oversight

Supportive Housing Program, Harmony House, Incorporated, Harrison, Arkansas

Published by the Department of Housing and Urban Development, Office of Inspector General on 2001-08-27.

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

                                                                Issue Date
                                                                   August 27, 2001
                                                                Audit Case Number
                                                                   2001-FW-1005




TO:    Anne Golnik
       Director, Community Planning and Development, 6FD

             /SIGNED/
FROM:        D. Michael Beard
             District Inspector General for Audit, 6AGA

SUBJECT:       Supportive Housing Program
               Harmony House, Incorporated
               Harrison, Arkansas


Between July 2000 and February 2001, we performed an audit of Harmony House, Incorporated
1998 Supportive Housing Program. The audit covered Harmony House’s financial transactions
for the period October 1, 1998, through July 17, 2000. We conducted the audit in response to an
anonymous complaint received through the HUD Hotline alleging Harmony House, Incorporated
and the Newton County Housing Council (Housing Council) used Supportive Housing Program
funds more to sustain their agencies than to help the communities served by the grant. In general,
our audit substantiated the allegations. The audit report contains two findings.

Within 60 days please furnish this office, for each recommendation in this report, a status on: (1)
corrective action taken; (2) the proposed corrective action and the date to be completed; or (3)
why action is not considered necessary. Also, please furnish us copies of any correspondence or
directives issued that relate to this audit.

If you have any questions please contact William Nixon, Assistant District Inspector General for
Audit, at (817) 978-9309.
Management Memorandum




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2001-FW-1005               Page ii
Executive Summary
In response to an anonymous complaint, we performed an audit of the Harmony House,
Incorporated (Harmony House) of Harrison, Arkansas. The complainant alleged Harmony
House and Newton County Housing Council (Housing Council) used Supportive Housing
Program (Program) funds more to support their agencies than to help the communities
served by the grant. Specifically, the complaint alleged the Executive Director of Harmony
House used the grant funds for inappropriate and ineligible costs but withdrew
employment assistance from needy participants, and the Executive Director of Harmony
House and the Director of Housing Council did not effectively utilize properties rented for
transitional housing. Except for the withdrawing of employment assistance, the audit
substantiated the allegations. With respect to the withdrawing of employment assistance,
Harmony House paid Program funds to ineligible participants.



Overall, the Harmony                           The Executive Director of Harmony House disregarded
House Executive Director                       regulations and spent $157,066 in unsupported and
did not properly administer                    ineligible costs. Specifically, the Executive Director of
Program funds.                                 Harmony House used $114,005 of Program and other
                                               Harmony House funds1 for ineligible and unsupported costs
                                               and paid $43,061 for three persons that did not qualify for
                                               Program assistance.

                                               The Harmony House Executive Director and the Director of
                                               Housing Council did not perform in accordance with the
                                               HUD-approved agreement. Either Harmony House and
                                               Housing Council had not provided transitional housing to
                                               qualified homeless persons, or there was not a significant
                                               demand for scattered site transitional housing for the
                                               homeless in the area covered by the Program grant. This
                                               audit questions the demand for housing for the homeless in
                                               the area because of the limited number of houses the
                                               directors leased, the relatively low occupancy rates of the
                                               houses that it did lease, and housing practices that
                                               permitted at least two nonqualified families to occupy
                                               leased houses.

                                               We recommend HUD recover $119,803 of ineligible funds,
                                               obtain support or recover another $37,263 of funds,
                                               reevaluate the demand for transitional housing in the area
                                               served by Harmony House, and monitor Harmony House
                                               activities.


1
    Funds from Emergency Shelter Grants, Department of Justice grants, and Harmony House’s General Account.

                                                        Page iii                                         2001-FW-1005
Executive Summary


                    We provided a draft of the report to the Newton County
                    Resource Council on June 13, 2001. We received a written
                    response with attachments on July 3, 2001. We held an exit
                    conference with representatives of the Resource Council,
                    Harmony Housing, and Housing Council on July 18, 2001.
                    Overall, they disagreed with the findings. We have
                    attached the Newton County Resource Council’s response
                    sans attachments. We considered both the written and
                    verbal response in finalizing this report.




2001-FW-1005                     Page iv
Table of Contents

Management Memorandum                                          i


Executive Summary                                             iii


Introduction                                                   1


Findings

1    Harmony House Disregarded Federal Requirements             5

2    Harmony House and Housing Council Did Not Fully           19
     Utilize Its Scattered Site Transitional Housing


Management Controls                                            25



Appendices
      A Schedule of Questioned Costs                           27

      B Auditee Comments                                        29

      C Distribution                                           51




                              Page v                   2001-FW-1005
Table of Contents




Abbreviations
       CFR          Code of Federal Regulations
       GTR          Government Technical Representative
       HHI          Harmony House, Incorporated
       HUD          U. S. Department of Housing and Urban Development
       OIG          Office of Inspector General
       OMB          Office of Management and Budget




2001-FW-1005                              Page vi
Introduction
    Background.                 Title IV of the Stewart B. McKinney Homeless Assistance
                                Act (Act) authorized the Supportive Housing Program
                                (Program). Under the Act, Program funds may be used for
                                supportive housing, supportive services, and the cost to
                                operate and administer the grant. The Act defines
                                supportive housing as housing used to transition2 the
                                homeless into permanent housing and innovative housing
                                that meets the immediate and long-term needs of homeless
                                persons. Program supportive services to the homeless
                                include employment assistance, childcare, food, case
                                management, assistance in obtaining permanent housing,
                                and other appropriate services. HUD implemented the Act
                                in 24 CFR 583.

                                In response to an anonymous complaint, we performed an
                                audit of the Harmony House, Incorporated (Harmony
                                House) of Harrison, Arkansas. The complainant alleged
                                Harmony House and Newton County Housing Council
                                (Housing Council) used Program funds more to support
                                their agencies than to help the communities served by the
                                grant. Specifically, the complaint alleged the Executive
                                Director of Harmony House used the grant funds for
                                inappropriate and ineligible cost but withdrew employment
                                assistance from needy participants. Further, the Executive
                                Director of Harmony House and Housing Council’s
                                Director did not effectively utilize properties rented for
                                transitional housing.

                                On September 26, 1995, HUD executed a $556,500
                                Program grant agreement with the Newton County
                                Resource Council (Resource Council). Under the 3-year
                                grant, the Resource Council would provide transitional
                                housing and supportive services in the Newton County,
                                Arkansas area. HUD provided funds to renovate a structure
                                to be used by Harmony House for a battered women shelter
                                and to purchase a van to transport homeless persons. The
                                Resource Council’s application showed: (1) Harmony
                                House would provide housing at the shelter, transportation,
                                counseling, and other services; (2) the Housing Council
                                would provide case management, housing counseling,
                                property management of leased units for transitional
                                housing, and other services; and (3) Harmony House and

2
    Within a 24-month period.

                                      Page 1                                  2001-FW-1005
Introduction


                  Housing Council would approve all support services
                  provided by other agencies.

