oversight

Saratoga Springs Housing Authority, Low-Rent Housing Program, Saratoga Springs, New York

Published by the Department of Housing and Urban Development, Office of Inspector General on 2001-04-24.

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                AUDIT REPORT




      SARATOGA SPRINGS HOUSING AUTHORITY
          LOW-RENT HOUSING PROGRAM
          SARATOGA SPRINGS, NEW YORK


                      2001-NY-1003

                      JULY 24, 2001



                     OFFICE OF AUDIT
                   NEW YORK/NEW JERSEY


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                                                                 Issue Date
                                                                         July 24, 2001
                                                                 Audit Case Number
                                                                         2001-NY-1003




TO: Joan K. Spilman, Director, Office of Public Housing, 2CPH


FROM: Alexander C. Malloy, District Inspector General for Audit, 2AGA


SUBJECT:       Saratoga Springs Housing Authority
               Low-Rent Housing Program
               Saratoga Springs, New York

We completed an audit of the Saratoga Springs Housing Authority, referred to herein as the Public
Housing Authority (PHA) pertaining to its Federal Low-Rent Housing (LRH) Program. The audit
showed that the PHA needs to improve operating controls to ensure that assets are safeguarded
against waste and loss, and to increase assurance that its programs are operated in a way that
achieves full compliance with the terms and conditions of the Annual Contributions Contract
(ACC) and other applicable U.S. Department of Housing and Urban Development (HUD)
regulations and requirements.

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

Should you or your staff have any questions, please contact William H. Rooney, Assistant District
Inspector General for Audit, at 212-264-8000, extension 3976.




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Executive Summary
We performed an audit of the Saratoga Springs Housing Authority, herein referred to as the Public
Housing Authority (PHA), pertaining to its Federal Low-Rent Housing (LRH) Program. The
primary objectives of the audit were to evaluate the PHA’s internal controls for safeguarding cash
and other assets, and to determine whether it complied with the terms and conditions of the Annual
Contributions Contract (ACC) regarding procurement, compensation to employees, leave records
and travel costs.




                                     The audit disclosed that the PHA is generally providing
 Results                             decent, safe and sanitary housing to its tenants. However,
                                     the PHA did not always comply with program requirements
                                     and regulations pertaining to various activities of its LRH
                                     program.

                                     The noncompliances were generally caused by inadequate
                                     controls, which led to the ineligible and unsupported use of
                                     funds, as discussed in the findings.

                                     The results of our audit are discussed in the findings of this
                                     report and are summarized below.

                                     1. Improvement is Needed in the System of Procurement

                                         Contrary to HUD regulations and requirements, the
                                         PHA did not follow Federal procurement regulations in
                                         awarding work for consulting and accounting services.
                                         The work was awarded without any Request For
                                         Proposals (RFPs) being prepared and without written
                                         contracts being executed. The PHA elected not to
                                         follow applicable procurement requirements. As a
                                         result, program funds were expended for consulting and
                                         accounting services that were not determined to be
                                         reasonable; therefore, the amount paid totaling
                                         $145,150 is considered unsupported.

                                     2. Ineligible and Unsupported Payments Were Made From
                                        the General Fund

                                         The PHA did not maintain adequate control over
                                         disbursements from its General Fund. The controls
                                         were inadequate because procedures were not
                                         implemented to ensure that costs were eligible and

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Executive Summary


                       properly supported prior to payment. As a result, the
                       PHA charged its Low-Rent Housing (LRH) program
                       with ineligible and unsupported costs totaling
                       $2,690.26 and $31,557.60 respectively.


                    3. Need to Execute a Current Contract for Supplement
                       Police Services

                       The PHA does not have a contract with the City for
                       supplemental police services provided under the 1999,
                       Drug Elimination Program (DEP). Instead, the services
                       are being monitored under a contract that expired
                       several years ago. The lack of a current contract is
                       contrary to PHA and HUD requirements and is
                       attributed to oversight by the PHA. As a result,
                       assurance that the related costs incurred were proper
                       and reasonable has been diminished and the PHA has
                       incurred costs of $27,439.57 that are unsupported.

                    4. Questionable     Compensation          Payments        to
                       Administrative Employees

                       During the years 1999 and 2000, payments were made
                       from the Drug Elimination Program (DEP) to certain
                       administrative employees that were in addition to their
                       salaries. The payments were made because the PHA
                       believed that the additional compensation was earned
                       by the employees. In our opinion, the payments may
                       not represent a necessary and reasonable use of program
                       funds. Accordingly, the amount charged the DEP for
                       the payments totaling $18,000 is considered to be
                       unsupported.

                    5. Ineligible and Unsupported Travel Costs

                       The PHA does not have adequate control over its travel
                       activities to ensure that travel costs are necessary,
                       reasonable and adequately supported, as required. As a
                       result, ineligible and unsupported travel costs of $47.60
                       and $3,333.67 respectively have been incurred. The
                       travel deficiencies are attributed to the PHA’s general
                       unfamiliarity with the procedural and documentation
                       requirements.


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                                                        Executive Summary



                  6. Discrepancies Exist in Employee’s Leave Records

                     Contrary to its policy and procedures, our review of
                     employee leave records showed that: (1) employees
                     were provided with excessive amounts of vacation
                     leave; (2) an employee was allowed to use more
                     vacation leave than was earned; (3) an employee was
                     paid for time while on unpaid leave;          (4) two
                     administrative employees received compensatory time
                     while a third employee did not; and (5) some leave
                     requests were signed by employees other than the one
                     requesting the leave, while others were not signed, or
                     not approved or were approved by the employee
                     requesting the leave. These weaknesses are attributed
                     to the PHA’s general unfamiliarity with applicable
                     requirements. As a result, the PHA could incur
                     personnel costs that may not be considered necessary or
                     reasonable.


                  7. Need to     Strengthen    Administrative    Accounting
                     Controls

                     Our review showed various deficiencies involving
                     administrative and accounting controls and procedures
                     that have weakened the overall system of internal
                     control. The deficiencies occurred because procedures
                     were not implemented to ensure that adequate
                     administrative and accounting controls were in place to
                     meet program requirements. As a result, the PHA does
                     not have adequate assurance that funds are properly
                     safeguarded against waste and loss and that its housing
                     programs are administered in accordance with all
                     applicable Federal regulations and requirements.

