AUDIT REPORT
CHESTER HOUSING AUTHORITY
CHESTER, PENNSYLVANIA
2001-PH-1002
FEBRUARY 15, 2001
OFFICE OF AUDIT, MID-ATLANTIC
PHILADELPHIA, PENNSYLVANIA
Issue Date
February 15, 2001
Audit Case Number
2001-PH-1002
TO: Karen Newton, Director, Office of Troubled Agency Recovery, PB
Malinda Roberts, Director, Office of Public Housing, Pennsylvania State Office,
3APH
FROM: Daniel G. Temme, District Inspector General for Audit, Mid-Atlantic, 3AGA
SUBJECT: Chester Housing Authority
Chester, Pennsylvania
We have completed our audit of selected operations at the Chester Housing Authority (CHA). The
audit was an update of conditions we had noted during earlier audit work at the CHA. Our report
contains four findings. We have provided copies of this report to the CHA, the CHA Receiver, and
the Court.
Within 60 days please give us, for each recommendation in the report, a status report on: (1) the
corrective action taken; (2) the proposed corrective action and the date to be completed; or (3) why
action is considered unnecessary. Also, please furnish us copies of any correspondence and/or
directives issued because of the audit.
Should you or your staff have any questions, please contact Tina Schimony, Acting Assistant
District Inspector General for Audit, at (215) 656-3401.
Management Memorandum
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Page ii 2001-PH-1002
Executive Summary
In November 1991, HUD designated the Chester Housing Authority (CHA) as a troubled authority
and took control of the Authority because of numerous and long standing deficiencies. On April
29, 1994, the United States District Court for the Eastern District of Pennsylvania declared HUD
liable for de facto demolition of housing units at the CHA. On August 31, 1994, the Court placed
the CHA in Receivership. The Court appointed Receiver was to improve the CHA’s operations so
the agency would provide its tenants housing that is structurally sound and functionally adequate
along with appropriate services. Further, the Scope of Services, set by the Court in the August 31,
1994, Order of Appointment of Receiver, recognized that ineffective policies and procedures played
a major role in the operational problems confronted by the CHA.
On January 7, 2000 we began an audit to assess the Receiver’s and the CHA’s progress in:
• analyzing existing policies and procedures; updating or revising procedures where
warranted; training staff on and monitoring the effectiveness of the new policies and
procedures;
• improving procurement and administration of its legal service contracts;
• developing procedures to govern the use of the CHA credit cards and stipulate the
documentation required to obtain payment for credit card and out-of-pocket expenses; and
• reducing tenant rent receivables and improving rent collections.
Unfortunately, the Court did not permit our free and open access to CHA personnel and records
during the conduct of this audit. The impediments and limitations to our audit constituted an
external impairment and affected our independence. Hence, we were unable to comply with
government auditing standards regarding independence and the external impairment constrained
our efforts to form independent and objective opinions and conclusions. The results and
observations from our review are summarized below and detailed in the report that follows.
Although the Receiver made progress updating CHA
Actions To Rework policies and some procedures, the Receiver did not update
Outdated, Incomplete and procedures for some fundamental operations. As a result,
Neglected Procedures Not CHA staff worked with outdated and incomplete
Timely procedures. Though in fiscal year 2000, the Receiver
contracted for the development of procedures, the CHA
needs a plan to train its staff to apply the new procedures,
monitor their application, and ensure the procedures are
effective.
Page iii 2001-PH-1002
Executive Summary
The Receiver did not use free and open competition to
Insufficient Progress In procure legal services for the CHA because the Court
Procurement and excused the Receiver from observing that and other Federal
Administration of Legal and HUD requirements. Consequently, capable law firms
Services did not have the opportunity to compete for the CHA’s
business. Also, the CHA did not have written procedures
for reviewing and approving legal service invoices which
may have contributed to CHA Counsel not critically
reviewing all invoices. Further, the Receiver and CHA did
not employ adequate safeguards to oversee a conflict of
interest situation involving CHA’s General Counsel. The
CHA needs to establish controls for procuring and
administering its legal service contracts.