                  On March 26, 1998, HUD executed a $569,327 renewal of
                  the Program grant agreement with the Resource Council to
                  continue to provide supportive housing and services to
                  homeless persons in Newton County, Arkansas. HUD
                  allocated funds for the 3-year (fiscal years 1999, 2000, and
                  2001) grant as follows:

                                                           Approximate Annual
               Activity                 Total Amount            Amount
               Operating Cost                  $ 36,693              $ 12,231
               Supportive Services              461,028               153,676
               Leasing                           44,496                14,832
               Administration Costs              27,110                 9,037
               Totals                          $569,327              $189,776

                  On July 28, 1998, HUD approved the transfer of
                  responsibility for administering the grant from the Resource
                  Council to Harmony House. The Resource Council,
                  Harmony House, and Housing Council executed a contract
                  on July 20, 1998, detailing the transfer and Harmony House
                  and Housing Council’s responsibilities under the grant.
                  The contract showed:

                  ·   Harmony House would administer the Program grant.
                  ·   Harmony House and Housing Council would provide
                      transitional housing and supportive services to the
                      homeless in Newton County and the surrounding
                      counties.
                  ·   The contract period included the 3-year grant period.
                  ·   For each of the 3 years, contract payments from
                      Program funds to Harmony House and Housing Council
                      were $47,500 and $40,500, respectively. The $88,000
                      came from the supportive service line item and did not
                      include the other Program line items that Harmony
                      House administered. The contract payments covered
                      the following activities.




2001-FW-1005              Page 2
                                                                               Introduction



                                                      Annual Contract   Annual Contract
                            Program Grant Activity      Amount to      Amount to Housing
                                                      Harmony House        Council
                           Outreach                           $ 4,000            $ 4,000
                           Case Management                     16,000             16,000
                           Life Skills                          4,000              4,000
                           Housing Counseling                        0             8,000
                           Follow-up                              500                500
                           Domestic Violence                   15,000                   0
                           Services
                           Subtotals                            39,500               32,500
                           VISTA (Job Training)                  8,000                8,000
                           Total Annual Payments               $47,500              $40,500

                               The Housing Council, a nonprofit membership-based
                               organization, was formed in 1993 as a spin-off of the
                               Resource Council. The Housing Council has one employee
                               (the Director) and is located in Jasper, Arkansas. The
                               Housing Council and the Resource Council were co-
                               applicants of the initial (September 1995) Program grant.

                               Harmony House became independent of the Resource
                               Council in 1996. During fiscal year 2000, Harmony House
                               moved their offices from Jasper, Arkansas, to Harrison,
                               Arkansas. Harmony House is a recipient of various federal
                               grants focusing primarily on services to women and
                               children. Harmony House employees include the Executive
                               Director and a support staff that ranged from 7 to 16
                               employees.

Audit Objectives, Scope,       Overall, our objective was to support or refute the
and Methodology.               allegations. Specifically, we assessed whether Harmony
                               House used Program funds in accordance with federal
                               regulations and evaluated the Program eligibility of persons
                               whom Harmony House provided employment assistance.
                               We also determined if the Executive Director of Harmony
                               House and the Director of Housing Council had effectively
                               utilized properties rented for scattered site transitional
                               housing.

                               To achieve the objectives we:

                               ·   Interviewed HUD staff and reviewed HUD’s files
                                   containing the grant applications, agreements, technical
                                   submissions, and fiscal year 1999 progress report.

                                     Page 3                                   2001-FW-1005
Introduction


               ·   Reviewed audited financial statements.
               ·   Interviewed the Harmony House and Housing Council
                   directors and staff.
               ·   Reviewed the Harmony House and Housing Council
                   Minutes of Board Meetings.
               ·   Reviewed judgmentally selected case files of
                   participants provided housing and supportive services
                   assistance to determine if the participants were eligible
                   for Program funds.
               ·   Examined financial records covering the period October
                   1, 1998, through July 17, 2000.
               ·   Reviewed selected disbursement transactions and
                   assessed the eligibility of costs paid from Program
                   funds.
               ·   Reviewed leases for rental units for transitional housing
                   and records of occupancy of those units to determine
                   whether the units were effectively used to house
                   homeless participants.
               ·   Determined the accuracy of the fiscal year 1999 report
                   showing the number of program participants.
               ·   Reviewed applicable parts of 24 CFR and OMB
                   Circular A-122, Cost Principles Applicable to Grants,
                   Contracts and Other Agreements to identify cost
                   eligibility requirements.
               ·   Reviewed fiscal years 1999 and 2000 financial data for
                   Emergency Shelter Grants administered by the State of
                   Arkansas.

               We conducted the audit from July 2000 through February
               2001 in accordance with generally accepted government
               auditing standards. Due to the condition of Harmony
               House’s books and records, we included some expenditures
               that were made from other grants. We have noted in the
               findings where this occurred. Throughout the audit, we
               reviewed various computer-generated data. However, we
               did not perform any tests on the validity or reliability of
               such data except as noted in the findings and management
               controls. The audit covered Harmony House and Housing
               Council operations from October 1, 1998, through July 17,
               2000, and certain documents provided by Harmony House
               during the period August 7, 2000, through February 1,
               2001.




2001-FW-1005           Page 4
                                                                                  Finding 1


                 Harmony House Disregarded
                    Federal Requirements
Disregarding federal requirements and its grant agreement, the Executive Director of
Harmony House paid $157,066 for ineligible and unsupported expenses. Specifically, the
director:

   ·   Used $114,005 of Program and other Harmony House funds for unsupported and
       ineligible costs.
   ·   Paid $35,780 of Program employment assistance funds and $7,281 of other costs for
       three persons that did not qualify for Program assistance.
   ·   Did not perform the Program contract in accordance with the agreement approved
       by HUD.

Because HUD has a grant agreement with the Resource Council, HUD should seek
reimbursement or support for the expenditures. Further, HUD should require the
Resource Council to better manage their grant.



 Criteria                         Office of Management and Budget Circular A-122, Cost
                                  Principles for Non-Profit Organizations (Circular A-122),
                                  established principles for determining costs of grants,
                                  contracts, and other agreements with nonprofit
                                  organizations. The 1998 Program renewal grant agreement
                                  (grant agreement) required Harmony House to comply with
                                  Circular A-122. Under Circular A-122, allowable costs
                                  must:

                                  ·   Be reasonable and allocable to the grant.
                                  ·   Conform to any limitations or exclusions set by the
                                      awarding agency on types or amount of cost items.
                                  ·   Be determined in accordance with generally accepted
                                      accounting principles (GAAP).
                                  ·   Be adequately documented.

                                  In the grant agreement, HUD also incorporated 24 CFR 583
                                  provisions that prohibited Harmony House from: (1)
                                  shifting more than 10 percent of funds from one approved
                                  type of Program activity to another, or making any other
                                  significant change, without the prior written approval of
                                  HUD and (2) engaging in conflict of interest.


