coverage; did not
execute a Depository Agreement to give HUD the authority
to exercise control over its bank accounts; failed to invest
excess funds into HUD-approved investment securities; did
not deposit rents and other receipts in a timely manner;
failed to segregate duties over its petty cash and check
disbursements; could not support $11,850 of Low-Rent
Housing Program disbursements and $5,431 in Public
Housing Drug Elimination Program disbursements;
improperly spent $3,327 of Drug Elimination Program
funds for duplicate and ineligible costs; did not safeguard
equipment; failed to always conduct procurements in a
manner to provide full and open competition; and did not
control cost overruns and obtain HUD’s approval on the
overruns (see Findings 1, 2, and 3).
· Validity and Reliability of Data
The Housing Commission: provided misleading
information to HUD regarding the number of long-term
vacant units; inflated the number of occupied units it
claimed for operating subsidy from July 1, 2000 to June 30,
2001; and did not record computer equipment in its
property ledger (see Findings 1 and 3).
· Compliance with Laws and Regulations
The Housing Commission did not follow HUD’s
regulations regarding operating subsidy requests and
safeguarding of assets (see Findings 1 and 3).
· Safeguarding Resources
The Housing Commission: improperly claimed $98,466 in
excess operating subsidy; lacked documentation to support
$11,850 of Low-Rent Housing disbursements and $5,431 in
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Management Controls
Public Housing Drug Elimination Program disbursements;
and inappropriately used $3,327 of Drug Elimination
Program funds to pay for duplicate and ineligible costs (see
Findings 1 and 3).
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Follow Up On Prior Audits
HUD’s Office of Inspector General issued two prior audit reports on the Ypsilanti Housing
Commission. The first report was issued on May 28, 1982 (Audit Report Number 82-CH-202-
1066). The report contained 13 findings. The recommendations for the findings were closed.
Seven of the 13 findings are repeated in this report.
Audit Report Number 82-CH-202-1066 This Report
PHA’s Vacancy Losses Exceed HUD’s Limits The Commission Needs To Reduce
(Finding 1). High Vacancy Rates (Finding 2).
Questionable And Unsupported Maintenance Controls For Safeguarding Assets
Expenses (Finding 2). Need Strengthening (Finding 3).
Deficiencies In Accounting System (Finding 3). Same As Above.
Lack Of Control Over Purchases Of Materials
And Services (Finding 4). Same As Above.
Weaknesses In Internal Control Over Cash
Receipts (Finding 5). Same As Above.
Nonexpendable Equipment Records Were
Inadequate (Finding 9). Same As Above.
Investment Program Deficiencies (Finding 10). Same As Above.
The second report was issued on November 30, 1992 (Audit Report Number 93-CH-202-1005).
The report contained four findings. The recommendations for the findings were closed. Two of the
four findings are repeated in this report.
Audit Report Number 93-CH-202-1005 This Report
The Commission Did Not Maintain An The Commission Needs To Reduce High
Acceptable Occupancy Level (Finding 2). Vacancy Rates (Finding 2).
Controls For Safeguarding Assets Were not Controls For Safeguarding Assets Need
Adequate (Finding 3). Strengthening (Finding 3).
The latest single audit for the Housing Commission covered the fiscal year ended June 30, 2000.
The report contained one finding, which was not repeated in this report.
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Appendix A
Schedule of Questioned Costs
Recommendation Type of Questioned Costs
Number Ineligible 1/ Unsupported 2/
1A $98,466
3E $17,281
3F 3,327
Total $101,793 $17,281
1/ Ineligible costs are costs charged to a HUD-financed or insured program or activity that the
auditor believes are not allowable by law, contract, or Federal, State, or local policies or
regulations.
2/ Unsupported costs are costs charged to a HUD-financed or insured program or activity and
eligibility cannot be determined at the time of the audit. The costs are not supported by
sufficient documentation or there is a need for a legal or administrative determination on the
eligibility of the cost. Unsupported costs require 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
July 20, 2001
Michael A. Raponi
Assistant District Inspector General for
Audit, Midwest
U.S. Department of Housing and Urban Development
Office of the Inspector General
77 West Jackson Blvd., Suite 2646
Chicago, IL 60604-3507
Re: Response to Draft Findings 1 & 2
Dear Mr. Raponi:
This letter is in response to the draft findings of the Ypsilanti Housing Commission. An Audit
has been on-going for the past several months; the Commission has been presented with the first
two of three audit findings. The two findings addressed in this letter are:
1) Commission's Operating Subsidy was Inflated; and
2) Commission's Needs to Reduce High Vacancy Rates.