The CHA needs to develop and implement adequate
Inadequate Conrols Over controls to ensure the Receiver’s out-of-pocket expenses
Out-of-Pocket and Credit and credit card charges are appropriate and adequately
Cards Expenses Paid To supported. The CHA relied on the Court to review and
Receiver approve Receiver out-of-pocket expenses. However, the
CHA paid the out-of-pocket expenses without first
obtaining written authorization from the Court. Therefore,
the CHA lacked documentation to support the expenditures.
We attributed the lack of controls over credit card charges
to managers not being aware of the need for such
procedures. The lack of controls contributed to the CHA
paying for unsupported and ineligible credit card charges.
During the audit, the CHA introduced some controls over
the payment of credit card charges, but additional controls
are needed.
The Receiver and the CHA have reduced significantly
CHA Should Effect tenant rent receivables and established a more effective rent
Further Improvements In collection operation. Although the Receiver and CHA
Its Rent Receivables and made progress to improve rent collections, the CHA did
Rent Collection Practices not:
• Evaluate prospective tenants thoroughly, and as a
result, CHA could not ensure it accepts applicants
who will meet their full obligations as tenants.
• Apply its rent collection strategies consistently
because the CHA did not have up-to-date
comprehensive rent collection and eviction
procedures. The CHA contracted to have the
procedures developed to reflect a change in
management philosophy.
2001-PH-1002 Page iv
Executive Summary
• Pursue in an aggressive manner, collection of rents
from delinquent vacated tenants receiving Section 8
assistance. As a result, CHA may have recorded
losses that were collectable if it had been more
diligent in its collection efforts.
The CHA needs to establish procedures, and train and
monitor its staff in the areas of applicant screening, rent
collections, and evictions.
We discussed the results of our review during the audit and
provided the Court, the Receiver, and the CHA with a draft
report for comment. We discussed the draft report at an
exit conference on December 19, 2000. The CHA provided
a written response, which we included as Appendix
AppendixBB
without exhibits, and where appropriate their comments are
summarized in this report. CHA generally agreed with our
recommendations, but disagreed with some of the reported
facts.
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Executive Summary
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2001-PH-1002 Page vi
Table of Contents
Management Memorandum i
Executive Summary iii
Introduction 1
Findings
1 Receiver Did Not Rework Outdated, Incomplete and
Neglected CHA Procedures 7
2 Insufficient Progress In Procurement and Administration
of Legal Service Contracts 15
3 CHA Has Not Yet Established Adequate Controls Over
Out-of-Pocket Expenses and Credit Card Charges 29
4 CHA Should Effect Further Improvements In Its Rents
Receivable and Rent Collection Practices 37
Management Controls 53
Follow Up On Prior Audits 55
Appendices
A Schedule of Ineligible and Unsupported Costs 57
B Auditee Comments 59
C General Counsel’s Review Procedures 81
Page vii 2001-PH-1002
Table of Contents
D Distribution 83
Abbreviations
ACOP Admissions and Continued Occupancy Plan
CHA Chester Housing Authority
HUD US Department of Housing and Urban Development
OIG Office of Inspector General
TAR Tenant Accounts Receivable
2001-PH-1002 Page viii
Introduction
The Chester Housing Authority (CHA) was organized under the laws of the Commonwealth of
Pennsylvania to develop, acquire, and operate low rent housing. In November 1991, HUD took
control of the CHA because of the CHA’s numerous and long standing deficiencies. HUD
determined the CHA was in substantial default and breach of the Annual Contributions Contract.
The housing stock was in a deplorable condition. Furthermore, rent collection was a continuing
problem and expenditures exceeded funding. Essentially, management lacked the capability to
obtain and manage the funds necessary to make the needed improvements.
On April 29, 1994, the United States District Court for the Eastern District of Pennsylvania
ordered that HUD was liable for de facto demolition of housing units at the CHA. On June 2,
1994, the Court granted the Government’s motion to appoint a Receiver. On August 31, 1994, the
Court placed the CHA in Receivership and appointed the Chairman of Grenadier Realty Corp., to
serve as the Receiver. The Receiver left Grenadier in June 1997, formed the Rosenberg Housing
Group, Inc., and continued to operate as the Receiver.