                                        Page 5                                 2001-FW-1005
Finding 1


                                                   Under 24 CFR 583, Harmony House was required to
                                                   comply with administrative standards established in the
                                                   Office of Management and Budget Circular A-110,
                                                   Uniform Administrative Requirements for Grants and
                                                   Agreements With Institutions of Higher Education,
                                                   Hospitals, and Other Non-Profit Organizations (Circular A-
                                                   110). Circular A-110 required Harmony House to:

                                                   ·   Maintain a financial management system that ensured
                                                       Harmony House’s accounting records adequately
                                                       identified the source and application of funds and that
                                                       the records were supported by source documentation.
                                                   ·   Obtain HUD’s approval, when equipment is being
                                                       replaced, for the trade-in or sale of equipment
                                                       purchased with Program grant funds.

    Harmony House paid                             The Executive Director of Harmony House ignored federal
    ineligible and unsupported                     requirements and inappropriately used $114,005 of funds
    expenses totaling $114,005.                    for:

                                                   ·   Ineligible vehicle purchases ($25,900).
                                                   ·   Ineligible consulting/contract fees and other costs
                                                       ($50,842).
                                                   ·   Unsupported transfers from Program funds ($37,263).

    Ineligible vehicles.                           During fiscal year 2000, Harmony House inappropriately
                                                   spent $25,900 from Program funds for vehicles. On
                                                   February 16, 2000, the Executive Director of Harmony
                                                   House used $24,500 for partial payment on the purchase of
                                                   two used 1998 sports utility vehicles. She did not obtain
                                                   HUD’s approval. Harmony House needed HUD’s approval
                                                   because: (a) Harmony House made the purchase through
                                                   the sale and trade-in of vehicles purchased with Program
                                                   funds3 and, (b) the purchase was a shift of more than 10
                                                   percent from one approved activity to another.4 HUD had
                                                   approved only $10,000 each year for transportation costs
                                                   (mileage at 25 cents per mile). The $24,500 ineligible cost
                                                   was comprised of a:




3
     Circular A-110, subpart C, paragraph 34(e).
4
     24 CFR 583.405.

2001-FW-1005                                               Page 6
                                                                                                                     Finding 1


                                                 ·    Check ($3,900) from the Program bank account.
                                                 ·    Cash ($9,000) from sale of a vehicle purchased in 1998
                                                      with Program funds.
                                                 ·    Trade-in ($8,300) of another vehicle purchased in 1998
                                                      with Program funds.
                                                 ·    Trade-in ($3,300) of a 1991 Isuzu Rodeo acquired in
                                                      January or February 2000 with Program funds.5

                                                 The Executive Director of Harmony House and the Director
                                                 of Housing Council co-signed a $28,000 1-year note
                                                 payable for the remaining costs of the vehicles.6 Harmony
                                                 House did not provide sufficient documentation to support
                                                 the need of the purchases. The Executive Director of
                                                 Harmony House explained they purchased the vehicles
                                                 because the two vehicles purchased in 1998 had “a lot of
                                                 mileage and were in bad condition” and the transmission in
                                                 one vehicle was “going out.” In contrast to her statement,
                                                 she advertised both vehicles as being in “Excellent
                                                 Condition.”

Need for a vehicle was                           Housing Council’s level of Program services did not appear
questionable.                                    to justify the cost of a vehicle. Harmony House had
                                                 significantly reduced Housing Council’s level of service,
                                                 including reducing the number of leased houses Housing
                                                 Council managed for transitional housing from five to one.
                                                 Further, the minutes of the Housing Council Board of
                                                 Directors’ meeting showed Housing Council generally
                                                 focused on the construction and rental of duplexes Housing
                                                 Council owned in another town, and opportunities to
                                                 construct new apartments and other rental facilities. The
                                                 minutes of Housing Council’s meetings from September
                                                 1999 through April 2000 mention the Program only twice.

    In accordance with A-122,                    Harmony House gave conflicting stories regarding the
    vehicle costs for personal                   purchase of the vehicles. First, the Executive Director of
    use and use allocable to                     Harmony House wrongly explained the purchase was in
    other activities are not                     accordance with the grant requirements. Later, on July 24,
    allowable Program costs.                     2000, she stated she thought the purchase was allowable
                                                 because HUD had approved Harmony House’s 1998
                                                 purchase of vehicles, under its 1995 grant. In contrast, the
                                                 responsible HUD official stated HUD had not been asked to
                                                 approve the February 2000 acquisition of vehicles.
                                                 Harmony House should repay the grant $24,500.
5
    This relates to a $4,700 vehicle acquisition discussed below. The $4,700 was paid from the 1998 Program grant.
6
    Total purchase price of $52,500.

                                                        Page 7                                                2001-FW-1005
Finding 1



                                  Harmony House lost $1,400 in vehicle purchase and trade
                                  transactions with family members of the Director of
                                  Housing Council. Harmony House’s loss resulted from the
                                  purchase ($4,700) of one vehicle from the Director’s
                                  mother and the credit ($3,300) received less than 2 months
                                  later from the trade-in of another vehicle. Specifically, on
                                  December 21, 1999, the Executive Director of Harmony
                                  House paid the Director of Housing Council $4,700 for a
                                  1994 Toyota. The Director of Housing Council stated she
                                  purchased the vehicle from her mother. Prior to
                                  February 16, 2000, the Director traded this vehicle to her
                                  son-in-law for a 1991 Isuzu. The Directors stated this
                                  transaction occurred because the motor in the 1994 Toyota
                                  became damaged. Harmony House’s records did not
                                  contain any documentation on the sale or trade of this
                                  vehicle. However, the February 16, 2000 sales invoice for
                                  one of the sports utility vehicles showed Harmony House
                                  traded-in the 1991 Isuzu. We recommend Harmony House
                                  either support this $1,400 or repay the grant $1,400.

                                  During fiscal years 1999 and 2000, Harmony House paid:
 Harmony House engaged in
 numerous conflict-of-
                                   PAYMENTS MADE TO:               PURPOSE              AMOUNT
 interest situations that
                                   Harmony House Executive    Consulting and training    $10,250
 resulted in at least $50,842      Director                   fees
 of ineligible costs to be paid    Harmony House Board        Consulting fees            $ 4,820
 for consulting fees and           Member
 other services.                   Harmony House Employees    Consulting fees            $ 5,562
                                   Harmony House Employee     Rent of a portion of       $ 3,737
                                                              home
                                   Housing Council Director   Consulting fees and        $11,565
                                                              moral boost
                                   Family Members of          Data entry and building    $11,408
                                   Harmony House Executive    materials
                                   Director
                                   Various Others             Miscellaneous              $ 3,500
                                               TOTAL                                     $50,842

                                  The Harmony House Executive Director and the Harmony
                                  House Board of Directors ignored federal conflict of
                                  interest regulations. Harmony House made most of these
                                  payments from Program funds. However, in some cases,
                                  Harmony House used funds from Emergency Shelter
                                  Grants, Department of Justice Grant, or the Harmony
                                  House General account.


