oversight

Citizens' Complaint, Housing Authority of the City of Edinburg, Edinburg, Texas

Published by the Department of Housing and Urban Development, Office of Inspector General on 2001-06-29.

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

                                                   U.S. Department of Housing and Urban Development
                                                   Southwest District Office of Inspector General
                                                   819 Taylor Street, Suite 13A09
                                                   Fritz G. Lanham Federal Building
                                                   Fort Worth, Texas 76102
                                                   (817)978-9309 FAX (817)978-9316
                                                   http://www.hud.gov/oig/oigindex.html



June 29, 2001                                      2001-FW-1806


MEMORANDUM FOR:               Diana Armstrong
                              Director, Office of Public Housing, 6JPH

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

SUBJECT:        Citizens’ Complaint
                Housing Authority of the City of Edinburg
                Edinburg, Texas


We completed a limited review of the Housing Authority of the City of Edinburg (Authority)
because of a request for audit assistance from our Office of Investigations who had received a
complaint from concerned citizens. The complaint included allegations of missing assets and
records and abusive management practices at the Authority. The allegations involved various
HUD programs including: Low Rent, Comprehensive Grants, Public Housing Drug Elimination
Grants, Section 8 Voucher, Section 8 Certificate, and Section 8 Moderate Rehabilitation
Programs. The complaint alleged the Authority staff:

   •   Used the Authority’s Tax Exempt Certificate to purchase personal vehicles;

   •   Bypassed the Section 8 waiting list to provide housing for friends and relatives;

   •   Housed friends in Low Rent units at zero or reduced rents;

   •   Housed employees in Low Rent units at reduced rents;

   •   Paid landlords, who are friends, higher than authorized rents for Section 8 Moderate
       Rehabilitation units;

   •   Failed to maintain an inventory of equipment purchases in the Public Housing Drug
       Elimination Program;

   •   Took equipment from the Public Housing Drug Elimination Program; and

   •   Transferred money from the Public Housing Drug Elimination Program to a personal
       account.
                                                                                                 2



Our primary objective was to determine whether the allegations were valid. Generally, our
objectives were to:

(1) Determine if the Authority is adequately safeguarding cash and assets, vehicles, and inventory
in the public housing programs, including the Public Housing Drug Elimination Program and
Comprehensive Grant Program and

(2) Determine if the Authority is violating HUD regulations and their own admissions policies in
the Low Rent and Section 8 Programs and giving favorable treatment to Section 8 landlords. The
review covered the period from April 1996 through March 2001.

To accomplish our objectives, we:

   •   Reviewed the complaint and audit request;

   •   Interviewed HUD and Authority staffs, Internal Revenue Service Agents, Texas
       Department of Transportation staff, and other third parties;

   •   Reviewed supporting documentation provided by interviewees;

   •   Reviewed the Authority’s board minutes, personnel and admissions policies, bank
       statements, cancelled checks, check vouchers, general ledgers, inventory records,
       Independent Public Accountant audit reports, and tenant files from April 1, 1996, through
       March 31, 2001;

   •   Reviewed the Low Rent and Section 8 Annual Contributions Contracts, Public Housing
       Drug Elimination Program Agreements, and other supporting documentation in the HUD
       files; and

   •   Reviewed other applicable criteria including the Code of Federal Regulations (CFR),
       Office of Management and Budget (OMB) Circular A-87, Cost Principles, and HUD
       Guidebooks relating to the allegations and objectives.

We concluded that the allegations are not valid. Vehicle history records show that the Authority
registered all the vehicles purchased with the Tax Exempt Certificate. The vehicles are included
in the Authority’s vehicle inventory. Our review of the Low Rent and Section 8 Programs did
not indicate that the Authority bypassed people on the waiting list or paid or charged
inappropriate rents to friends, relatives, or employees. We were also able to account for the cash,
equipment, and assets related to the Public Housing Drug Elimination Program. However,
during the review, we found that the Authority did not maintain a control system to ensure
adequate safeguards for equipment. The Authority has already taken steps to address our
concerns. During our review, the Board of Commissioners adopted a policy to capitalize and
inventory equipment. We are recommending HUD to follow-up on the policy implementation to
                                                                                                3


ensure the adequacy of controls over equipment. We provided a draft and had an exit conference
with the Authority on May 9, 2001. The Authority agreed with our finding.

Background

The Authority has 469 units under the Public Housing (Low Rent) Program, 792 units under the
Section 8 Voucher Program, and 55 units under the Section 8 Moderate Rehabilitation Program.
The Authority received the following HUD subsidies from Fiscal Years 1996 through 2000:

 Fiscal Operating PHDEP COMP         Section 8 Section 8 Section 8        Total
  Year Subsidies Grants Grants       Vouchers Certificates Mod Rehab Subsidies
  1996    476,210             447,073 635,248 2,491,898         680,161   4,730,590
  1997    396,084 233,500 435,108 570,440 2,471,561             685,605   4,792,298
  1998    440,685 140,100 457,607 631,764 2,884,136             706,956   5,261,248
  1999    436,578 103,152 535,600 634,200 2,910,876             706,956   5,327,362
  2000    440,219 107,506 785,593 2,147,252 1,844,434           405,731   5,730,735
Totals $2,189,776 $584,258 $2,660,981 $4,618,904 $12,602,905 $3,185,409 $25,842,233

Within 60 days please give us, for each recommendation made in this memorandum report, a
status report on: (1) corrective action taken; (2) proposed corrective action and date to be
completed; or (3) why action is considered unnecessary. Also, please furnish us copies of any
correspondence or directive issued because of this audit.