The Court appointed the Receiver to improve the CHA’s operations so that the agency would
provide its tenants housing that is structurally sound and functionally adequate, and provide
residents with appropriate services. The Receiver appointed an employee of his organization to
act as the CHA’s Executive Director. The Receiver appointed a permanent Executive Director in
January 1997.
By March 1998, the CHA’s condition improved to the point where HUD designated the Authority
as a standard performer and removed the CHA from its list of troubled agencies. A major reason
for the CHA’s improved condition was the substantial modernization work done at its
developments. HUD provided more than $98 million to the CHA for modernization efforts
during fiscal years 1995 through 1999. In June 1994, the CHA had 1,707 dwelling units in five
conventional developments and 24 scattered site locations. By June 1999, the CHA’s public
housing inventory included 1,453 dwelling units. Of these, tenants were occupying only 774
units. The other units were unoccupied due to pending demolition. The CHA relocated tenants
occupying those units to housing in both the public and private sectors. In 1998, the CHA
completed a major rehabilitation of one project and in 1999 completed the demolition and
reconstruction of another project. Two additional projects were in the process of demolition and
reconstruction.
We did onsite audit work at the CHA between July 22, 1997 and July 24, 1998. The audit
covered CHA operations during the period April 1, 1995 through March 31, 1998. We issued a
report to HUD that addressed the Receiver’s compensation and term of services, but experienced
delays in reporting on other areas. Government Auditing Standards require that reports be issued
promptly so that information is available for timely use by management. Many of the reportable
conditions we planned to address in the report, including Housing Quality Standards and
maintenance issues, had since been superceded by the CHA’s modernization activities. However,
there remained conditions noted earlier which were still unsettled and required updating to reflect
current conditions. These conditions covered four areas: development of the CHA's policies and
Page 1 2001-PH-1002
Introduction
procedures; credit cards and Receiver's out-of-pocket expenses; tenant receivables and rent
collections; and procurement and administration of legal services.
We resumed the audit on January 7, 2000, intending to update conditions noted during the earlier
audit work to learn if the CHA made needed improvements in the four areas. We notified the
Court, the Receiver, and the CHA of our resumed audit. We requested an entrance meeting with
the CHA’s Executive Director for January 24, 2000. The Court rescheduled the meeting to
February 3, 2000. The meeting attendees were the Court, the Receiver, the HUD-OIG and CHA
personnel. We notified the Court that we wished to update issues that remained open from our
earlier audit work. The Court agreed that we should continue with a limited scope audit and
agreed with the four objectives we outlined during the meeting. The Court expressed concerns
that the audit resumption would disrupt the CHA's operations and requested we limit our time
onsite. The Court also specified points of contact for each of the four audit objectives. To mitigate
the Court’s concerns, we agreed to perform much of our audit effort off-site.
On February 24, 2000, the Court further restricted our review to events and transactions that
occurred in 1999 and 2000. On March 9, 2000, we explained to the Court that the restrictions
limited our audit scope. We said that to accomplish the four objectives we needed to review
events and transactions that occurred before 1999. We explained that by update we meant to
complete our review of the activities in the four areas since the time the Receiver assumed control
of the CHA. On March 17, 2000, the Court affirmed the audit period to 1999 only. However, in
the interests of comity and cooperation, the Court said it would order the CHA to provide us with
information prior to 1999 if, in the course of our audit, such information became necessary. The
Court directed us to submit such requests to the Court as the need arose. We discuss this and
other work impediments and audit scope limitations we experienced throughout the audit in the
Audit Scope and Methodology section of this report.
It is most unorthodox for auditors to function without free and open access to an auditee’s records
and personnel. However, we recognized that the Court had a genuine commitment to improving
the CHA’s operations and improving the CHA’s services to the residents of the CHA
developments. We also shared the Court’s commitments and designed our audit to cause as little
disruption to the CHA’s operations as possible so long as we were able to accomplish our audit
objectives. However, the impediments and limitations we experienced during this audit
constituted an external impairment which affected our independence. Hence, we were unable to
comply with government auditing standards because the external impairment constrained our
efforts to form independent and objective opinions and conclusions.