2001-FW-1005                              Page 8
                                                                                                                   Finding 1


                                                 Harmony House records were not adequate7 to determine if
                                                 Harmony House later reimbursed the other accounts from
                                                 the periodic transfers from Program funds to the Harmony
                                                 House general fund and other accounts. Consequently, the
                                                 audit included the total payments in the amounts identified
                                                 as ineligible costs.

                                                 During fiscal year 1999, Harmony House paid $9,062 in
    Harmony House made
                                                 ineligible consulting fees to the Executive Director
    questionable payments to
                                                 ($3,500) and five Harmony House employees ($5,562).
    the Executive Director,
                                                 Harmony House made the payments from the Harmony
    Employees, and Board
                                                 House General fund. The director made the payments in
    Members totaling $20,632.
                                                 accordance with an undated fiscal year 1999 document that
                                                 listed “Benefits approved at the July board meeting:
                                                 Quarterly consulting fees.” The document listed specific
                                                 amounts of quarterly fees the Board approved for the
                                                 director and each of the five applicable employees.

                                                 In fiscal year 2000, the Harmony House Board of Directors
                                                 continued to approve ineligible costs. The Board approved
                                                 payments for consulting/contract fees to the Executive
                                                 Director and to Board members. Specifically, the minutes
                                                 of the October 30, 1999 Board meeting showed the
                                                 Executive Director would “ . . . be allowed to train
                                                 contractually with Harmony House and other agencies and
                                                 receive those funds for personal use” and that “Board
                                                 Members will be allowed to work on a contract basis. The
                                                 contract dollar amount shall not exceed $6,000 per year
                                                 and must be fair market value.”

                                                 Accordingly, during the period October 24, 1999, through
                                                 January 24, 2000, Harmony House paid its Executive
                                                 Director $6,750 for “Training Fees” from Harmony
                                                 House’s grant from the Department of Justice. The
                                                 Executive Director, in her unsigned and undated “contract”
                                                 with Harmony House, stated: “Personal or compensatory
                                                 time will be taken or training’s will be held at night or on
                                                 the weekends as to not interfere with . . . job duties at
                                                 HHI.”

                                                 During the period December 15, 1999, through July 17,
                                                 2000, Harmony House paid the Vice Chairman of the


7
    Circular A-110 required Harmony House to maintain records that identified the source and use of funds, and to ensure the
    expenditures were supported by adequate documentation.

                                                         Page 9                                                2001-FW-1005
Finding 1


                                                Board of Directors for contract work totaling at least
                                                $4,820.8 The contract stated:

                                                      . . . (the Vice Chairman) will work a 24-hour
                                                     shift each week to begin on Saturday a.m. at
                                                     8:00 and end Sunday a.m., at 8:00. For this
                                                     shift work contract, . . . (the Vice Chairman)
                                                     will be paid $325 per pay period (semi-
                                                     monthly) until other full-time or another
                                                     person can be located to work this shift.

                                                Payments for contract work by the Executive Director, her
                                                employees, and Board members are ineligible in accordance
                                                with federal regulations covering conflict of interest.
                                                Section 330, paragraph (e) of 24 CFR 583 prohibits
                                                Harmony House employees, officers, and Board members
                                                from contracting with Harmony House during their tenure
                                                and for 1 year thereafter. Further, the Harmony House
                                                Board of Directors’ actions were questionable. For at least
                                                the last 2 years, the Harmony House Executive Director’s
                                                cousin was the Chairman of the Board. In addition to the
                                                questionable actions of the Board shown above, the Board,
                                                on October 30, 1999, also increased the Executive
                                                Director’s annual salary from $36,400 to $50,000 (37
                                                percent increase).

                                                Between October 1998 and February 2000, Harmony House
    Ineligible payments to the
                                                paid the Director of Housing Council $10,565 for ineligible
    Director of Housing
                                                consulting fees. Harmony House made the payments from
    Council totaled $10,565.
                                                Program ($7,965), Emergency Shelter Grant ($2,325), and
                                                General ($275) funds. The Housing Council Director’s
                                                invoices showed her name as the consulting service and her
                                                home address. The Housing Council Director’s monthly
                                                invoices for October 1998 through December 1998 stated:
                                                “Consulting Services. . . In accordance with our agreement
                                                for the consulting services rendered, the following is now
                                                due and payable.” Harmony House paid the director’s
                                                monthly fees that ranged from $100 to $875. On
                                                February 3, 2000, Harmony House paid her $2,625; this
                                                payment apparently prepaid her fees for the period February
                                                through June 2000. Harmony House’s records did not
                                                indicate what services she provided.



8
    $3,845 Program funds; $975 General funds.

2001-FW-1005                                            Page 10
                                                                                                    Finding 1



    The Harmony House                           The Executive Director of Harmony House used Program,
    Executive Director paid                     Emergency Shelter Grant, and the Harmony House General
    family members $11,408.                     fund to pay family members $11,408 for services provided
                                                to Harmony House. These payments were made to:

                                                ·   Brother: During the period January 31, 2000, through
                                                    June 30, 2000, Harmony House paid $3,025 to the
                                                    brother of the Harmony House Executive Director. The
                                                    Executive Director had made a contract with her brother
                                                    that stated “Beginning January 31, 2000 . . . will be
                                                    paid $300 per pay period until all data entry for the
                                                    program is entered...” Harmony House used at least
                                                    $925 of Program funds and $2,100 of other funds to
                                                    make the payments.

                                                ·   Sister-in-Law: From January 31, 2000, through
                                                    May 17, 2000, Harmony House paid $2,3839 to the
                                                    sister-in-law of the Harmony House Executive Director.
                                                    Harmony House paid the sister-in-law for data entry
                                                    services. Harmony House charged the payments to
                                                    Program grant administration and operations costs and
                                                    to the General fund contract labor costs.

                                                ·   Spouse: From December 31, 1998, through
                                                    February 28, 1999, Harmony House paid $6,000 to the
                                                    spouse of the Executive Director of Harmony House.
                                                    Harmony House made the payments from Emergency
                                                    Shelter Grant funds. The Executive Director stated the
                                                    payments were for materials to remodel a building
                                                    acquired to expand Harmony House’s battered women
                                                    shelter to another county, and that her spouse had
                                                    donated about $3,500 in labor to the project.
    Harmony House spent
                                                During the period August through December 1999, the
    $3,737 to establish a
                                                Executive Director of Harmony House paid an employee at
    questionable shelter in an
                                                least $3,737 of ineligible Emergency Shelter Grant funds
    area of an employee’s
                                                for rent ($2,400), security deposit ($400), and food/utilities
    home.
                                                ($937). The Executive Director made the payments in
                                                accordance with a lease she executed with the employee’s
                                                spouse. In accordance with the lease, the Executive
                                                Director would use areas in the employee’s home for an
                                                emergency shelter for homeless families and individuals in

9
    $1,959 Program funds; $424 General funds.