                     As part of each finding, we have recommended certain
Recommendations      actions which we believe will correct the problems
                     discussed in the findings and strengthen the PHA’s
                     administration of its housing programs.

                     The results of the audit were discussed with PHA
                     officials during the course of the audit and at an exit
                     conference held on June 1, 2001. The exit conference
                     was attended by:

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Executive Summary



                    PHA Officials

                    Gerard Zabala, Executive Director
                    Edward Spychalski, Project Manager
                    Lillian Miles, Accountant

                    Office of Inspector General (OIG) Representatives

                    William H. Rooney, Assistant District Inspector
                                              General for Audit
                    Thomas Cosgrove, Senior Auditor

                    The PHA generally agreed with the findings and
                    recommendations. The PHA comments are included as
                    Appendix D to this report.




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Table of Contents
Management Memorandum                                                    i



Executive Summary                                                     iii



Introduction                                                             1



Findings

1.   Improvement is Needed in the System of Procurement              3


2.   Ineligible and Unsupported Payments Were Made From
     the General Fund                                                    7


3.   Need to Execute a Current Contract for Supplemental
     Police Services                                                     9

4.   Questionable Compensation Payments to Administrative
     Employees                                                       11


5.   Ineligible and Unsupported Travel Costs                         13


6.   Discrepancies Exist in Employee’s Leave Records                 15


7.   Need to Strengthen Administrative and Accounting
     Controls                                                        19



Management Controls                                                  23




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Table of Contents




Appendices


   A Schedule of Ineligible and Unsupported Costs            25


   B Schedule of Ineligible and Unsupported Payments
     From the General Fund                                   27

   C Schedule of Ineligible and Unsupported Travel
     Costs                                                   29


   D Auditee Comments                                        31


   E Distribution                                            35



Abbreviations

ACC            Annual Contributions Contract
CFR            Code of Federal Regulations
DEP            Drug Elimination Program
HUD            Department of Housing and Urban Development
LRH            Low-Rent Housing
OIG            Office of Inspector General
OMB            Office of Management and Budget
PHA            Saratoga Springs Housing Authority
RFP            Request for Proposal




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Introduction
The PHA is governed by a seven member Board of Commissioners. Five members are appointed
by the Mayor and serve five year terms. The other two members are elected by the tenants and
serve two year terms. The Board establishes policy and takes official action as required by Federal
and State law. The Executive Director, who is responsible for managing the overall day-to-day
operations of the PHA, is Gerard Zabala. The books and records are maintained at the PHA’s
administration office located at Stonequist Apartments, 1 South Federal Street, Saratoga Springs,
New York 12866.

The PHA’s fiscal year is from July 1, through June 30. The PHA operates four developments
containing 339 units. The developments consist of 133 family units and 206 senior units. In
addition, the PHA administers 106 units of Section 8 housing along with Drug Elimination and
Comprehensive Grant Programs.



                                      The objectives of the audit were to evaluate internal controls
 Audit Objectives                     for safeguarding cash and other assets and to determine
                                      whether the PHA complies with the terms and conditions of
                                      the ACC and other applicable regulations and requirements.

                                      We evaluated controls and procedures over procurement,
 Audit Scope and
                                      compensations to employees and employees leave records
 Methodology
                                      and travel. We also determined whether costs charged to
                                      the PHA’s housing programs were reasonable and eligible;
                                      and evaluated procedures and practices relating to general
                                      accounting and administrative controls.

                                      Audit procedures included an examination of records and
                                      files, interviews with PHA staff and visits to the housing
                                      developments. In addition, the PHA’s policies, procedures
                                      and practices for managing its operation were reviewed.
                                      Specific audit testing was based primarily on judgmentally
                                      or selected samples representative of the transactions in the
                                      area reviewed.

                                      The sampling technique for the five findings that involve
                                      ineligible and/or unsupported costs were as follows:

                                      •= All transactions pertaining to consulting services and
                                         accounting services were reviewed.
                                      •= Supporting     documentation     was     scanned    for
                                         approximately 3,000 payments processed and 50
                                         payments with indicators of deficiencies were reviewed
                                         in detail.

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Introduction


               •= A sampling technique was not needed for the area of
                  supplemental police services since only one contract
                  was involved.
               •= All payments of additional compensation to employees
                  were examined.
               •= 13 payments for out-of-town travel costs were reviewed
                  and found deficient. The amount of the costs reviewed
                  represented 31 percent of the costs charged to travel
                  during the audit period.

               The audit covered the period from July 1, 1990 to June 30,
               2000. However, activity prior and subsequent to this period
               was reviewed, as we deemed necessary. The audit field
               work was conducted between August 22, 2000 and June 1,
               2001.

               A copy of this audit report has been provided to the
               Executive Director of the PHA.

               The audit was conducted in accordance with generally
               accepted government auditing standards.




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                                                                                        Finding 1



       Improvement is Needed in the System of
                   Procurement
Contrary to HUD regulations and requirements, the PHA did not follow Federal procurement
regulations in awarding work for consulting and accounting services. The work was awarded
without any Request For Proposals (RFPs) being prepared and without written contracts being
executed. The deficiencies can be attributed to the PHA arbitrarily electing not to follow the
applicable procurement requirements in awarding the work. As a result, program funds were
expended for consulting and accounting services that were not determined to be reasonable;
therefore, the amount paid totaling $145,150 is considered unsupported.



                                    The details pertaining to the deficiencies are described
                                    below.

                                    Consulting and Accounting Services

                                    A review of the PHAs process for awarding work for
 Improper award of work             consulting and accounting services showed that it bypassed
 for consulting and                 the Federal procurement regulations. Rather than prepare
 accounting services                Request For Proposals (RFPs) for the services and solicit
                                    responses in order to achieve open and free competition, the
                                    PHA simply granted the work to firms it desired. The PHA
                                    believed that the firms were familiar with the operations, and
                                    that the method would provide a smooth transition of the
                                    services. Hence, the PHA failed to promote full and open
                                    competition when soliciting the services and has inadequate
                                    assurance that either the costs or the services represent those
                                    that could be best attained.