Our objectives were to assess the Receiver’s and the CHA’s
Audit Objectives
progress in:
• analyzing existing CHA policies and procedures;
updating or revising procedures where warranted;
training CHA staff on and monitoring the
effectiveness of the new policies and procedures;
2001-PH-1002 Page 2
Introduction
• improving procurement and administration of its
legal service contracts;
• developing procedures to govern the use of the CHA
credit cards and stipulate the documentation required
to obtain payment for credit card and out-of-pocket
expenses; and
• reducing tenant rent receivables and improving rent
collections.
We performed our initial audit work at the CHA between
Audit Scope and July 22, 1997 and July 24, 1998, and covered the CHA
Methodology operating period extending from April 1, 1995 through
March 31, 1998. We experienced delays in reporting on
various aspects of the CHA’s operation. Many of the
reportable conditions we planned to address were
superceded by the CHA’s modernization activities.
However, there remained four conditions which were still
unsettled and required updating to reflect current conditions.
The audit work discussed in this report represents an update
of the conditions we discovered during our earlier audit
work that remained reportable conditions.
We were not able to resume audit work until January 7,
2000 because an experienced auditor was not available to
lead this assignment until that date. The original auditor-in-
charge for this assignment experienced a serious illness
which eventually caused him to leave government service.
We extended the period as necessary to include more recent
data, so that our report would reflect current conditions.
Our audit period eventually covered transactions from April
1, 1995 through June 16, 2000. We reviewed copies of
pertinent records, discussed issues with the Court, and
interviewed designated CHA officials and key personnel at
HUD’s Pennsylvania State Office.
We also reviewed:
• HUD’s monitoring reports and other correspondence,
• independent public accountants reports,
Page 3 2001-PH-1002
Introduction
• tenant files and tenant accounts receivable,
• policies and procedures,
• contract files,
• payment transactions, and
• Receiver’s reports.
We tried to audit within the guidelines we agreed to with the
Court. However, we encountered obstacles from the audit
outset. For example:
• The auditors found themselves being judged by the
CHA personnel. The auditors were questioned
whether the records they requested or operations they
wanted to review complied with the four audit
objectives agreed to with the Court. These CHA
personnel, rather than accepting the auditors’
assurances that their requests were consistent with
the audit objectives, would delay assisting the
auditors until they first obtained the Court’s consent.
• The general CHA employee population was not
permitted to converse or interact with the auditors
under the threat of dismissal. The Court said it
directed this threat be conveyed to CHA employees.
• The CHA staff refused auditors access to site
locations and oversaw the areas of audit interest and
the records which were being evaluated by the
auditors. The Court said CHA staff was following
the Court’s directions.
• The CHA officials designated as contacts for audit
inquiries were often not available and slow to
respond to requests for records. Further, the records
provided the auditors were copies and not the
original documents.
• The Court determined that the Receiver was
answerable for his performance only to the Court and
that his performance could not be the subject of any
audit work. The Court, therefore, denied our request
to meet with the Receiver during our attempt to
audit. However, the Court did arrange for the
Receiver to be present to discuss the draft report at
our Exit Conference on December 19, 2000.
2001-PH-1002 Page 4
Introduction
• The Court and the CHA did not allow the auditors
access to all the records pertinent to the four audit
objectives and determined the period of the CHA
operations the auditors were to review. Finally, the
Court suggested when the audit should be concluded.
The audit impediments and limitations created an
atmosphere not helpful to accomplishing our audit
objectives timely or with the level of completeness we
wanted to achieve. This situation constituted an external
impairment of our audit independence. We were not able to
reach reliable conclusions concerning the adequacy of the
CHA policies and procedures, the propriety of the CHA
credit card usage, the propriety of legal services
procurements and the adequacy of the legal contract
administration, or the adequacy of CHA actions with respect
to Tenant Receivables.
Due to the external impairments previously discussed, we
did not complete this audit according to the generally
accepted government auditing standards.
We provided a copy of this report to the Court, the Receiver
and the CHA Executive Director.