                                                    Page 11                                      2001-FW-1005
Finding 1


                                                  Searcy County, Arkansas. In the lease, the Executive
                                                  Director stated: “Two bedrooms, living area, and kitchen
                                                  facilities will be provided as needed. A private bath will be
                                                  provided.” Harmony House made the last payment to the
                                                  spouse on December 28, 1999, for the January 2000 rent.
                                                  The Executive Director explained the employee and spouse
                                                  had “determined that they could no longer allow clients to
                                                  stay in their home” and terminated the lease. Considering
                                                  Harmony House utilized the “shelter” only 6310 (34
                                                  percent) of the 184 applicable rent days, the need for the
                                                  “shelter” was questionable. Harmony House should repay
                                                  this $3,737 because of the conflict of interest.

     The Executive Director of                    The Executive Director of Harmony House used $4,500 of
     Harmony House paid other                     Program funds for the following ineligible expenditures:
     ineligible costs totaling
     $4,500.                                      ·    On December 10, 1998, Harmony House withdrew
                                                       $2,000 (in cash) of Program funds from the Program
                                                       bank account. Harmony House charged the cost to
                                                       “moral boost”. The Executive Director stated the cash
                                                       was used to pay: (a) the cost of the Harmony House
                                                       Christmas party at a local facility and (b) cash bonuses
                                                       to Harmony House employees. However, Harmony
                                                       House did not keep the invoices to support the cost of
                                                       the party (food/beverage, etc.) nor allocate the bonuses
                                                       and party costs to other Harmony House grants and
                                                       activities. Under Circular A-122, costs must be
                                                       adequately documented and allocable to the Program
                                                       grant.

                                                  ·    On December 7, 1999, the Executive Director used
                                                       $1,500 of Program funds to pay a “Moral Boost” to the
                                                       Housing Council Director ($1,000) and to a Housing
                                                       Council employee ($500). Under Circular A-122, costs
                                                       must be reasonable i.e., it is not reasonable to pay
                                                       bonuses to employees of other organizations.

                                                  ·    On January 12, 2000, the Executive Director of
                                                       Harmony House inappropriately used $1,000 of
                                                       Program funds for scholarships ($500 each) to a
                                                       Harmony House employee and the employee’s son.
                                                       Although the employee and her son had previously been

10
     Harmony House reported the use as “shelter nights” as follows: August: 8; September: 0; October: 23; November: 76;
     December: 2; January: 0. For this report, we used each shelter night as 1 day. Because the number of shelter nights in
     November exceeded applicable days, we counted the entire month as occupied.

2001-FW-1005                                                Page 12
                                                                              Finding 1


                               Program participants, they had not qualified for
                               Program benefits since the employee’s remarriage the
                               prior year. In addition, the scholarships exceeded the
                               $250 per person amount approved by HUD. On
                               July 18, 2000, the Executive Director stated she
                               awarded the scholarship to the employee and her son
                               because no one else applied for the scholarships.
                               However, the Executive Director’s award of the
                               scholarships violated 24 CFR 583 provisions that
                               prohibit such payments to employees and family
                               members.

Harmony House did not       Harmony House inappropriately used $35,780 of Program
properly administer         employment assistance funds and $7,281 of other Program
$43,061 of Program funds    funds for three ineligible participants. The $35,780
by providing job training   payments consumed 65 percent of the $54,632 total funds
and other services to       HUD had approved for employment assistance for fiscal
ineligible participants.    years 1999 and 2000. Harmony House employed two of
                            the three participants including the daughter of Housing
                            Council’s Director. For these two employees, Harmony
                            House paid their rent and other expenses. In both cases,
                            Harmony House paid utility and childcare costs. Harmony
                            House did not maintain adequate records to determine the
                            total amount paid for utility and childcare costs for these
                            ineligible participants. The Executive Director of Harmony
                            House permitted ineligible persons to receive Program
                            assistance either because she was not aware of the program
                            requirements or she simply disregarded the requirements.
                            The following is a summary of Harmony House payments
                            and other data concerning these three persons.

                            Daughter of Director of Housing Council: During the
                            period October 1, 1998, through June 30, 2000, Harmony
                            House used $25,017 of employment assistance funds to
                            employ the daughter of the Director of Housing Council.
                            From other Program funds, Harmony House paid her a
                            $500 bonus and used over $3,935 to pay her health
                            insurance, rent, butane gas for heating, utilities, and
                            childcare costs. This daughter did not qualify for Program
                            assistance because in October 1998 she was not homeless.
                            The following table presents a summary of Program
                            assistance provided to the daughter.




                                Page 13                                   2001-FW-1005
Finding 1

                                                    Time Period of Payments               Description                   Totals
                                                    October 1998 through June             Salary                        $25,017
                                                    2000
                                                    December 1999                         Bonus                             $500
                                                    April 1999 through June 2000          Health Insurance                $2,310
                                                    November 1999 through March           Rent                            $1,625
                                                    2000
                                                    November 1999 through March           Utility Costs                Unknown
                                                    2000
                                                    October 1998 through June             Childcare ($9 daily)         Unknown
                                                    1999

                                                  Harmony House payments to/for the daughter were also
                                                  ineligible because her mother, the Director of Housing
                                                  Council, was responsible for the management of significant
                                                  aspects of the housing program under the Program grant.
                                                  According to the Director of Housing Council, Harmony
                                                  House put her daughter on the Harmony House payroll
                                                  because Harmony House provided health insurance benefits
                                                  and Housing Council did not.

                                                  Harmony House Employee: From April 7, 1999, through
                                                  November 15, 1999, Harmony House used $6,227 of
                                                  Program employment assistance funds to pay an ineligible
                                                  Program participant for office work at Harmony House.
                                                  This Harmony House employee was not eligible for
                                                  employment assistance because she was not homeless and
                                                  had job skills. Specifically, her job application showed she
                                                  lived with her spouse and children and had skills including
                                                  “computer, word perfect” and other office skills. After
                                                  November 15, 1999, the Executive Director discovered
                                                  Harmony House’s fiscal year 2000 payments from
                                                  employment assistance funds were likely to exceed the
                                                  HUD authorized amount and began paying this employee
                                                  from other Harmony House funds.

                                                  Harmony House paid other ineligible costs for this
                                                  employee. Specifically, Harmony House used $2,400 of
                                                  Program funds to provide her housing, $446 for her tuition
                                                  cost at a local college, and an unknown amount of childcare
                                                  and utilities.11 Harmony House’s records did not contain
                                                  any documentation to show the employee and family had
                                                  ever qualified for transitional housing benefits or other
                                                  Program benefits. Instead, Harmony House records only

11
     Harmony House’s payments to the childcare facility for the employee’s children ranged from $6 to $113; one electric bill was
     $73.