If you have any questions, please call Jerry Thompson, Assistant District Inspector General
Audit, at (817) 978-9309.

Attachment
                                                                                                     4


                                                                                          Attachment


Finding - The Authority Did Not Maintain an Adequate Financial Management
          System for Control of Equipment

We found that the Authority failed to follow HUD requirements for maintaining an adequate
financial management system for control and effective management of its equipment. The
Authority did not:

      •    Maintain adequate accounting records that identify the source and application of funds
           utilized for equipment;
      •    Capitalize the equipment in the General Ledger;
      •    Maintain adequate inventory records; or
      •    Follow their capitalization policies.

Because of this, it was difficult to identify the purchased equipment or to determine what housing
program had incurred the costs. Thus, HUD has no assurance that Authority assets are
safeguarded or being used for their intended purpose.

HUD Requirements

The Low Rent Annual Contributions Contract (ACC) between HUD and the Authority
incorporates by reference the regulations for Public and Indian Housing Authorities contained in
Title 24 of the Code of Federal Regulations (CFR). Title 24 of the CFR, part 85, establishes the
uniform administrative rules for federal grants and cooperative agreements and sub-awards to
State, local, and Indian tribal governments. This part also establishes OMB Circular A-871 as the
cost principles for housing authorities to follow when determining allowable costs to federal
programs.

Title 24 CFR 85.20, requires grantees’ financial management systems to include fiscal and
accounting controls that permit the tracing of funds to adequately identify the source application
of the funds. Grantees must maintain effective control and accountability to adequately
safeguard cash, real, and personal property. Grantees must assure that they use assets solely for
authorized purposes.

Title 24 CFR 85.32 requires grantees to develop a control system to ensure adequate safeguards
to prevent loss, damage, or theft of the property. Property records must include a description of
the property, a serial number or other identification number, the source of the property, who
holds title, the acquisition date, cost of the property, and percentage of federal participation in the
cost, the location, use and condition of property, and any ultimate disposition data of the
property.


1
    Cost Principles for States and Local Governments.
                                                                                                                    5


OMB Circular A-87, Attachment B, Section 19, defines “equipment” as an article of
nonexpendable, tangible personal property having a useful life of more than 1 year and an
acquisition cost which equals the lesser of the capitalization policy of the governmental unit or
$5,000.

Equipment purchases were difficult to identify from Authority accounting records.

We performed a limited review of equipment purchases over $3002 from April 1, 1999, through
March 31, 2001. However, we could not use the asset accounts in the General Ledger to identify
equipment purchases because the Authority did not capitalize equipment. In addition, the
General Ledger did not contain sufficient detail to determine if the Authority purchased services,
equipment, or supplies from vendors. The Authority’s Finance Department provided a Vendor
History Report from the General Ledger that contained data from April 1999 through March
2001. The data in the report was limited to the Vendor Name, Vendor Number, Invoice Number,
Check Number, Date, and Check Amount. The data did not include sufficient detail of purchases
nor distinguish vendors by services and product purchases. Consequently, the Authority’s
Financial Management System was not adequate to identify equipment and material purchases.

The Authority did not capitalize equipment purchased for $51,897.

Because of the difficulties identifying equipment purchases, we had to perform a detailed review
of vendor files. The review was limited to files the Procurement Officer had created. The
Authority did not always keep a vendor file for all equipment and supplies purchased. The files
included purchase orders from the Authority’s Maintenance and Administration Departments, bid
tabulations, and the Authority Board of Commissioner’s approvals. However, the invoices and
check vouchers were not in the files. We were only able to identify 58 separate purchase orders
over $300. We scheduled over $209,000 in materials and supplies. Ten of the 58 purchase
orders, totaling $51,897, were for equipment purchases. The Authority did not capitalize this
equipment even though the cost ranged from $580 to $19,325. The Authority expensed the
equipment identified in the table below, including the stoves, refrigerators, power equipment, and
office furniture. The Authority did not capitalize and properly record the assets in the General
Ledger.3

We could not accurately identify appliances.

We were able to identify and locate all the equipment purchased except the stoves, refrigerators,
and water heaters. According to Authority staff, these appliances are currently in the Low Rent
units.