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Introduction
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2001-PH-1002 Page 6
Finding 1
Receiver Did Not Rework Outdated, Incomplete
and Neglected CHA Procedures
In 1994, the Court ordered the Receiver to review, and as necessary, update the CHA’s policies
and procedures. Although the Receiver made progress updating CHA policies and some
procedures, the Receiver did not update procedures for fundamental operations such as rent
collections. Also, the Receiver was tasked with the responsibility of training staff on the CHA’s
policies and procedures, and monitoring how employees applied the procedures to their work.
However, since the Court limited our access to information, the CHA staff, and freedom to
observe daily CHA operations, we could not determine with certainty whether the Receiver
accomplished these tasks effectively.
During FY 2000, the CHA executed a contract with a consulting firm to update its procedures.
However, significant CHA operations have transpired during the interim six years, and examples
of the impact of not having updated procedures are reflected in Findings 2, 3 and 4 of this report.
The Scope of Services set by the Court in the August 31,
Court Recognized the
1994, Order of Appointment of Receiver, recognized that
Importance of Effective
ineffective policies and procedures played a major role in
Policies and Procedures
the operational problems confronting the CHA. The Court
also recognized that any immediate improvements at the
CHA would not be sustained without the CHA having a
comprehensive system of policies and procedures.
Therefore, as part of the order establishing the
Receivership, the Court directed the Receiver to review the
operating effectiveness of the CHA’s functions, leading to a
reform of those operating areas that were not efficient and
cost effective. This review had to include:
• evaluating and updating all CHA’s current policies
and procedures;
• training staff on new policies and procedures; and
• monitoring new policies and procedures for
effectiveness and cost efficiency.
During our earlier audit work, we noted the CHA did not
have comprehensive policies and procedures for its staff to
use in administering CHA’s operations. During our current
review we wanted to assess the Receiver’s response to and
progress made in effecting the Court’s directions regarding
the CHA’s policies and procedures.
Page 7 2001-PH-1002
Finding 1
In large measure, the Court controlled our access to the
CHA information, the CHA staff, and freedom to observe
daily CHA operations. The conditions described in this
assessment are limited to the CHA records and the CHA
officials to which we had access. This situation constituted
an external impairment of our audit independence. Because
of the external impairment, we were constrained in our
efforts to form independent and objective opinions and
conclusions concerning the adequacy of the CHA’s policies
and procedures.
Internal controls are a major part of managing any
Importance of Internal organization. An internal control system is made up of
Controls plans, methods, policies and procedures to meet an
organization’s mission, goals, and objectives. The
organization’s internal control system requirements change
over time because business conditions change. The
business environment changes because of changes in laws
and regulations, societal concerns, technology, managerial
philosophies and leadership. The Court recognized the
need to change the policies and procedures used to manage
the CHA operations.
Prudent business practices prescribe that policies and
procedures should be communicated in writing. The
documentation aspect is critical because oral
communication of policies and procedures is unreliable;
spoken words can be changed too easily, forgotten or never
even heard. Further, it is important for organizations to
have consolidated policies and procedures organized
systematically. Fragmented or decentralized policies and
procedures hinder the employees using them and do not
ensure for their consistent application. Employees need to
be trained in an organization’s policies and procedures so
they know how to do their jobs efficiently and effectively.
Just as important, employees need to know the needs and
expectations of those within the organization who rely on
their work product.
In 1994, shortly before the Receiver’s appointment, a
Receiver’s Actions to consulting firm completed a Procedures Manual for the
Update the CHA Policies CHA that included unit and site inspection, maintenance,
and Procedures security monitoring, investigation, and follow-up on
criminal and drug related activity. The Procedures Manual
was to serve as a desk reference for the CHA’s staff, a tool
2001-PH-1002 Page 8
Finding 1
for training new employees, and a basis for conducting
internal management audits, and evaluating employee
performance. The Procedures Manual did not encompass
procedures for all the CHA’s operations and excluded
accounting and Section 8 procedures.
The CHA’s Executive Director maintained that because the
consulting firm overhauled the procedures immediately
before the Receiver’s appointment, there was no present
need to revise the procedures. The Executive Director said
the Receiver revised and updated procedures, as needed,
because the Receiver’s initial efforts focused on
establishing management tools and systems.
We noted that since 1994, the Receiver developed and
updated some procedures, but found no evidence the
Receiver updated the Operations Manual or developed
procedures for other fundamental housing authority
functions such as accounting and budgeting.