2001-FW-1005                                                 Page 14
                                                                              Finding 1


                         showed the employee was not homeless. The Executive
                         Director of Harmony House stated, “When it was learned
                         by the case management staff that the husband
                         (employee’s) exceeded the income limit, she was
                         immediately removed from the program.”

                         Third Ineligible Participant: Harmony House used $4,536
                         of Program funds to pay 10 months (March 24, 1999,
                         through January 15, 2000) of employment assistance to a
                         participant that did not qualify for assistance. In this case,
                         Harmony House did not employ the participant but paid her
                         salary while she worked for another employer. However,
                         this participant did not require job skill training because she
                         had a Bachelor of Business Administration (accounting and
                         business), proficient computer skills, and she was not
                         homeless. Harmony House’s December 15, 1998 case
                         notes showed the participant lived with her parents, did not
                         request housing assistance, and wanted to stay at home with
                         her 4-week-old infant son “as long as she can”. Almost 1
                         year later (December 11, 1999), Harmony House’s case
                         notes stated the participant had “decided to put off looking
                         for housing for a while.”

Harmony House            Harmony House made $37,263 of unsupported transfers
transferred $37,263 of   from the Program fund to other Harmony House bank
Program funds to other   accounts. Harmony House had not complied with Circular
Harmony House bank       A-110 provisions requiring Harmony House to maintain
accounts.                documentation to support transfers. Harmony House
                         records did not identify specific Program expenses relating
                         to the transfers. The following table lists specific dates and
                         amounts of the transfers.

                                                        Unsupported Transfers
                                                         DATE            AMOUNT
                                                March 8, 1999                 $ 5,163
                                                July 15, 19999                 10,000
                                                October 1, 1999                 3,000
                                                October 18, 1999                3,000
                                                October 24, 1999                3,100
                                                November 18, 1999               6,500
                                                November 30, 1999               6,500
                                                        TOTAL                $37,263




                             Page 15                                      2001-FW-1005
Finding 1


 The Directors of Harmony            Between July 1, 1998, and February 1, 2000, the directors
 House and Housing Council           agreed to eliminate many services Housing Council was to
 decreased Housing                   perform. Housing Council’s decreased level of services
 Council’s services without          brings into question whether they provided adequate
 HUD’s approval.                     Program services. Specifically, the Resource Council’s
                                     July 20, 1998 contract with the director’s stipulated
                                     Housing Council would provide transitional housing and
                                     supportive services. However, Harmony House and
                                     Housing Council later executed contracts reducing Housing
                                     Council’s services. The table below shows the decrease in
                                     services.

                    HOUSING COUNCIL SERVICES AND RESPONSIBILITIES TO THE PROGRAM
                                                          REQUIRED BY          REQUIRED BY
                                         REQUIRED BY        HARMONY              HARMONY
                                        THE RESOURCE          HOUSE’S              HOUSE’S
                                          COUNCIL’S     FEBRUARY 25, 1999         UNDATED
                                         JULY 20, 1998,     CONTRACT            “CONTRACT”
                   DESCRIPTION            CONTRACT       (Effective 1/1/1999) (Effective 2/1/2000)
               Outreach                       Yes                 No                   No
               Case Management                Yes                Yes                  Yes
               Life Skills                    Yes                 No                   No
               Housing Counseling             Yes                Yes                   No
               Follow-up                      Yes                 No                   No
               Provide leased units for
               transitional housing       Yes (5 units)      Yes (3 units)             No
               VISTA (provide job
               training, etc)                 Yes                 No                   No
               Monthly contract
               payment to Housing           $3,375              $2,750               $1,270
               Council

                                     The directors did not obtain approval from the Resource
                                     Council or from HUD for these contract changes. Harmony
                                     House should request approval from the Resource Council
                                     and HUD for these changes. Furthermore, in its requests,
                                     Harmony House should inform the Resource Council and
                                     HUD whom will be performing the necessary grant
                                     activities.



 Auditee Comments                    Overall, the auditee disagreed with the finding. Officials
                                     disagreed they misspent funds or disregarded federal rules
                                     and regulations. Furthermore, they stated they received
                                     verbal approval from HUD for purchase of the vehicles, for
                                     the consulting fees, and for the morale boost paid to the
                                     Director of Newton County. In general, Harmony House

2001-FW-1005                                 Page 16
                                                                        Finding 1


                    considered the “allegations” made by the audit to have
                    foundations based in personal attacks.

                    However, officials agreed that one participant was
                    ineligible. Also, Harmony House agreed the Program
                    needed improvement and formally requested training and
                    technical assistance from HUD.

                    During our July 18, 2001 exit conference, they emphasized
                    that HUD officials had not properly monitored the Program
                    and had not provided assistance when requested. Further,
                    they contended they only reduced the level of services
                    under the contract, but did not stop providing them.
                    Officials believe they met the intent of the Program.



                    We made minor changes to the draft findings based upon
OIG Evaluation of   the auditee’s response. However, the bulk of the
Comments            documents supplied in the response did not modify the facts
                    as presented in the report.



                    We recommend HUD:
Recommendations
                    1A.    Require the Resource Council to repay HUD the
                           $119,803 of ineligible costs.

                    1B.    Require the Resource Council to support or repay
                           from nonfederal funds the $37,263 of unsupported
                           costs.

                    1C.    Instruct the Resource Council to: (1) ensure
                           Harmony House does not pay future
                           consulting/contract fees to Harmony House officers,
                           employees, and Board members or to family
                           members of the Harmony House Executive Director;
                           (2) establish procedures to ensure Program funds are
                           used for only allowable cost; (3) provide training for
                           the Program to the Harmony House officers,
                           employees, and Board members; (4) verify the
                           eligibility of future Program participants for
                           employment assistance and transitional housing
                           assistance prior to Harmony House expending

                          Page 17                                   2001-FW-1005
Finding 1


               Program funds; (5) monitor Harmony House grant
               activities to ensure conflict-of-interest situations do
               not reoccur; and (6) request HUD approval for the
               decrease in Housing Council’s services and identify
               to HUD who provided these services.




2001-FW-1005    Page 18
                                                                                       Finding 2


            Harmony House and Housing Council
                   Did Not Fully Utilize Its
             Scattered Site Transitional Housing.
Of the 1,738 days that Harmony House and Housing Council paid rent on the scattered site
housing, the units were only occupied 1,049 days (60 percent). This occurred either
because Harmony House and Housing Council had not provided transitional housing to
qualified homeless persons, or there was not a significant demand for scattered site
transitional housing for the homeless in the area covered by the Program grant. This is
based upon the limited number of houses the directors leased, the relatively low occupancy
rates of the houses that were leased, and housing practices that permitted at least two
ineligible families to occupy leased houses. Throughout the period October 1998 through
July 2000 (fiscal year 1999 and part of fiscal year 2000), the directors did not lease five
houses as shown in the grant application. Instead, the directors leased only four such
houses during fiscal year 1999, and only three houses during fiscal year 2000. Further, the
directors generally terminated these leases within 4 to 7 months of the initial lease date. As
of June 30, 2000, the directors had terminated all but one of the leases. HUD was not
aware the directors had reduced their housing capacity, nor of any decrease in housing
demand, because the Executive Director of Harmony House submitted an annual report
that overstated the number of persons housed. HUD should reassess the demand for
transitional housing in the area served by Harmony House and require Harmony House to
submit accurate annual performance reports.