Upon my request to the Office of Inspector General (OIG) to review the workpapers which
constituted the aforementioned findings, the OIG arranged for a meeting which included the
auditors, HUD staff, the Ypsilanti Housing Commission fee accountant, and myself. OIG
provided copies of all relevant workpapers and answered questions posed by the fee accountant
and myself. I was afforded as much time as necessary to gain a full understanding of the issues
and was granted an extension of time to offer this written response; the auditor and supervisor
conducted the meeting in a professional and courteous manner.
I am the Executive Director of the Ypsilanti Housing Commission, and have been charged with
the responsibility of completing and submitting forms on behalf of the Board of Commissioners.
I make every effort to perform my responsibilities in an accurate and timely manner. I have not
knowingly submitted any document to contain false or misleading information to the
government; however, some documents submitted may have contained errors due to
circumstances beyond my control, out of inadvertence or lack of knowledge of the Rule. I
endeavor to maintain all Rules and Regulations in a manner that I review them upon receipt and
in a special file for reference. Unfortunately, I was unable to locate the vacancy rule in my file.
Considering all of the circumstances, I unequivocally had no knowledge of the Rule.
Specific information concerning the above findings are as follows:
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Operating Subsidy Inflated.
The OIG has established that an overpayment of $98,466.00 in operating subsidy occurred for the
years 1997-2001 as a result of the Commission failing to accurately report the long term
vacancies on HUD form 52723, Calculation of Performance Funding System Operating Subsidy.
The recapitulation of the long term vacancies by the OIG appears to be correct; however, the
explanation of the Directors knowledge is incorrect. In the first paragraph under Subsidy Not
Adjusted for long Term Vacancies, the Draft Finding states, "The Director said she became
aware of the long term vacancy rule when the fee accountant reported the long term vacancy
adjustment for fiscal year 2001. The Director contradicted herself in a subsequent interview when
she said she was unaware of the requirement." OIG claims the exact interview, question and
answer, can be established from the auditors notes which support this statement; however, either
the auditor or I was mistaken concerning the facts; I was absolutely unaware of the required
adjustment until it was questioned by the HUD area office as a result of the submission of the
2001 budget. NO correction has taken place because I was awaiting the results of the OIG audit
which is still not complete.
HUD form 52723 is a complicated form which requires input fro the Commission, HUD, and
Congress, and is not completed until several months after the subjected budget year. Several lines
of information require adjustment after year end when actual data is available. There are 88 lines
of data on the HUD forms 52723 for the years 1997-2001, 67 lines were changed by the HUD
area office not including the lines changed by the OIG. 75% of the submitted data has been
changed by HUD as a result of changes mandated by Congress, HUD, or corrections of errors.
The following represents the requested subsidy as originally presented by the Commission and
the actual subsidy received after the corrections by HUD (prior to the recommended changed by
OIG)
Year End Requested Received (Under)/Over
6/30/97 $364,695 $359,066 $(5,629)
6/30/98 445,147 444,702 (445)
6/30/99 395,366 429,527 34,161
6/30/00 383,573 353,665 (29,908)
6/30/01 398,916 431,756 32,840
_________ ________ _________
$1,987,697 $2,018,716 $31,019
I did not have knowledge of the mandatory adjustment for long term vacancies, but in my attempt
to complete HUD form 52723 for the year ended June 30, 1997, I realized that the Commission
had vacancies; I used 90% on line 17, projected occupancy percentage; HUD increased the
percentage to 97%. HUD's adjustment increased the original request by $15,539.
In 1996, the Commission requested permission to demolish 20 units which had fallen in disrepair
and are located in a high crime area; the units had been unrentable. HUD approved the plan in
1998, and in 1999 the units were razed; in reviewing the HUD form 52723, the approving HUD
official did not question the lack of the adjustment for long term vacancies even though having
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full knowledge of the nature of the units. In addition to the missed adjustment for long term
vacancies, both HUD and the Commission failed to adjust the 6/30/97 budget for the FICA
adjustment; obviously HUD realized we had employees subject to FICA; once I became aware of
that rule the adjustment was made for 1997 on the 1998 HUD form 52723, which reveals my
good faith intent to correct known mistakes when information becomes available.