                                    Since the services involved represent consulting and
                                    accounting services, the procurement requirements pertaining
 Criteria                           to competitive proposals would apply.             Regarding
                                    competitive proposals, Section 85.36(d)(3) of the
                                    Consolidated Federal Regulations (CFRs) stipulates that:
                                    The technique of competitive proposals is conducted with
                                    more than one source submitting an offer, and either a fixed
                                    price or cost-reimbursement type contract is awarded.

                                       •= RFPs will be solicited from an adequate number of
                                          qualified sources.

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Finding 1


                   •= Grantees and subgrantees will have a method for
                      conducting technical evaluations of the proposals
                      received and for selecting awardees.
                   •= Awards will be made to the responsible firm whose
                      proposal is most advantageous to the program, with
                      price and other factors considered.

                Section 85.36(c ) (3) of the CFRs provides that procedures
                for procurement transactions incorporate a clear and accurate
                description of the technical requirements for the material,
                product, or service to be procured. The intent of the
                regulation is to promote full and open competition when
                conducting procurement transactions.

                Apart from the absence of competition and no written
Documentation   contracts having been executed for the services, various
deficiencies    documentation deficiencies were noted. They include:

                Consulting Services

                A total of 17 invoices were submitted for payment. The
                supporting documentation for the payments showed:

                       •= In 14 instances, where timesheets were
                          submitted, the timesheets generally did not
                          identify what services were provided. In two
                          other instances, timesheets were not submitted to
                          show the days and hours that services were
                          provided and in the remaining instance, the
                          voucher and invoice could not be located.
                       •= In five instances, the billing was not signed by the
                          consultant.
                       •= In one instance, the timesheet was not signed by
                          the consultant.
                       •= The billing, for the entire month of February
                          1999, was dated February 1, 1999 and the total
                          hours worked were overstated by 10 hours.

                Accounting Services

                Six invoices were submitted for payment. Our review
                showed that the invoices do not indicate the dates that
                specific services were provided.


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                                                                       Finding 1


                  Chapter II of the Public and Indian Low-Rent Housing
                  Technical Accounting Guide 7510.1 stipulates that the PHA
                  must maintain source documentation and files that support
                  the financial transactions recorded in the books of account,
                  and provide an adequate audit trail. This includes such items
                  as documents identifying the source of cash receipts,
                  canceled checks, and paid bills. In addition, Section 2, Part
                  A of the ACC provides that operating expenditures shall
                  mean all costs incurred by the PHA for administration,
                  maintenance, and other costs and charges that are necessary
                  for the operation of the project.

                  Since payments were made for consulting and accounting
                  costs without the PHA following the Federal procurement
                  regulations and since the payments contained various
                  documentation deficiencies, the cost incurred may not
                  represent necessary or reasonable operating expenditures.
                  Therefore, the amount paid during the audit period of
                  $145,150 is considered unsupported.

                  A breakdown of the unsupported amount is as follows:

                        Consulting costs from June 1998
                        Through October 1999                      $134,400

                        Accounting costs from June 1998
                        To May 15, 2000                             10,750
                                                                   $140,150


Recommendations   We recommend that you require the PHA to:

                  1A.      Adopt necessary controls to ensure compliance with
                           Federal procurement regulations.

                  1B.      Establish procedures that will ensure that adequate
                           documentation for services rendered is obtained prior
                           to payment.

                  1C.      Provide justification for the unsupported costs so that
                           an eligibility determination can be made.

                  1D.      Reimburse, from non-Federal funds, the amount of
                           any unsupported costs determined to be ineligible.


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                                                                                        Finding 2




    Ineligible and Unsupported Payments Were
           Made From the General Fund
The PHA did not maintain adequate control over disbursements from its General Fund. The
controls were inadequate because procedures were not implemented to ensure that costs were
eligible and properly supported prior to payment. As a result, the PHA charged its Low-Rent
Housing (LRH) program with ineligible and unsupported costs totaling $2,690.26 and $31,557.60
respectively.



                                   Initially, we selected disbursements at random to test for
 Examination of                    compliance.     The examination disclosed a variety of
 disbursements                     deficiencies as well as ineligible and unsupported costs.
                                   Therefore, the examination was expanded to include
                                   disbursements throughout the period from July 1998 through
                                   June 2000. The items contained in this finding should not be
                                   considered all inclusive; rather, they represent only those
                                   ineligible and unsupported costs that were found as a result
                                   of our tests.

                                   Ineligible costs include payments for ineligible travelers,
 Ineligible and
                                   sales tax, and penalty and interest charges. Unsupported
 unsupported costs
                                   costs include payments for which:            (1) there is no
                                   documentation to support the costs, other than the check
                                   voucher, or the documentation available is inadequate; (2)
                                   there is no requisition or purchase order; (3) receiving reports
                                   are not signed to indicate receipt of supplies, and (4) a
                                   service contract was signed after payment was made.

                                   These ineligible and unsupported costs are further described
                                   in Appendix B of this report.

                                   Attachment B of Office of Management and Budget (OMB)
  Criteria                         Circular A-87 provides the standards for the determination
                                   of allowable and unallowable costs. Section 4, Part A of the
                                   ACC provides that the PHA shall operate each project in a
                                   manner that promotes serviceability, economy, efficiency and
                                   stability of the project. In addition, Section 2, Part A of the
                                   ACC provides that operating expenditures shall be necessary
                                   for the operation of the project.


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Finding 2


                  The PHA must be reminded that incurring many of these
                  costs reduces assurance that the projects were operated
                  economically and efficiently and that all costs incurred were
                  necessary. Thus, the ineligible costs should be repaid from
                  non-Federal funds, and the PHA should be required to
                  submit additional documentation and justification for the
                  unsupported costs.



Recommendations   We recommend that you require the PHA to:

                  2A.     Implement procedures that will prohibit the
                          incurrence of ineligible costs and ensure that all
                          costs are properly supported prior to payment. The
                          procedures should also ensure that all costs meet the
                          economy, efficiency and necessity requirements.

                  2B.     Reimburse the Federal program, from non-Federal
                          funds, the amount of the ineligible costs.

                  2C.     Provide additional documentation and information as
                          justification for the unsupported costs so that an
                          eligibility determination can be made.