During the years of Receivership, the CHA introduced new
Uncontrolled and guidance to its staff. For example:
Neglected Revisions to
Procedures • in January 1995, a set of User’s Manuals for
operating a new computer software system;
• in February 1996 and June 1998, a revised
Procurement Policy Manual;
• in June 1997, with later revisions in October 1997
and October 1999, the Admissions and Continued
Occupancy Plan;
• in June 1997, the Section 8 Administrative Plan;
and
• in July 1999 and May 2000, revisions to the Human
Resources Policy Manual.
Though the Receiver updated some of the CHA’s
procedures, the updates were not controlled. For example,
the procedures manuals did not always:
• list the dates the procedures were initially issued;
• list the dates when procedures were revised,
replaced or added; or
• identify the applicable sections of the procedures
being revised, replaced or added.
Page 9 2001-PH-1002
Finding 1
The CHA needs to adopt a control system for its
procedures, such as a log in front of each manual, which
would allow users to readily ascertain the latest issuance
and identify procedures that have been superceded. Also, a
log would ensure users that the manuals they need contain
the current procedures for their area of responsibility.
The Receiver neglected revising some procedures that were
outdated. For example, we asked the CHA to furnish us
procedures on rent collection and non-payment evictions.
The CHA provided the procedures, but the Deputy
Executive Director said the procedures were out-of-date.
Our assessment of the CHA staff applying policies and
Improvements to
procedures on the job was generally limited to those
Procedures Needed
procedures governing legal service contract procurement
and administration, tenant accounts receivable and rent
collections, and credit card and out-of-pocket expenses.
We cover the details of these assessments in the findings
that follow. However, in general, while the CHA has
developed or improved its procedures in these areas of the
CHA operations, further improvements are justified. For
example:
• The CHA did not have written procedures for its
General Counsel to use in administering the CHA
legal service contracts (Finding 2).
• The CHA did not have written policies and
procedures for administering the Receiver’s Out-of-
pocket expenses (Finding 3).
• The CHA’s guidance for rent collections, and
evictions was incomplete and out-of-date (Finding
4).
Receiver’s Recent In January 1998, the Receiver instructed the CHA to
Comprehensive Approach procure the services of a consulting contractor to develop
to Updating Policies and comprehensive standard operating procedures. However,
Procedures HUD approval was needed to fund the contract. Problems
in defining a specific scope of services for the contract
delayed HUD’s funding approval until August 1999. The
CHA advertised for bids in August 1999 and awarded a
contract in February 2000.
2001-PH-1002 Page 10
Finding 1
The Court ordered Statement of Work for the Receiver
identified those CHA operational areas of interest to the
Court and thus the procedures the Receiver was responsible
to analyze and update. The February 2000 consultant
contract’s Scope of Services required the contractor to
develop procedures for several operational areas that were
included in the August 1994 Receiver’s Statement of Work.
These areas included:
• admissions and occupancy,
• public housing lease enforcement (including rent
collection and eviction),
• Section 8,
• modernization,
• accounting and budgeting,
• maintenance, and
• procurement.
The target completion date was June 15, 2000. However,
revisions to the delivery schedule pushed the completion
date back to June 30, 2000, and then again to October 31,
2000. The CHA’s General Counsel did not explain the
reason for the slipped delivery schedule.
The CHA’s General Counsel said managers arranged to
The CHA Needs to train their staff on new CHA initiatives, policies and
Ensure Staff Are Trained procedures during departmental staff meetings. Counsel
said the CHA augmented training by sending staff to
training courses or having consultants do the training.
We did not observe sufficient evidence to demonstrate that
staff training occurred regularly as the CHA introduced new
procedures. For example, though the CHA General
Counsel said training was provided at weekly staff
meetings, we were provided little evidence to support this
statement during our review of Rents Receivable. In
Finding 4 of this report, we identify instances where staff
did not fully apply the CHA’s admission’s policy. We
attributed this condition to the staff not receiving adequate
training and managers not effectively monitoring the work
done by staff.