The recommendations by OIG are as follows:
We recommend that the false claims be:
1A Referred to the United States Attorneys Office for consideration of pursuit under the
False Claims Act, Title 31 of the United States Code, Section 3729.
1B De-obligate $23, 472 from the Commission's fiscal year 2001 budget to accurately reflect
long term vacant units and the number of units occupied.
1C Recover $74,994 worth of excess subsidy payments made for long term vacancies from
July 1, 1996 to June 30, 2000.
1D Pursues administrative Action against the Housing Commission's Executive Director
based on the continual false certifications as permitted by 24 CFR Part 24.
The Performance Funding System is routinely subjected to corrections and changes; year end
adjustments to Investment Income, audit cost and utility expense levels are made annually. It is
not uncommon to have the initial submission of the budget altered by HUD before a claim is ever
made to the government. Referral to the United States Attorneys' Office under the False Claims
Act is without merit; I did not have actual knowledge of the information (Long Term Vacancy
Adjustment), or act in deliberate ignorance of the truth or falsity of the information; or, act in
reckless disregard or the truth or falsity of the information. Section 3729, False Claims states the
following: (a) Liability for Certain Acts. - Any person who...
My intention is not to impugn dedicated persons who work for the Detroit Area Office, but the
signature which constitutes a claim for the payment is signed by both the representative of the
Commission, and the Authorized Field office Representative; both under the same warning. I
have always maintained a cooperative and willing to adhere to Rules and Regulations
relationship with the HUD office.
The field office had knowledge of the required adjustment for long term vacancies as evidenced
by distributing Public and Indian Housing Notice 96-35 on June 4, 1996. Further, the field office
had knowledge of our long term vacancies because of our request to demolish unrentable units
submitted to HUD in 1997; the field office did not question the lack of adjustment for long term
vacancies, however, did inquire and change 75% of the data submitted. OIG views the 67 lines of
changes to be acceptable as correction of an error, but the line for long term vacancies subject to
referrals as a false claim; when asked to explain the difference, OIG was unable to differentiate
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between acceptable errors and/or a false claim. Accordingly, we submit that the line item for long
term vacancies should also fall in the category of the correction of an error.
The Commission would agree to repay the $98,466 by either de-obligating the funds from the
Commission's 2002 budget, or repayment directly to HUD; in addition, I would welcome
assistance from the Area Office either in the form of on site support or oversight. I do not believe
referrals or administrative actions are necessary under the circumstances; the cost for both the
government and the Commission would be unwarranted and counter productive. Moreover, I
should not be held responsible for the actions of other Commission Directors or the Commission
actions prior to my becoming the Director.
Commission Needs to Reduce High Vacancy Rates
The OIG has documented that the Commission has had a high vacancy rate for several years.
This fact is not being disputed. I do not agree with the statement that I found the vacancy rate to
be acceptable.
The Commission took the following actions to reduce the vacancy rate:
1. Applied for and received funding under the Vacancy Reduction Program, 1994;
2. Requested permission to demolish 20 units at Parkridge Homes, 1997;
3. Requested permission to deprogram 4 units at Parkridge Homes to be used for tenant services,
1997. (The Commission never received any correspondence from field office regarding this
request);
4. Applied for HOPE VI, 1999 (The Commission was not funded under this grant);
5. After HOPE VI was not funded, the Commission continued dialogue with City of Ypsilanti
officials regarding the future of the Parkridge Homes. The issues of high crime and density were
discussed, two factors that make renting these units extremely difficult, 1999 to present; and
6. Collaborated with Eastern Michigan University on various grant applications and projects that
would ultimately have helped with the improvement of the image of the Gateway community,
where the majority of the Commission's units were located, 1995 to present.
There have been several obstacles over the years that have contributed to the Commission's
inability to correct the vacancy problem:
1. Available units are often refused by applicants because of location and lack of amenities, i.e.
Parkridge Homes, due to criminal activity, age of units, lack of space.
2. One-Strike policy requires eviction for criminal and drug related activities. The Commission
has processed a large number of evictions due to this policy. This policy also reduces the number
of eligible applicants.
3. Over the past two years several public housing residents moved out because they received
Section 8.
4. The Commission has not had complete maintenance staff for several years. The reasons
include medical leaves, a transfer to another City department by one maintenance worker, and the
inability to retain a competent supervisor.