                  2D.     Reimburse the Federal program, from non-Federal
                          funds, the amount of any unsupported costs
                          determined to be ineligible.




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                                                                                          Finding 3


         Need to Execute a Current Contract for
             Supplemental Police Services
The PHA does not have a contract with the City for supplemental police services provided under
the 1999 Drug Elimination Program (DEP). Instead, the services are being monitored under a
contract that has expired. The lack of a current contract is contrary to PHA and HUD requirements,
which is attributed to a lack of proper oversight by the PHA. As a result, assurance that the related
costs incurred were proper and reasonable has been diminished; thus, related costs of $27,439.57
are considered unsupported.



                                      As part of its 1999 DEP, the PHA is utilizing the City Police
                                      Department to weed out crime and drug use at its Low-Rent
 Background                           Housing (LRH) developments. In its application for funding
                                      to HUD, the PHA advised that through the use of prior DEP
                                      funds the PHA and the City Police Department executed a
                                      law enforcement contract to provide the PHA with police
                                      services over and above the baseline services provided to the
                                      City. The PHA further advised HUD that 1999 DEP funds
                                      totaling $52,500 would be used to continue the contracted
                                      community policing services.

                                      Our review of the 1999 DEP law enforcement costs incurred
                                      through December 31, 2000 showed:

 Expired contract used for                •= The most recent contract executed with the City for
 reimbursement                               supplemental police services was on March 18, 1997.
                                             The contract provided for reimbursable costs not to
                                             exceed $98,475. More important, Article V of the
                                             contract stipulated that the term of the contract was
                                             for one year. Thus, the contract expired in March
                                             1998.

   Errors on reimbursement                •= Errors were noted on the documentation of one of the
   requisition                               requests for reimbursement submitted by the City.
                                             An Investigator’s weekly time sheet for August 9,
                                             2000 showed 5 hours of regular time charged. Yet,
                                             overtime hours were requested for reimbursement
                                             and the calculation, even at the overtime rate, resulted
                                             in an overcharge to the PHA of $102.26.




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Finding 3


                  Section 1.4 of the PHA’s Procurement Policy provides that
                  the Contracting Officer shall ensure that contracts and
    Criteria      modifications are in writing and clearly specify the desired
                  supplies or services. Section 1.8 of the Policy states that the
                  PHA may enter into State and local intergovernmental
                  agreements to purchase or use common goods and services.
                  The decision to use an intergovernmental agreement or
                  conduct a direct procurement shall be based on economy and
                  efficiency.

                  Office of Management and Budget (OMB) Circular A-87
                  provides that to be allowable under a grant program, costs
                  must be necessary and reasonable for the proper and efficient
                  administration of the program.

                  Reimbursing the City for police services without having an
                  executed contract precludes the PHA from assuring that the
                  costs incurred are necessary and reasonable and that all of the
                  desired services have been provided. The lack of a written
                  contract also prevents the PHA from maintaining a basis to
                  differentiate between baseline and supplemental services.
                  Therefore, the costs incurred for law enforcement services of
                  $27,439.57 are unsupported.



Recommendations   We recommend that you require the PHA to:

                  3A.      Execute a contract for supplemental police services
                           that will specifically identify and delineate the
                           services desired.

                  3B.      Provide additional documentation and information as
                           justification for the unsupported costs, including the
                           overcharge, so that an eligibility determination can be
                           made.

                  3C.      Reimburse the General Fund, from non-Federal
                           funds,   the amount of any unsupported costs
                           determined to be ineligible.




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                                                                                           Finding 4


       Questionable Compensation Payments to
              Administrative Employees
During the years 1999 and 2000, payments were made from the Drug Elimination Program (DEP)
to certain administrative employees that were in addition to their salaries. The payments were made
because the PHA believed that the additional compensation was earned by the employees. In our
opinion, the payments may not represent a necessary and reasonable use of program funds.
Accordingly, the amount charged the DEP for the payments totaling $18,000 is considered to be
unsupported.



                                      The 1998 and 1999 applications for funding under the DEP
                                      were prepared by the PHA staff. Specifically, the task was
 Background                           assigned to the Tenant Relations Assistant, with assistance
                                      from the administrative staff, who ensured that not only was
                                      the necessary information obtained for the application but
                                      that all of the day to day administrative work was performed
                                      in a timely manner. Since the work required, in preparing
                                      the applications for funding, was in addition to their regularly
                                      assigned duties, the PHA believed that additional
                                      compensation of $2,000 was warranted, and therefore
                                      included it in the operating budget. For the 1998 application,
                                      five employees received additional compensation, while four
                                      employees were involved with the 1999 application.

                                      Our review of the compensation payments showed:
   Deficiencies found
                                         •= Performance evaluations were not prepared for
                                            administrative employees. Hence, there was no
                                            documentation to indicate or justify that the
                                            employees performed at a level worthy of additional
                                            compensation.

                                         •= Section 17 of the Personnel Policy specifically
                                            prohibits the payment of bonuses to employees.
                                            Thus, if the additional compensation was intended as
                                            a bonus, the costs would be ineligible.

                                      Attachment B of the Office of Management and Budget
   Criteria                           (OMB) Circular A-87 provides the standards for the
                                      determination of allowable and unallowable costs. Among
                                      other documents, Attachment B, Paragraph C of the Circular

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Finding 4


                  provides that costs must be necessary and reasonable for
                  proper and efficient performance and administration of
                  Federal awards. In addition, Title 24, CFR Part 85.40 of the
                  Code of Federal Regulations provides that Grantees are
                  responsible for managing the day to day operations of grant
                  and subgrant supported activities to assure compliance with
                  applicable Federal requirements.

                  The lack of documentation to justify the validity of the
                  payments, together with the Personnel Policy stipulation that
                  precludes the payment of bonuses, has prevented an audit
                  determination from being made on the propriety of the
                  compensation.     Therefore, the $18,000 paid to the
                  administrative employees during 1999 and 2000 is
                  unsupported.


Recommendations   We recommend that you require the PHA to:

                  4A.      Implement procedures that will only reward
                           exceptional performance demonstrated by individual
                           employees based on their performance evaluation.