Page 11 2001-PH-1002
Finding 1
The Court’s order required the Receiver to ensure staff
received training on the new policies and procedures and to
monitor the procedures’ effectiveness. Due to audit
impairments, we could not determine with confidence the
training staff received to execute the policies and
procedures, nor that CHA managers monitored staff usage
of the updated policies and procedures.
A properly functioning system of internal control depends
High Personnel Turnover on the competence of the entity’s officers, department
at CHA Adds Urgency to heads and other key employees. A stable environment
Establishing Sound promotes good internal controls. The impact of not having
Internal Control Structure effective policies and procedures is amplified in an
environment of high employee turnover. Effective,
documented policies and procedures promote consistency
and continuity of operations in an environment with
frequent employee turnover. Accordingly, the CHA,
through training and managerial oversight, needs to ensure
its staff understands the procedures governing their position
and apply the procedures correctly on the job.
Since the appointment of the Receiver, the CHA has
experienced significant turnover in the management ranks
as well as staff positions. Frequent turnover in any
organization affects negatively the internal control
environment and makes continual training even more
essential. A healthy internal control environment that
includes sound policies and procedures, an effective
training program and good supervision, can minimize the
negative effects such turnover can cause.
Although we noted the Receiver’s recent progress in
The CHA Needs to
developing and updating CHA’s procedures, additional
Implement New Operating
attention is needed. We believe it is critical for the CHA to
Procedures
introduce the new procedures and train its staff as soon as
the procedures become available. Since the consultant was
expected to complete the procedures in October 2000, the
CHA should have a plan for training its staff in place.
Concurrently, the CHA managers must be instructed to
monitor staff application of the procedures to ensure they
are understood and provide for periodic assessments of the
procedures to measure their effectiveness.
2001-PH-1002 Page 12
Finding 1
Auditee Comments CHA agrees with the recommendations, but disagrees with
some of the reported facts. CHA’s response is provided as
Appendix B.
We modified the report, where necessary, based on an
OIG Evaluation of evaluation of CHA’s response, and additional information
Auditee Comments submitted with CHA’s response.
Recommendations We recommend that you request the Court to advise the
Receiver to:
1A. Direct the CHA to create a plan to train staff on the
standard operating procedures being developed by the
consulting firm. The training should focus on
ensuring that staff understands the new procedures.
The CHA should maintain a record of the training
staff received including dates and times, the policies
and procedures discussed, and an employee
attendance sheet.
1B. Establish a plan to monitor the effectiveness of new
policies and procedures and make modifications as
necessary.
1C. Annotate revisions to the policy and procedure manuals
with the date of the revision, and establish control
logs to record changes to procedures so users can
determine if their manuals are current.
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Finding 1
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2001-PH-1002 Page 14
Finding 2
Insufficient Progress In Procurement and
Administration of Legal Service Contracts
During our prior audit work covering CHA operations from April 1, 1995 through March 31,
1998, we noted certain improvements the CHA needed to make in its procurement and
administration of legal service contracts. Since that earlier work, the Court appointed Receiver
and the CHA have not improved their procurement of legal service contracts though they have
made limited progress to improve their administration of the contracts. This limited progress is
reflected in the CHA hiring of an in-house General Counsel in July 1999 to assign work to the
law firms, monitor their progress, and review and approve legal service invoices for payment.
The Receiver and the CHA still do not comply with all Federal requirements governing their
procurement of legal services. Specifically, the Receiver and the CHA: did not use free and open
competition to select suitable law firms; did not obtain HUD approval before entering contracts
that exceeded two-year terms or involved litigation proceedings; and did not maintain a written
record of their actions to procure legal services. Also, we observed the CHA’s General Counsel
in a conflict of interest situation which the Receiver and the CHA did not adequately address.
We also noted incomplete legal service contract files and ineffective controls for managing the
legal service contracts.
Though we sought free access to all the CHA’s records
Court Denied Auditors related to legal services, the Court limited our access and
Access to Records directed the CHA to provide us only 1999 legal services
information. The Court reasoned that the 1999 records
would be sufficient to measure the CHA’s progress.
Therefore, our review of legal services procured by, and
provided to, the CHA was confined to data we gathered
during our earlier audit work and 1999 legal services
information.