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I agree that the controls over the Maintenance Operations are weak. This problem is due in part
to the fact that the department has not had a full time maintenance supervisor. Preparation of a
unit status report for review by the Board could be handled by a maintenance supervisor.
The OIG states that the waiting list was sufficient to fill 29 of 34 vacancies. I do not necessarily
agree with this statement. There is no way to guarantee that every applicant would have been
willing to accept a unit that may have been available at Parkridge Homes.
The recommendations by the OIG are as follows:
We recommend the Michigan State Office Director of Public Housing Hub:
2A. Assures that Ypsilanti Housing Commission hires a full time maintenance supervisor and
sufficient staff to reduce the high vacancy rate.
2B. Assure that Ypsilanti Housing Commission fills vacancies form waiting list.
2C. Assure that Ypsilanti Housing Commission prepares vacant units for occupancy within an
average of seven calendar days from the date vacated.
The Commissions would agree to hire a full time maintenance supervisor and sufficient staff to
reduce the high vacancy rate. The Commission will also hire a finance manager to assist in form
preparation, grant writing, and strengthening internal controls. The Commission would agree to
revise its policy concerning the number of days required to prepare vacant units. On average,
seven calendar days is not sufficient. Recommendations from the maintenance supervisor would
be taken into consideration prior to the policy being revised.
In closing, I must reiterate that I had no knowledge of the Vacancy Rule prior to filing the HUD
reports and I did not and will not intentionally file a false report for the purpose of increasing the
subsidy allowance or any other reason.
I want to assure the OIG and the Detroit Field Office that I have given this matter the most
serious consideration. I have been on medical leave during the better part of this audit and have
made every effort to cooperate with the OIG and facilitate resolution of the issues raised.
Morever, it is my intent to correct any and all problems raised by the audit immediately upon my
return.
Respectfully submitted,
/signed/
Janine S. Scott, PHM
Executive Director
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Ypsilanti Housing Commission
Response to OIG Audit Finding #3
The Ypsilanti Housing Commission’s stated goal is to achieve High Performer status within the
next two to three fiscal years. We will have to make significant improvements in many areas to
accomplish this task. To that end, we are glad that the audit report points out certain areas that
need improvement. However, the Commission disagrees with some of the audit findings,
comments and recommendations.
The Commission disagrees with the opening statement in audit finding number three. The OIG
states “The Ypsilanti Housing Commission did not safeguard its cash and other assets against
possible waste, loss and misuse.” The Commission does have safeguards in place to protect its
cash and other assets from waste, loss or misuse. Missing cash or assets have not been reported
and there are no material weaknesses. The Commission agrees that due to several circumstances
some of the controls may have been less than adequate. The following will outline the steps we
are taking to assure that any perceived weaknesses are addressed and corrected.
Cash Receipts and Deposits Not Safeguarded
Bank Deposits not Collateralized:
The Commission has discussed this issue with the bank. A new collateral agreement is being
addressed by the bank’s corporate office. A meeting has been set to review the new agreement to
make sure it is in compliance with section 401 of the Annual Contributions Contract. We will
secure banking services that meet all of our needs.
Depository Agreement not on File:
The Commission and the bank are researching the missing document. The Board passed a
resolution adopting the depository agreement in January 2001. We have been in contact with the
bank ever since the auditor inquired about the agreement. It has been very difficult to get this
matter resolved and future discussion with HUD is warranted.
Investment of Excess Funds:
This issue will be addressed with the bank at the upcoming meeting. Arrangements for HUD
approved investments will be made and in the future all excess funds that are not needed within
ninety (90) days will be invested in compliance with section 401 of the Annual Contributions
Contract. A new Finance Director has been hired; his start date was September 4, 2001. It is his
responsibility to make sure all HUD regulations for cash management are implemented and
followed. The “Required HA Cash Management and Investment Policies and Procedures” has
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been downloaded from the HUD web site. This is being reviewed and necessary adjustments and
improvements in internal controls are being implemented on an ongoing basis.
Deposit of Rents in a Timely Manner:
The Commission asserts that the vast majority of deposits were made in a timely manner. The
new finance director has reviewed and discussed this issue with the staff, the appropriate internal
controls have been implemented and all deposits are being made timely. Policy and procedures
will be formalized in writing by June 2002.
Disbursements Not Safeguarded
The OIG suggests that the disbursements were not safeguarded and that management controls
were weak. Conversely, the audit report offers very little support for these statements. The
Commission asserts that disbursements were safeguarded and management controls were
adequate.