                  4B.      Provide you with evidence to show that the payment
                           did not violate the Personnel Policy prohibition
                           against bonuses so that an eligibility determination
                           can be made.

                  4C.      Reimburse the DEP from non-Federal funds, the
                           amount of any unsupported costs determined to be
                           ineligible.




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                                                                                         Finding 5


       Ineligible and Unsupported Travel Costs
The PHA does not have adequate control over its travel activities to ensure that travel costs are
necessary, reasonable and adequately supported, as required. As a result, ineligible and
unsupported travel costs of $47.60 and $3,333.67 respectively have been incurred. The travel
deficiencies are attributed to the PHA’s general unfamiliarity with the procedural and
documentation requirements.



                                     We reviewed 13 payments for out-of-town travel costs
 13 payments were                    incurred during the audit period. Deficiencies were found in
 examined                            all 13 payments reviewed. The deficiencies involved both
                                     ineligible and unsupported costs.

                                     The types of ineligible and unsupported travel costs include:

                                     Ineligible travel costs represent penalty and interest charges
 Ineligible and                      that were included on the PHAs credit card statement.
 unsupported travel costs            Attachment B of Office of Management and Budget (OMB)
                                     Circular A-87 prohibits the payment of penalty and interest
                                     charges. In addition, the costs do not represent necessary or
                                     reasonable costs and are considered ineligible.

                                     Unsupported costs include payments for travel costs where:
                                     (1) there was no documentation to support the cost, other
                                     than the check voucher; (2) the supporting documentation
                                     does not explain why the cost was incurred; (3) there was no
                                     Board Resolution to approve the trip; (4) receipts were not
                                     available for a portion of the costs incurred; and (5) the
                                     traveler was paid per diem, but the PHA Travel Policy
                                     provides for actual costs.

                                     The ineligible and unsupported costs are further described in
                                     Appendix C of this report.

                                     The PHA Travel Policy provides that each trip to a
                                     destination outside of the jurisdiction of the PHA shall
 Criteria                            specifically have prior authorization by resolution of the
                                     board approving the trip as essential to the conduct of its
                                     programs. In addition, the Policy provides that the costs for
                                     lodging and meals will be reimbursed on an actual cost
                                     basis.    Part A, Section 2 of the ACC defines operating
                                     expenditures as those necessary for the operation of the

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Finding 5


                  project. In addition, Chapter II of the Public and Indian
                  Housing Low-Rent Technical Accounting Guide 7510.1
                  stipulates that the PHA must maintain source documents
                  and files that support the financial transactions recorded in
                  the books of account, and that provide an adequate audit
                  trail. This includes such items as documents identifying the
                  source of cash receipts, canceled checks, and paid bills.



Recommendations   We recommend that you require the PHA to:

                  5A.      Implement procedures to ensure that documentation
                           is obtained to support all costs prior to
                           reimbursement.

                  5B.      Reimburse from non-Federal funds, the amount of
                           the ineligible costs.

                  5C.      Provide additional documentation for the
                           unsupported costs so that an eligibility determination
                           can be made.

                  5D.      Reimburse from non-Federal funds, the amount of
                           any unsupported costs determined to be ineligible.




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                                                                                        Finding 6


       Discrepancies Exist in Employee’s Leave
                      Records
Contrary to its policy and procedures, our review of PHA employees leave records showed that:
(1) employees were provided with excessive amounts of vacation leave; (2) an employee was
allowed to use more vacation leave than was earned; (3) an employee was paid for time while on
unpaid leave; (4) two administrative employees received compensatory time while a third employee
did not; and (5) some leave requests were signed by employees other than the one requesting the
leave, while others were either not signed, not approved, or were approved by the employee
requesting the leave. These weaknesses are attributed to the PHA’s general unfamiliarity with
applicable requirements. As a result, the PHA could have incurred personnel costs that may not be
considered necessary or reasonable. These matters are discussed in greater detail below.



                                     Employees Provided Excessive Amounts of Vacation Leave

                                     In July 2000, the PHA attempted to reconstruct and
   Types of employee’s leave         consolidate employee leave balances. The method of
   record discrepancies              reconstruction consisted of recording the employee’s
                                     unused balance at June 30, 2000 and adding to it the
                                     amount of leave an employee would accrue from their latest
                                     employment anniversary date to June 30, 2000. However,
                                     we found that because the method of reconstruction was
                                     faulty, excessive amounts of vacation leave were granted
                                     some employees.

                                     Our review showed that not only were the unused balances at
                                     June 30, 2000 unsupported; but that increases to the balances
                                     based on the employment anniversary date resulted in
                                     excessive vacation leave for certain employees. Section 8b.
                                     of the PHA’s Personnel Policy provides that vacation leave
                                     shall be taken each calendar year and is not cumulative. At
                                     July 1, 2000, the vacation balances that were reconstructed
                                     for seven employees exceeded policy requirements as
                                     follows:




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Finding 6




                                                           Maximum
                                                           Days
                                                           Allowed         Number of
                                       Vacation Days       Based on        Excessive
                                       Provided at         Employment      Days
               Title                   July 1, 2000        Date            Provided
               Maintenance             39                  23              16
               Mechanic
               Senior Clerk Typist –
               Part-time               22                  7.5             14.5
               Maintenance             37                  23              14
               Mechanic
               Senior Maintenance
               Mechanic                36                  23              13
               Tenant Relations –
               Section 8               29                  23              6
               Executive Director      27                  23              4
               Tenant Relations        18                  14              4


                        Employee Used More Vacation Time Than Was Earned

                        Although the Personnel Policy requires that vacation leave
                        shall be taken each calendar year and is not cumulative, one
                        employee was allowed to use more vacation leave than he
                        earned in a year. We found that during calendar year 1999, a
                        Maintenance Mechanic used 26.75 days of vacation leave
                        even though he had earned only 23 days.

                        Employee Was Paid While on Unpaid Leave

                        During 1999, one instance was noted where an employee
                        was paid while appropriate documentation indicated that he
                        was on unpaid leave. The Modernization Coordinator
                        began employment on June 23, 1999. The Personnel Policy
                        requires that every employee shall serve six months before
                        being entitled to use vacation. As such, the employee
                        would not be entitled to leave until December 22, 1999.
                        Nonetheless, the employee was paid the full rate of pay for
                        the week of July 13, 1999 even though his timesheet


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                                                        Finding 6


      showed that he was on unpaid leave for July 15, 16 and 17,
      1999.