 Criteria                           Among other factors, HUD used the Resource Council’s
                                    application to determine whether to fund a renewal of the
                                    Program grant. The Resource Council’s August 18, 1997
                                    application showed it did not expect to increase its current
                                    capability to house 49 persons (17 adults; 32 children)
                                    through the use of five leased houses (30 beds) and the
                                    Harmony House battered women shelter (15 beds).

                                    The HUD Hotline allegations were true that Harmony
 House Leased from                  House: (1) leased a house from Housing Council for
 Housing Council.                   transitional housing even though the house was vacant for
                                    several months and (2) during those months, the Director of
                                    Housing Council would not permit the house to be
                                    occupied, but when her daughter needed housing, did
                                    approve her daughter and family to occupy the house.
                                    Specifically, the Director of Housing Council had not

                                         Page 19                                    2001-FW-1005
Finding 2


                      placed homeless persons in the house for 274 consecutive
                      days (January 31, 1999, through October 31, 1999).
                      According to the Director of Housing Council, she did not
                      move anyone into the house because she was concerned
                      about the safety of a deck on the back of the house. The
                      Director stated she had the deck removed to resolve the
                      safety issue. The Director also explained the last family in
                      the house moved out June 28, 2000, because of bugs, since
                      that time there had been no demand for housing in the area.

                      During the 274-day period the house was not tenantable,
                      Harmony House continued to pay Housing Council the
                      $325 monthly lease payment even though the lease required
                      Housing Council to ” . . . make all repairs to the property
                      necessary to make the premises tenantable.” Further, the
                      Executive Director of Harmony House could have
                      terminated the month-to-month lease at any time through
                      September 30, 1999, because the lease was on a month-to-
                      month basis. Instead, on October 1, 1999, she extended the
                      lease to June 30, 2000. If the house was not habitable, then
                      Harmony House should not have paid the rent.

                      The directors used questionable housing practices when on
                      November 1, 1999, they permitted the Director of the
                      Housing Council Housing Council’s daughter (and her
                      family) to move into the house. During the 5-month period
                      the family occupied the house, Harmony House paid $325
                      in monthly rent to Housing Council even though the family
                      did not qualify for Program housing assistance. First, the
                      family was not homeless. Second, Harmony House
                      violated federal regulations prohibiting a conflict of interest
                      by employing and housing the Director of Housing
                      Council’s daughter.12

                      Excluding the 5-month period the Director of Housing
                      Council’s daughter and family occupied the house,
                      Harmony House and Housing Council only utilized the
                      house 21 percent of the time for eligible homeless
                      participants. The Executive Director of Harmony House
                      stated she terminated the Housing Council lease on
                      June 30, 2000. At this time, Harmony House had leased
                      the house for 638 days and paid Housing Council $6,825
                      from Program housing funds.

12
     See Finding 1.

2001-FW-1005                  Page 20
                                                                                                           Finding 2


                                                   After terminating the Housing Council lease on June 30,
     Other Houses Leased –                         2000, the directors only had one house leased for scattered
     Fiscal Years 1999-2000                        site transitional housing. Due to the house not being
                                                   occupied for the first 5 months of the lease, the demand for
                                                   transitional housing in the area appears to be questionable.
                                                   Further, the directors had terminated leases on all other
                                                   houses/units leased for transitional housing within 4 to 7
                                                   months of the initial lease dates. The following table
                                                   depicts the occupancy data for all transitional housing
                                                   leases13 in effect during the period October 1, 1998,
                                                   through July 17, 2000.

                                          OCCUPANCY DATA FOR ALL OTHER LEASES FOR
                                       TRANSITIONAL HOUSING OCTOBER 1, 1998 – JULY 17, 2000


                                                          TIME PERIOD         NUMBER
                            TYPE OF         RENT         OF HARMONY           OF RENT       NUMBER         NUMBER
                            RENTAL           PER          HOUSE RENT           DAYS         OF DAYS        OF DAYS
                              UNIT        MONTH            PAYMENTS            PAID        OCCUPIED        VACANT
                            Trailer *     $250           10/1/1998 –            123            56             67
                                                         1/31/1999
                            Apartment     $300           12/15/1998 –            182            152            30
                            **                           6/15/1999
                            House***      $300           11/12/1998 –            613            403            210
                                                         7/17/2000
                            House***      $400           10/8/1999 –             182            182            0
                            *                            4/7/2000
                            TOTALS                                               1,100          793           307

                                                   *   Lease terminated January 31, 1999.
                                                   ** Lease terminated June 15, 1999.
                                                   *** This house had not been occupied since May 16, 2000.
                                                   ****Unit leased for a Harmony House employee; lease terminated
                                                        April 7, 2000.

                                                   In one case, Harmony House apparently leased the house
                                                   specifically for another Harmony House employee and her
                                                   family. However, the employee and family did not qualify
                                                   for Program housing. Similar to the Director of Housing
                                                   Council’s daughter, the family was not homeless and the
                                                   family income exceeded the Program income limitation for
                                                   Newton County. The Executive Director of Harmony
                                                   House stated she was not aware the employee did not
                                                   qualify for Program assistance until she overheard the
                                                   employee discussing her spouse’s income and recognized
                                                   the family earnings exceeded Program income limitation.

13
     Does not include the Housing Council house.

                                                        Page 21                                        2001-FW-1005
Finding 2


                                                   The Executive Director stated she then immediately
                                                   dropped the employee from the program.

                                                   HUD officials were not aware the directors had reduced
     The Executive Director of                     their housing capacity because the Executive Director of
     Harmony House submitted                       Harmony House had overstated to HUD the number of
     an inaccurate progress                        persons housed. Specifically, in the fiscal year 1999
     report to HUD.                                progress report to HUD, the director reported Harmony
                                                   House had 241 (50 single individuals; 93 families) persons
                                                   housed on September 30, 1999, in scattered site transitional
                                                   housing and at the Harmony House women’s shelter.
                                                   However, Harmony House did not have the capacity to
                                                   house more than 30 persons (15 beds) at the Harmony
                                                   House women shelter and at September 30, 1999, Harmony
                                                   House had only two persons in the Harmony House leased
                                                   units. Therefore, Harmony House could not have had more
                                                   than 32 persons housed on September 30, 1999.