Segregation of Duties Over Petty Cash and Check Disbursements
The OIG states that the accounting assistant had complete control over the accounting system
including preparation of the accounting records which could lead to misuse. The assistant did not
have complete control of the accounting system or of its records. The Executive Director
reviewed and supervised activities much of the year and when she was on medical leave there
were still adequate controls in place. The fee accountant prepared many financial records
including bank reconciliations, cash disbursements and financial statements. The Board of
Commissioners were given a detailed record of all disbursements on a monthly basis for their
review. Any other segregation of duty issues has been addressed with the addition of the new
finance director.
Adequate Support for Disbursements
The audit finding implies that not all expenditures are for reasonable operating expenses and
repairs. After reviewing the report, the Commission cannot find any expenditure listed by the
OIG that is not appropriate and reasonable. The report only shows that the auditor could not find
some of the documentation; he does not document any expenditure that is not legitimate. The
Commission states that at the time the listed costs were paid that the proper approval was in
place. We contest the statement that $11,850 of general funds was not used for their intended
purpose. The repairs and services in question were completed and there is nothing in the audit
report that indicates that the money did not go to the named payee or that the services were not
performed. We can support all expenditures. With the addition of new computers, better software
and new personnel; the internal controls and approval process for expenditures will be
restructured and improved. The Commission acknowledges its responsibility for filing and better
record keeping and will improve on its ability to provide a detailed audit trail on demand.
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The statement about the Drug Elimination expenditures being unsupported and not used for their
intended purpose is misleading and incorrect. Again, there is no basis for the statement that these
funds were not used for their intended purpose. We can support all expenditures. The new
internal controls and improved procedures will apply to Drug Elimination Grant expenditures as
well.
Duplicate, Ineligible and Questionable Drug Elimination Grant Expenditures
The report states that some wages and an invoice for signs were funded twice. This was due to a
clerical error. The $2,827 of duplicate entries has been corrected. The Finance Director will
review the Grant for accuracy before it is closed in December 2001. Our new software, internal
controls and procedures will prevent this error in the future.
An ineligible cost of $500 for parking lot repairs was charged to the Grant. This entry has been
corrected. The oversight was due to our shortage of staff. As stated above, new procedures and
staff have been added and the Commission is committed to preventing these errors in the future.
Controls Over Check Disbursements Were Weak
The only support offered for this statement is that three manual checks (written at the same time)
were not recorded in the check register. It does not state in the report how many checks were
looked at or what time frame was reviewed. As stated above, the bank reconciliations were
performed on a monthly basis by the fee accountant who kept our books. Any unrecorded checks
would be detected and recorded through this procedure. It is the Commissions position that
adequate internal controls were and are in place.
Equipment Not Safeguarded
The audit report states that equipment was not safeguarded and that computers purchased with
grant money were not used for their intended purpose yet the report offers no support or basis for
this comment. It is our position that all equipment is safeguarded and the computers are being
used for their intended purpose. The grant record keeping requirements are being reviewed and
new procedures will be implemented.
The report also states that the Commission does not complete all physical inventory
reconciliations or keep detailed property records. The report also states it recommends a bi-
annual inventory. It should be noted that HUD requires an annual inventory. It is our position that
some asset inventories have been performed and that the asset records do exist. However, the
Commission does recognize that this is an area we can improve upon. The Finance Director will
be responsible for reviewing the asset procurement and disposal procedures, making sure the
annual asset inventory is completed and reconciled to the general ledger and for improving the
internal controls. The Commission is in the process of updating its software capabilities with
regards to asset tracking. We are also considering going out for bids to have one of the many
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firms that specialize in asset inventories perform ours in 2002. At that time we will review
switching to a bar code system.
Procurement Controls Were Weak
The audit report states that procurements were not always conducted in a manner that provides
for full and open competition. The example used in the report is for legal services. The report
states that in calendar year 2000 we paid $16,667 for legal services; it further states that this is in
excess of the $5,000 threshold for getting competitive bids. It is our position that the
procurement policy was and is being followed. The amount of money that will be paid for legal
services during any given year is not known or stated in the contract; therefore we were not in
excess of the $5,000 limit when we contracted for legal services. We feel the best way to set up
this type of service is to know what the hourly rate will be. At the time these services were set up
in 1992 and periodically thereafter we have checked the hourly rate and found it to be acceptable.