      Two Administrative Employees Received Compensatory
      Time While a Third Employee Did Not

      Section 7b. of the Personnel Policy provides that overtime
      work shall be avoided as far as possible but may be
      required by the Executive Director of any and all employees
      in the interest of efficient operation, in which case a
      member of the principal executive staff shall be granted
      compensatory time off within 60 days.

      A review of the employee timesheets and leave records
      showed that two administrative employees received
      compensatory time for overtime hours worked while a third
      employee received nothing for his overtime. The review
      showed that the Project Manager regularly received
      compensatory time by as much as 19 ½ hours a week and the
      Accountant also received compensatory time. Yet, even
      though the timesheets of the Modernization Coordinator
      showed hours worked that were well in excess of the normal
      work day, no compensatory time was shown on his leave
      record. For those employees who received compensatory
      time, it should be noted that none of the overtime hours
      worked were documented as having been required by the
      Executive Director and the compensatory time received was
      not used within 60 days as mandated in the Personnel Policy.

      Signature on Leave Requests Were Lacking or Were
      Inconsistent

      The PHA’s leave request form provides for the employee’s
      name and signature and for supervisory approval. Our
      cursory review of the leave request forms showed that some
      were signed by employees other than the one requesting the
      leave, while others were either not signed, not approved, or
      were approved by the employee requesting the leave.

      We believe that greater emphasis is needed by the PHA over
      its preparation and maintenance of leave records. The
      emphasis should assure that leave is accrued and used in
      accordance with established policy requirements. The
      emphasis should also assure that leave requests and records
      are properly signed and approved. Unless an effort is made

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Finding 6


                  to enforce the established requirements, deficiencies similar
                  to those already described will continue and the PHA could
                  incur personnel costs that may not be considered necessary
                  or reasonable.


Recommendations   We recommend that you require the PHA to:

                  6A.      Implement controls that will ensure that the vacation
                           time accrued for employees is in accordance with the
                           Personnel Policy.

                  6B.      Establish procedures that will assure that employees
                           do not use more vacation time than is earned each
                           year.

                  6C.      Adopt necessary controls to ensure that employees
                           are not paid for days while on unpaid leave.

                  6D.      Institute procedures that will ensure that the
                           provisions for compensatory time are applied equally
                           among all employees.

                  6E.      Implement controls that will ensure that leave
                           requests contain the appropriate signatures.




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                                                                                         Finding 7


         Need to Strengthen Administrative and
                 Accounting Controls
Our review showed various deficiencies involving administrative and accounting controls and
procedures that have weakened the overall system of internal control. The deficiencies occurred
because procedures were not implemented to ensure that adequate administrative and accounting
controls were in place to meet program requirements. As a result, the PHA does not have adequate
assurance that funds are properly safeguarded against waste and loss and that its housing programs
are administered in accordance with Federal regulations and requirements.



                                     The following items should not be considered to be all
 Administrative and                  inclusive; rather, they represent only those deficiencies that
 Accounting control                  were identified as a result of our review.
 deficiencies
                                     a. Sales tax was paid on some of the vouchers reviewed
                                        even though the PHA is a tax-exempt organization. An
                                        example of a voucher on which sales tax was paid is:


                                       Voucher                                  Amount of Sales
                                       No.                  Date                Tax Paid
                                       11092                4/2/99              $52.59


                                     b. Two instances were noted where the PHA paid ineligible
                                        penalty or interest charges. The instances are contained
                                        on Voucher Nos. 12025 and 12382.

                                     c. On two occasions, the PHA paid travel costs for their
                                        consultants who are ineligible travelers. They include:

                                       Voucher                                  Ineligible Travel
                                       No.                  Date                Costs
                                       10820                1/22/99             $1,989.06
                                       12704                6/23/00               296.49


                                     d. Deficiencies associated with the purchasing of goods and
                                        services include the lack of:

                                                      1. Requisitions and purchase orders.

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Finding 7


                               2. Adequate documentation to support the
                                  costs.

                               3. A breakdown of the cost on supporting
                                  documentation.

               e. A review of the disbursement vouchers showed certain
                  instances where costs were overpaid. An instance of an
                  overpayment is:


                Voucher                                  Amount
                No.                    Date              Overpaid
                10990                  3/5/99            $50.00


               f. Individual contracts were entered by the PHA for
                  painting apartments. However, in many instances the
                  contracts were not signed by the PHA; in other
                  instances, the contracts were not signed by the
                  contractor; and, in one instance a contract was not
                  signed by either the PHA or the contractor.

               g. Several instances were noted where the PHA failed o
                  claim cash discounts that were earned. An example is:

                Voucher                                  Discount
                No.                    Date              Not Claimed
                11850                  10/22/99          $21.89

               h. In some cases, discounts were offered but were not taken
                  due to untimely payment such as:

                Voucher                                  Discount Lost By
                No.                    Date              Untimely Payment
                11113                  4/2/99            $6.02

               i. In still other cases, the PHA claimed discounts that were
                  not earned. For example:

                Voucher      Date                 Date Discount     Discount Taken
                No.          Paid                 Expired           But Not Earned
                9991         8/15/98              8/12/98           $150.00



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                                                                        Finding 7


                  Title 24 CFR, Part 85.20, Standards for Financial
                  Management Systems, requires that effective controls and
                  accountability must be maintained for all assets and that the
                  assets be safeguarded. In addition, Section 15 (A) of the
                  ACC provides that, the PHA must maintain complete and
                  accurate books of account to permit a timely and effective
                  audit. The above deficiencies have precluded the PHA from
                  complying with the requirements cited. Unless corrective
                  actions are implemented, deficiencies similar to those
                  described above will recur.




Recommendations   We recommend that you require the PHA to:

                  7A.      Establish controls to ensure that invoices containing
                           ineligible sales taxes are not processed for payment.

                  7B.      Adopt procedures that will ensure that invoices
                           containing ineligible penalty or interest charges are
                           not processed for payment.

                  7C.      Institute controls that will prohibit travel costs being
                           paid for ineligible travelers.