                                                   On January 25, 2001, HUD requested Harmony House to
                                                   submit a listing of persons housed on September 30, 1999.
                                                   On February 1, 2001, the Executive Director of Harmony
                                                   House submitted a list. The list did not address HUD’s
                                                   request. The Executive Director’s list did not specifically
                                                   identify persons housed on September 30, 1999. Instead,
                                                   the director listed 50 single individuals and 93 (284
                                                   persons) families who had received various types of
                                                   Program services during the period January 1997 through
                                                   December 1999. The list identified Harmony House
                                                   provided housing to 131 (18 single) individuals and 38
                                                   families (113 persons) persons during fiscal year 1999.14
                                                   Of the 131 persons, Harmony House housed only 6 families
                                                   (12 persons) in the scattered site transitional housing.

                                                   Harmony House did not have adequate records to support
                                                   the data submitted to HUD. During July 2000 discussions,
                                                   the Executive Director of Harmony House stated she did
                                                   not keep the housing data after preparing the annual
                                                   progress report. She stated each year “we pick a day” and
                                                   the Harmony House staff gathers the case files for all
                                                   Program participants and extracts the housing data from
                                                   each file. In any case, Harmony House’s case files were
                                                   incomplete. In one of three files reviewed, there was no

14
     This included: (a) payments for various individuals’ and families’ rent when landlords threatened eviction or their first month
     rent and rent/utility deposits at a new residence; (b) shelter for battered women; and (c) leased scattered site transitional
     housing.

2001-FW-1005                                                  Page 22
                                                                         Finding 2


                    documentation to show Harmony House provided housing
                    to the participants that Harmony House had included on the
                    housing list. In another file, the Harmony House’s case file
                    did not show the dates the participant moved in/out of the
                    Harmony House leased house.



Auditee Comments    The auditee categorically disagreed with the finding and
                    recommendations. They maintained the services provided
                    under the Housing Council’s reduced contracts payments
                    were consistent with the original contract from the
                    Resource Council. During the July 18, 2001 exit
                    conference, they said the Director of Housing Council did
                    the work without pay. They also contended HUD did not
                    have any requirements that the units are occupied everyday.



OIG Evaluation of   The plethora amount of documents did not support the
Comments            auditee’s contentions. While we agree HUD has no
                    requirement that Harmony House must maintain the units at
                    full occupancy, we disagree the purpose of the program was
                    to house family members and ineligible participants. We
                    noted the occupancy rates of the units to demonstrate the
                    need for the auditee to more effectively utilize its properties
                    and grant funds.



                    We recommend HUD:
Recommendations
                    2A.    Reevaluate the demand for transitional housing in the
                           area served by Harmony House.

                    2B. Require Harmony House to provide documentation to
                        support housing data in future annual reports.




                          Page 23                                    2001-FW-1005
Finding 2




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2001-FW-1005       Page 24
Management Controls
In planning and performing our audit, we obtained an understanding of the management
controls relevant to our audit. Management is responsible for establishing effective
management controls. Management controls, in the broadest sense, include the plan of
organization, methods, and procedures adopted by management to ensure that its goals are
met. Management controls include the processes for planning, organizing, directing, and
controlling program operations. They include the systems for measuring, reporting, and
monitoring program performance.




 Significant Controls.            We determined the following management controls were
                                  relevant to our audit objectives:

                                  ·   Allowable costs.
                                  ·   Conflict of interest.
                                  ·   Transitional housing practices.

                                  We evaluated all the relevant control categories identified
                                  above by determining the risk exposure and assessing
                                  control design and implementation.

                                  It is a significant weakness if management controls do not
 Significant Weaknesses.
                                  give reasonable assurance that resource use is consistent
                                  with laws, regulations, and policies; that resources are
                                  safeguarded against waste, loss, and misuse; and that
                                  reliable data is obtained, maintained, and fairly disclosed in
                                  reports. Based on our review, we believe the following
                                  items are significant weaknesses, in that Harmony House
                                  lacks the controls to ensure:

                                  ·   Allowable costs

                                  ·   Conflict of interest

                                  ·   Transitional housing practices

                                  These weaknesses are more fully described in the findings’
                                  section of this report.




                                       Page 25                                     2001-FW-1005
Management Controls




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2001-FW-1005              Page 26
                                                                                                              Appendix A


Schedule of Questioned Costs


                                                                      Type of Questioned Costs
          Issue                                                      Ineligible 1/  Unsupported 2/


1A Ineligible costs                                                   $119,803

1B Unsupported costs                                                                            $37,263




1
   Ineligible costs are costs charged to a HUD-financed or insured program or activity that the auditor believes are not allowable
   by law, contract, or federal, state, or local policies or regulations.
2 Unsupported costs are costs questioned by the auditor because the eligibility cannot be determined at the
  time of audit. The costs are not supported by adequate documentation or there is a need for a legal or
  administrative determination on the eligibility of the costs. Unsupported costs require a future decision
  by HUD program officials. This decision, in addition to obtaining supporting documentation, might
  involve a legal interpretation of Departmental policies and procedures.




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                             Appendix B

Auditee Comments




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2001-FW-1005       Page 50
                                                                               Appendix C

Distribution
Harmony House, Inc., Harrison, Arkansas
Newton County Resource Council, Jasper, Arkansas
Principal Staff
Secretary's Representative, 6AS
CFO, 6AF
Director, Accounting, 6AAF
Director, Office of Community Planning & Development, 6FD
Fort Worth ALO, 6AF (2)
CPD ALO, DOT (Room 7220)
Department ALO, FM (Room 2206)
CFO, F (Room 2206)
Acquisitions Librarian, Library, AS (Room 8141)

Armando Falcon
Director, Office of Federal Housing Enterprise Oversight
1700 G Street, NW, Room 4011, Washington, D.C. 20515

Sharon Pinkerton
Sr. Advisor, Subcommittee on Criminal Justice, Drug Policy &
Human Resources
B373 Rayburn House Ofc. Bldg., Washington, D.C. 20515

Cindy Fogleman
Subcommittee on General Oversight & Investigations, Room 212
O'Neill House Ofc. Bldg., Washington, D.C. 20515

Stanley Czerwinski
Associate Director, Housing. & Telecommunications Issues
US GAO, 441 G St. NW, Room 2T23, Washington, DC 20548

Steve Redburn
Chief, Housing Branch, OMB
725 17th Street, NW, Room 9226, New Exec. Ofc. Bldg., Washington, D.C. 20503

The Honorable Fred Thompson
Chairman, Committee on Govt Affairs,
340 Dirksen Senate Office Bldg.
U.S. Senate, Washington, D.C. 20510

The Honorable Joseph Lieberman
Ranking Member, Committee on Govt Affairs,
706 Hart Senate Office Bldg.
U.S. Senate, Washington, D.C. 20510


                                        Page 51                                2001-FW-1005
Appendix C


The Honorable Dan Burton
Chairman, Committee on Govt Reform,
2185 Rayburn Building
House of Representatives, Washington, D.C. 20515-6143

Henry A. Waxman
Ranking Member, Committee on Govt Reform,
2204 Rayburn Bldg.
House of Rep., Washington, D.C. 20515-4305

Andrew R. Cochran
Sr. Counsel, Committee on Financial Services
2129 Rayburn, HOB
House of Rep., Washington, D.C. 20510




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