2
    The Capitalization Policy in effect from January 19, 1993, through March 16, 2000, required the capitalization of
    all items of equipment that cost more than $300 and have a useful life of more than 1 year. At a minimum, the
    Authority will capitalize major items such as ranges, refrigerators, motor vehicles, power equipment, office
    furniture, and office equipment. From March 16, 2000, to March 29, 2001, the policy changed to capitalize only
    equipment over $1000 with a useful life of more than 1 year.
3
    During the period from April 1, 1996, through March 31, 2001, the only asset capitalized was a 1999 vehicle
    purchased for the Public Housing Drug Elimination Program.
                                                                                                  6



Purchase Orders         Equipment Purchased            Equipment Located
       1          (5) Stoves                           Could not be identified
       2          (55) Refrigerators                   Could not be identified
       3          (5) Stoves                           Could not be identified
       4          (1) Air Conditioner                  Yes
       5          (1) Air Compressor                   Yes
       6          (40) Water Heaters                   Could not be identified
       7          (2) Time Clocks                      Yes
       8          (1) Okidata Microcline Dot Matrix    Yes
       9          (1) Floor Buffer                     Yes
      10          (1) Tractor Sprayer                  Yes

Because the Authority has not capitalized equipment or maintained adequate inventory records,
HUD had no assurance that the Authority is safeguarding assets or using them for their intended
purpose. However, the Authority has since completed the inventory of stoves, refrigerators, and
water heaters at the low rent sites. Inventory records show the site or development, unit or
apartment number, the model and serial numbers of each stove, refrigerator, and water heater.

The Executive Director agreed with our conclusions and results of the review. She was not
aware that the former Authority Finance Department Staff were not following the capitalization
policies. She stated that HUD, the Fee Accountants, Independent Auditors, or the Authority
Finance Department had never brought this issue to her attention.

The Authority Board of Commissioners has recently taken action and approved a new
capitalization policy. The new policy does not have a dollar threshold and states they will
capitalize all items of equipment with a useful life of more than 1 year. The new capitalization
policy will be effective immediately. The implementation of the policy, physical inventories, and
the entry of the assets into the computer inventory module should allow the Authority to
accurately identify assets with accounting records and to know their physical location.

Although the Authority has taken action to comply with HUD requirements, we believe the new
capitalization policy may not be cost effective to implement because the policy does not establish
a dollar value at which to begin capitalizing equipment. We believe the original $300 threshold
for capitalizing equipment was reasonable for the type of equipment purchases the housing
authority made.

Recommendations:

We recommend HUD require the Authority to provide evidence showing:

1A.    They have implemented the new capitalization policy and accounting controls that permit
       the tracing of funds to adequately identify the source and application of funds in the
       General Ledger Accounts. At a minimum, the Authority should capitalize and inventory
                                                                                               7


      all new purchases of stoves, refrigerators, water heaters, vehicles, power equipment,
      office furniture, and office equipment.

1B.   The current property and inventory records comply with the requirements of 24 CFR
      85.32 to ensure adequate safeguards to prevent loss, damage, or theft of the property.
                                                                                    8


DISTRIBUTION

Secretary's Representative, 6AS
Comptroller, 6AF
Director, Accounting, 6AAF
Director, Office of Public Housing, 6JPH
Deputy Secretary, SD (Room 10100)
Chief of Staff, S (Room 10000)
Office of General Counsel, C (Room 10214)
Assistant Secretary for Housing/FHA, H (Room 9100)
Assistant Secretary for CPD, D (Room 7100)
Assistant Secretary for Public & Indian Housing, P (Room 4100)
Office of Policy Development and Research (Room 8100)
Assistant Secretary for FHEO, E (Room 5100)
A/S for Congressional and Intergovernmental Relations, J (Room 10120)
Assistant Secretary for Administration, A (Room 10110)
Assistant Secretary for Public Affairs, W (Room 10222)
FTW ALO, AF (2)
Public Housing ALO, PF (Room P8202) (2)
Dept. ALO, FM (Room 2206) (2)
Acquisitions Librarian, Library, AS (Room 8141)
Director, Hsg. & Comm. Devel. Issues, US GAO, 441 G St. NW, Room 2474
     Washington, DC 20548 Attn: Stan Czerwinski
Henry A. Waxman, Ranking Member, Committee on Govt Reform,
     House of Rep., Washington, D.C. 20515
The Honorable Fred Thompson, Chairman, Committee on Govt Affairs,
     U.S. Senate, Washington, D.C. 20510
The Honorable Joseph Lieberman, Ranking Member, Committee on Govt Affairs,
     U.S. Senate, Washington, D.C. 20510
Cindy Fogleman, Subcomm. on Gen. Oversight & Invest., Room 212,
     O'Neill House Ofc. Bldg., Washington, D.C. 20515
The Honorable Dan Burton, Chairman, Committee on Govt Reform,
     House of Representatives, Washington, D.C. 20515
Deputy Staff Director, Counsel, Subcommittee on Criminal Justice, Drug Policy &
      Human Resources, B373 Rayburn House Ofc. Bldg., Washington, D.C. 20515
Steve Redburn, Chief, Housing Branch, Office of Management and Budget
     725 17th Street, NW, Room 9226, New Exec. Ofc. Bldg., Washington, D.C. 20503
Andrew R. Cochran, Sr. Counsel, Committee on Financial Services,
     House of Rep., Washington, D.C. 20510
Inspector General, G
Executive Director, Edinburg Housing Authority
Board Chairman, Edinburg Housing Authority
Mayor, City of Edinburg