                  7D.      Implement procedures over purchasing and the
                           payment for goods or services to ensure that:

                           1. Requisitions and purchase orders are prepared.

                           2. Adequate supporting documentation is obtained
                              prior to payment.

                           3. Documentation obtained provides a breakdown
                              of the costs.

                  7E.      Strengthen its procedures to ensure that the proper
                           amounts are disbursed for costs incurred.

                  7F.      Adopt controls that will assure that all contracts are
                           properly executed by the parties involved.

                  7G.      Institute procedures that will ensure that all discounts
                           earned are claimed.

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Finding 7



               7H.      Implement controls that will assure that payments for
                        costs are made timely so that all discounts offered are
                        claimed.

               7I.      Establish controls to ensure that all discounts claimed
                        have been earned.




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



                                     We determined the following management controls were
 Relevant Management                 relevant to our audit objectives:

                                         •= Program Operations – Policies and procedures that
                                            management has implemented to reasonably ensure
                                            that a program meets its objectives.
                                         •= Validity and Reliability of Data – Policies and
                                            procedures that management has implemented to
                                            reasonably ensure that valid and reliable data are
                                            obtained, maintained, and fairly disclosed in reports.
                                         •= Compliance with Laws and Regulations – Policies
                                            and procedures that management has implemented to
                                            reasonably ensure that resource use is consistent with
                                            laws and regulations.
                                         •= Safeguarding Resources – Polices and procedures
                                            that management has implemented to reasonably
                                            ensure that resources are safeguarded against waste,
                                            loss, and misuse.

                                         We assessed all of the relevant controls identified above.

                                         It is a significant weakness if management controls do
                                         not provide reasonable assurance that the process for
                                         planning, organizing, directing, and controlling program
                                         operations, will meet an organization’s objectives.

                                     Based on our review, we believe that significant weaknesses
 Significant Weaknesses              exist in the following areas:




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Management Controls



                      Validity and Reliability of Data

                      Employee leave records contained discrepancies that were
                      contrary to PHA policy and procedures (Finding 6).

                      Compliance with Laws and Regulations

                      The PHA did not comply with Federal procurement
                      regulations for competitive proposals (Finding 1).

                      HUD regulations were violated by the PHA in securing
                      supplemental policies services under the 1999 Drug
                      Elimination Program (Finding 3).

                      The PHA made payments to certain administrative
                      employees that were additions to their salaries and may not
                      meet HUD requirements (Finding 4).

                      Safeguarding Resources

                      Ineligible and unsupported costs were incurred because the
                      PHA did not maintain adequate control over costs charged
                      the Low-Rent Housing program (Finding 2).

                      The PHA did not have adequate control over its travel
                      activities to ensure that travel costs were necessary,
                      reasonable and adequately supported (Finding 5).

                      The PHA needs to strengthen control over                its
                      administrative and accounting procedures (Finding 7).




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                                                                                      Appendix A

Schedule of Ineligible and Unsupported Costs

Findings                                             Ineligible 1/          Unsupported 2/

     1                                                                      $145,150.00
     2                                               $2,690.26                31,557.60
     3                                                                        27,439.57
     4                                                                        18,000.00
     5                                                    47.60                3,333.67

     Total                                           $2,737.86              $225,480.84



1/       Ineligible costs are costs charged to a HUD-Financed or HUD-insured program or activity
         that the auditor believes are not allowable by law, contract or Federal, State or local
         policies or regulations.

2/       Unsupported costs are costs charged to a HUD-financed or HUD-insured program or
         activity and 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 or clarification of Departmental
         policies and procedures.




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                                                                                                 Appendix B

 Schedule of Ineligible and Unsupported
 Payments From the General Fund
           Voucher                                                        Amount            Amount
Date       Number Description                                            Ineligible       Unsupported          Notes

06/30/98     9632   Fingerprints                                                                 $  96.85        1
0710/98      9711   Supplies/Opening                                                                79.97        1
09/11/98    10110   3 cotton sash cords                                                            360.95       2,3
09/25/98    10211   Code book                                                                       42.00        4
10/02/98    10264   Plumbing repairs                                                               369.48       2,5
10/23/98    10390   Install heat-office                                                            250.00       2,5
10/23/98    10407   Fingerprints                                                                   120.00        6
11/06/98    10470   Replace valves and repair water lines                                        5,837.61       2,5
11/30/98    10577   Balance due on code book                                                         9.60        4
12/31/98    10745   Repair water supply for garage                                                 807.30       2,5
01/22/99    10820   Provide computer training                                 $1,989.06                          7
02/24/99    10944   Increase comp memo                                                             247.50        1
03/05/99    10990   Work-Neighborhood Center                                                     3,196.50        8
03/05/99    10992   Dead Bolts and interest on dead bolts and flooring                           4,615.71        8
03/26/99    11045   Credit card payment                                                          2,120.75        9
04/02/99    11087   Balance Due                                                                     94.50       10
04/02/99    11089   Misc. tools and supplies                                     34.96             499.41      11,12
04/02/99    11092   Safety signs and gloves                                      52.59                          11
04/16/99    11190   Invoice                                                                        102.00       13
06/11/99    11375   Mortar mix                                                   30.99             442.75     2,11,14
06/11/99    11380   Sign                                                                            25.00        1
06/18/99    11399   Supplies                                                                       837.94       2,3
07/01/99    11465   Barricades                                                                     229.72        1
07/16/99    11511   Flower arrangement                                                              37.50       15
08/19/99    11622   Laundry baskets                                                                213.50        1
09/20/99    11761   Service WE 9/17/99                                                             320.00        1
10/01/99    11780   Service WE 9/24/99                                                             320.00       16
10/15/99    11823   Consulting accounting services                                                 150.00       15
10/15/99    11842   FYTJT IN                                                                       181.56      2,13
10/22/99    11863   Consulting accounting services                                                  75.00       15
10/29/99    11873   Dorie Perry                                                                     60.00        1
12/03/99    11978   Service contract                                                               660.00       17
12/10/99    11997   Consulting accounting services                                                  75.00       15
12/14/99    12009   Construction Trailer                                         18.55             265.00      2,11
12/17/99    12025   Credit card payment                                          11.08             406.19      9,18
01/06/00    12097   Credit card payment                                                          1,049.88        9
02/18/00    12255   Fingerprints                                                                   120.00        6
02/25/00    12270   Service WE 2/24/00                                                             240.00       16
03/24/00    12382   Penalty for late payment of withholding taxes               256.54                          18
04/20/00    12446   Service WE 4/7/00                                                                319.50      1
05/12/00    12556   Blower motor                                                                     448.06      2