We are being charged a discounted rate of $75 per hour and feel this is a very reasonable fee for
legal services. The Commission is very satisfied with our legal representation and would not
want to switch firms at this time. The law firm we use qualifies as a minority business so we
have the added benefit of MBE participation that HUD also stresses.
The procurement policies and procedures will be reviewed and updated if necessary. Additional
staff training is also being planned. This is all part of our ongoing effort to continually improve
our housing commission so we achieve our stated goal of High Performer status.
Financial & Administrative Controls Were Weak
The issue raised in this section is budget controls, procedures and cost overruns. The new
Finance Director is responsible for reviewing and improving the budgeting and tracking process.
New software and spreadsheets are already being used for this process. When the new accounting
package is purchased and installed (in January 2002) there will be new management reports that
will allow for better and timelier reporting. One such report will show budget to actual
comparisons for both current month and year to date. Included in the new software is a purchase
order system which will improve our internal controls and approval process. Any potential cost
overruns will be detected well in advance and year end budget revisions, if necessary, will be
made.
Controls for Safeguarding Assets
References are made to past audit findings and another statement is made about our cash and
assets not being safeguarded. This is a repeat comment and the issue has already been addressed
earlier in the report, as have our plans for improving on our procedures. It is stated that this is a
continuous problem that has not been fixed. It is our position that our cash and assets have been
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safeguarded and this is not a continuous problem. Again, there are no findings of loss, waste or
misuse.
Recommendations
The Commission has taken the necessary steps to resolve all issues. These items have been
addressed in more detail in the body of our response but a summary of each recommendation
follows:
· Investing excess funds into HUD approved investment securities. The Commission will
invest all excess funds in compliance with HUD regulations.
· Depositing cash receipts in a timely manner. New procedures are in place to make sure all
deposits are made in a timely manner.
· Segregating petty cash and disbursement duties so no one person has complete control. With
the addition of staff there is better segregation of duties.
· Supporting all purchases with source documents to ensure disbursements were used for their
intended purposes. New internal controls and procedures are being implemented and a new
Maintenance Supervisor has been hired.
· Reconciling all checks and the check register with source documents. This procedure has
always been in place however we will review our procedures and internal controls.
Improvements will be made where needed.
· Maintaining a detailed property ledger and take a bi-annual physical inventory to account for
all Commission assets. An asset inventory will be taken and reconciled to the general ledger
on an annual basis. All internal controls relating to asset tracking, additions and deletions will
be reviewed and improved where needed.
· Conducting procurements in a manner to provide full and open competition and maintain
records to support the rational and justification of the procurement decision. Our current
policy will be reviewed and updated where needed. The addition of staff and ongoing training
will strengthen these areas.
· Establishing a system of records to separate accounting activities for grant awards, day care
center and public housing programs. The addition of new staff, training and new software
will resolve this issue.
· Establishing procedures and controls to ensure accounting and financial records are current,
complete and accurate. The addition of new staff, training and new software will resolve this
issue.
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· Preventing expenditures in excess of amounts in approved operating budgets for controlled
accounts. The addition of new staff, improved internal controls, training and new software
will resolve this issue.
· Ensure staff receives training in procedures and controls necessary to safeguard cash and
other assets against waste, loss and misuse. Improved internal controls are being made and
staff training is being provided.
· Collateralize all bank balances that exceed the $100,000 FDIC coverage. A meeting has been
set with the bank and a new collateral agreement will be implemented.
· Execute a depository agreement with the bank to give HUD authority over all accounts.
Ongoing discussions with HUD and the bank will address this issue.
· Provide documentation to support expenditures or refund $17,281 back to HUD from non-
HUD sources. Documentation can be provided.
· Reimburse HUD $3,327 for ineligible and duplicate expenditures from non-HUD sources.
These items have been corrected therefore no refund is necessary.
