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 THIS PAGE LEFT BLANK INTENTIONALLY 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 THIS PAGE LEFT BLANK INTENTIONALLY 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 THIS PAGE LEFT BLANK INTENTIONALLY 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. Page 27 2001-FW-1005 Appendix A THIS PAGE LEFT BLANK INTENTIONALLY 2001-FW-1005 Page 28 Appendix B Auditee Comments Page 29 2001-FW-1005 Appendix B 2001-FW-1005 Page 30 Appendix B Page 31 2001-FW-1005 Appendix B 2001-FW-1005 Page 32 Appendix B Page 33 2001-FW-1005 Appendix B 2001-FW-1005 Page 34 Appendix B Page 35 2001-FW-1005 Appendix B 2001-FW-1005 Page 36 Appendix B Page 37 2001-FW-1005 Appendix B 2001-FW-1005 Page 38 Appendix B Page 39 2001-FW-1005 Appendix B 2001-FW-1005 Page 40 Appendix B Page 41 2001-FW-1005 Appendix B 2001-FW-1005 Page 42 Appendix B Page 43 2001-FW-1005 Appendix B 2001-FW-1005 Page 44 Appendix B Page 45 2001-FW-1005 Appendix B 2001-FW-1005 Page 46 Appendix B Page 47 2001-FW-1005 Appendix B 2001-FW-1005 Page 48 Appendix B Page 49 2001-FW-1005 Appendix B THIS PAGE LEFT BLANK INTENTIONALLY 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 2001-FW-1005 Page 52
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)