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        Appendix B



                 Voucher                                                                 Amount                Amount
    Date         Number Description                                                     Ineligible           Unsupported           Notes
    06/02/00         12629        Meeting                                                                                 95.48    2,19
    06/16/00         12678        Census                                                                                  48.00     16
    06/16/00         12680        Issue check to Section 8                                                             1,337.00      8
    06/23/00         12691        Heat line repairs                                                                    1,920.50    2,20
    06/23/00         12704        Fixed asset report                                               296.49              1,292.57     2,7
    06/30/00         12720        Computer Support                                                                       797.55    2,20
    06/30/00         12723        Payment – Horton                                                                       143.77     15
    06/30/00         12738        Fingerprint checks                                                                      96.00      1
    06/30/00         12747        Process server – 20 tenants                                                            500.00     21
                                                      Totals                                    $2,690.26             $31,557.60



Notes


        1      Other than the check voucher, there was not documentation to support the costs.
        2      No requisition or purchase order was prepared for the cost.
        3      The only explanation provided for the expenditures was supplies.
        4      The billing was in the name of a consultant to the PHA.
        5      Documentation does not provide a breakdown for the materials and labor costs.
        6      There is no billing or invoice to support the costs.
        7      Payee is neither an employee nor Commissioner of the PHA and is therefore an ineligible traveler..
        8      There is no invoice to support the charge; only a handwritten note by the PHA exists.
        9      Other than the check voucher, the only documentation to support the cost is a credit card statement.
    10         Only a statement showing Balance Due supports the costs.
    11         Sales tax is not an eligible cost.
    12         Represents costs of $499.41 charged to employee’s credit card and reimbursed by PHA.
    13         The invoice does not identify the goods or services purchased.
    14         Receiving reports were not signed to indicate receipt of supplies.
    15         The documentation does not explain why the cost was incurred.
    16         The documentation available does not support the cost incurred.
    17         The service contract was signed after payment was made.
    18         Penalties and interest are not eligible costs.
    19         The only explanation provided for the expenditure was meeting.
    20         Two different labor rates were charged without explanation.
    21         The documentation does not identify the tenants served.




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                                                                                                                 Appendix C

        Schedule of Ineligible and Unsupported Travel
        Costs
                  Voucher                                                                 Amount             Amount
    Date          Number Description                                                     Ineligible        Unsupported       Notes

    07/21/98          9800       Buffalo Trip                                                                      $150.00       1
    09/03/99         11683       Car rent seminar                                                                   178.54      2,3
    09/03/99         11692       Registration – seminar in Atlanta, GA 5/19-21/99                                   180.00       3
    09/20/99         11759       Travel allowance                                                                   152.00      1,4
    09/20/99         11766       Travel allowance                                                                   152.00      1,4
    12/22/99         12046       Travel                                                                              40.00       1
    02/11/00         12231       Travel                                                                           1,418.00      2,3
    02/18/00         12248       Travel                                                                              31.20       2
    03/17/00         12349       Travel reimbursement                                                                22.82       2

    03/24/00         12371       Travel                                                                            269.72       2,3
    03/31/00         12394       Travel to Albany, NY                                                               40.95        2
    04/07/00         12417       Travel                                                           $47.60           518.44       5,6
    05/05/00         12507       Travel allowance                                                                  180.00       2,7
                                                     Totals                                       $47.60         $3,333.67



Notes


        1      There was no documentation to support the cost other than the check voucher.
        2      The supporting documentation does not explain why the cost was incurred.
        3      There was no Board Resolution to approve the trip.
        4      Check voucher was located in the employee’s payroll folder.
        5      Penalty and interest charges are not allowable costs.
        6      Receipts were not available for parking, airfare and hotel costs.
        7      Traveler was paid per diem, but the PHA travel policy provides for actual costs.




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                             Appendix D

Auditee Comments




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                                                                           Appendix E

Distribution
Executive Director, Saratoga Springs Housing Authority, Saratoga
       Springs, New York
Principal Staff
(Acting) Secretary’s Representative, New York/New Jersey, 2AS
Director, Office of Public Housing, 2CPH, Buffalo Area Office
Senior Community Builder, Buffalo Office
Assistant General Counsel, New York/New Jersey, 2AC
CFO, Mid-Atlantic Field Office, 3AFI
Office of Public & Indian Housing, PF (Attn: Audit Liaison Officer, Room
     5156)
Acquisitions Librarian, Library, AS (Room 8141)


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


Sharon Pinkerton, Staff Director
Subcommittee on Criminal Justice, Drug Policy & Human Resources
B373 Rayburn Housing Office Building
Washington, DC 20515


Cindy Fogleman
Subcommittee on Oversight and Investigations, Room 212
O’Neill House Office Building
Washington , DC 20515


Stanley Czerwinski, Associate Director
Resources, Community and Economic Development Division
US General Accounting Division Office, 441 G Street, NW, Room 2T23
Washington, DC 20515


Steve Redburn, Chief Housing Branch
Office of Management and Budget
725 17th Street, NW, Room 9226
New Executive Office Building
Washington, DC 20503



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Appendix E


The Honorable Fred Thompson, Chairman
Committee on Governmental Affairs
340 Dirksen Senate Office Building
United States Senate
Washington, DC 20510

The Honorable Joseph Lieberman
Ranking Member
Committee on Government Affairs
706 Hart Senate Office Building
United States Senate
Washington, DC 20510

The Honorable Dan Burton
Chairman
Committee on Government Reform
2185 Rayburn Building
House of Representatives
Washington, DC 20515-6143

The Honorable Henry A. Waxman
Ranking Member
Committee on Governmental Reform
2204 Rayburn Building
House of Representatives
Washington, DC 20515-4305

Andy Cochran
House Committee on Financial Services
2129 Rayburn, H.O.B
Washington, DC 20515




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