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Distribution
Regional Director, Midwest (2)
Acting Senior Community Builder/State Coordinator, Michigan State Office
Director of Public Housing Hub, Michigan State Office (2)
Secretary, S (Room 10000)
Deputy Secretary, SD (Room 10100)
Senior Advisor to Deputy Secretary, SD (Room 10100)
Assistant to the Secretary for White House Liaison, S (Room 10216)
Press Secretary/Senior Communications Advisor to the Secretary, S (Room 10226)
Chief of Staff, S (Room 10000)
Acting Assistant Secretary for Administration, A (Room 10110)
Assistant Secretary for Congressional and Intergovernmental Relations, J (Room 10120)
Director of Departmental Equal Employment Opportunity, U (Room 2112)
Deputy Chief of Staff for Policy and Programs, S (Room 10214)
Deputy Chief of Staff for Intergovernmental Affairs, S (Room 10214)
Director of Center for Faith-Based and Community Initiatives, K (Room 10184)
Executive Officer for Administrative Operations and Management, S (Room 10220)
General Counsel, C (Room 10110)
Acting Assistant General Counsel, Midwest
Assistant Secretary for Housing-Federal Housing Commissioner, H (Room 9100)
General Deputy Assistant Secretary for Policy Development and Research, R (Room 8100)
Assistant Secretary for Community Planning and Development, D (Room 7100)
President of Government National Mortgage Association, T (Room 6100)
Acting Assistant Secretary for Fair Housing and Equal Opportunity, E (Room 5100)
Assistant Secretary for Public and Indian Housing, P (Room 4100)
General Deputy Assistant Secretary for Public and Indian Housing, P (Room 4100)
Acting Deputy Assistant Secretary for Public Housing Investments, PT (Room 4130)
Deputy Assistant CFO for Financial Management, FM (Room 2206)
Acting Deputy Assistant Secretary for Public and Assisted Housing Delivery, PH (Room 4204A)
Deputy Assistant Secretary for Administration and Budget/CFO, PC (Room 4234)
Audit Liaison Officer for Public and Indian Housing, PF (Room 5156)
Chief Information Officer, Q (Room P8206)
Director of Departmental Operations and Coordination, I (Room 2124)
Chief Financial Officer, F (Room 10234)
Director of Audit Coordination/Departmental Audit Liaison Officer, FMA (Room 2206)
Director of Risk Management, FMR (Room 2214)
CFO Audit Liaison Officer, FMA (Room 2206)
Audit Liaison Officer, 3AFI (2)
Director of Enforcement Center, V (200 Portals Building)
Acting Director of Real Estate Assessment Center, X (1280 Maryland Avenue, SW,
Suite 800)
Acting Director of Multifamily Assistance Restructuring, Y (4000 Portals Building)
Acquisitions Librarian, Library, AS (Room 8141)
Acting Director of Federal Housing Enterprise Oversight, (1700 G Street NW, Room 4011)
Director of Healthy Homes and Lead Hazard Control, L (3206 Portals Building)
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Chief Executive Officer, S (Room 10220)
Assistant Deputy Secretary for Field Policy and Management, M (Room 7108)
Special Counsel, C (Room 10126)
Director of National Office of Labor Relations, SL (Room 7118)
Senior Advisor, Subcommittee on Criminal Justice, Drug Policy & Human Resources, B 373
Rayburn House Office Building, Washington DC 20515
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, Chairman, Committee on Governmental Affairs, 706 Hart
Senate Office Building, United States Senate, Washington DC 20510
The Honorable Dan Burton, Chairman, Committee on Government Reform, 2185 Rayburn
Building, United States House of Representatives, Washington DC 20515
The Honorable Henry A. Waxman, Ranking Member, Committee on Government Reform,
2204 Rayburn Building, United States House of Representatives, Washington DC 20515
The Honorable John Conyers, Jr., Ranking Member, Judiciary Committee, 669 Federal Building,
United States House of Representatives, 231 West Lafayette, Detroit, Michigan 48226
Cindy Fogleman, Subcommittee on Oversight and Investigations, Room 212, O'Neil House
Office Building, Washington DC 20515
Associate Director of Housing and Telecommunications Issues, United States General
Accounting Office, 441 G Street N.W., Room 2T23, Washington DC 20548
Steve Redburn, Chief of Housing Branch, Office of Management and Budget, 725 17th Street,
N.W., Room 9226, New Executive Office Building, Washington DC 20503
Andy Cochran, House Committee on Financial Services, 2129 Rayburn House Office Building,
Washington DC 20515
Executive Director, Ypsilanti Housing Commission
President of the Board of Commissioners, Ypsilanti Housing Commission
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Ypsilanti Housing Commission, Ypsilanti, Michigan
Published by the Department of Housing and Urban Development, Office of Inspector General on 2002-03-26.
Below is a raw (and likely hideous) rendition of the original report. (PDF)