Since the CHA did not provide us information before 1999,
we were unable to review payment information for eight
months of 1998. Lack of access also prevented us from
confirming certain issues we identified during our earlier
audit work. The records to which the CHA did grant us
access were copies of invoices, receipts and other
supporting documents, and not actual source
documentation. It is normal audit procedure for auditors to
examine original documentation. Also, the CHA personnel
did not respond timely to our questions about legal services,
taking as long as two months to provide answers. In
addition, the Court did not allow us to discuss with the
Receiver the procurement and administration of legal
Page 15 2001-PH-1002
Finding 2
services, or permit us to review the Receiver’s records
dealing with legal issues.
The Receiver hired a consulting firm to perform a risk
Historical Perspective of management assessment of the CHA. The firm reported
the CHA’s Legal Services that before the appointment of the Receiver in 1994 outside
legal counsel represented the CHA. During that time, the
CHA experienced severe managerial problems which
included monitoring the legal work and the mounting legal
expenses. When the Receiver took control of the CHA he
considered the quality of services by outside counsel
substandard and legal service costs high. To resolve this
condition, the Receiver contracted with another law firm.
However, the CHA incurred substantial fees from the new
legal counsel. While the Receiver reviewed and approved
legal invoices for outside counsel, neither the Receiver nor
the CHA were tracking the time charged and the expenses
claimed by the legal service firms. Consequently, invoices
mounted to more than $400,000 and went unpaid. In May
1997, the Receiver negotiated a unique agreement to pay
the debt over time. In June 1999, after the CHA made a
final $96,000 payment to the law firm, the Receiver
terminated the agreement.
The consultant’s report also said the CHA did not have an
experienced person to review the legal work done for the
CHA. It advised the CHA to retain in-house counsel to
handle routine litigation, monitor legal expenditures, track
legal invoices, approve legal work by outside counsel and
coordinate legal strategy with the Receiver and senior CHA
management. In July 1999, the CHA hired an in-house
General Counsel recommended by the Court. The General
Counsel’s duties included: assigning work to law firms;
monitoring their progress; and reviewing and approving
legal service invoices for payment.
From July 1995 to December 1999, the CHA paid more
than $1.9 million for legal services provided by 11 different
law firms and their own in-house counsel. We could not
determine the exact amount paid for legal services due to
scope limitations we have detailed in the Executive
Summary.
2001-PH-1002 Page 16
Finding 2
L e g a l S e r v ic e P a y m e n ts /1
$ 9 0 0 ,0 0 0
$ 8 2 3 ,5 7 3
$ 8 0 0 ,0 0 0
$ 7 0 0 ,0 0 0
$ 6 0 0 ,0 0 0
$ 5 0 0 ,0 0 0
$ 4 0 0 ,0 0 0 $ 3 7 4 ,0 1 7
$ 3 0 3 ,2 3 0
$ 3 0 0 ,0 0 0 $ 2 7 1 ,6 3 2
$ 1 9 2 ,8 1 8
$ 2 0 0 ,0 0 0
$ 1 0 0 ,0 0 0
$0
1 9 9 5 /2 1996 1997 1 9 9 8 /3 1 9 9 9 /4
C a le n d a r Y e a r s
Footnotes:
/1 Costs for 1995 through 1998 could not be verified for completeness
/2 July through December only
/3 January through September only
/4 Includes $57,300 for cost of in-house Counsel from July through December and a $96,000 payment for
prior years services
A. The Receiver and the CHA Did Not Follow HUD Requirements for
Procuring Legal Services
During our prior audit we noted that the Receiver did not use competitive procedures to award
contracts for legal services. The Receiver also did not request HUD approval before awarding
contracts that exceeded a two-year term and for contracts that involved litigation proceedings.
Further, there was no evidence that either the CHA or the Receiver prepared cost estimates for
the legal service contracts. As a result, qualified firms were not given the opportunity to
participate in the procurement process and HUD’s oversight was diminished.
The Receiver, with the Court’s participation and agreement, selected the CHA’s legal service
providers and determined the reasonability of fees to be paid for legal services. The Court
assured us that after the CHA’s transition from Receivership to its own governance, the CHA
General Counsel would ensure the CHA complied with all applicable regulatory requirements.
Receiver Did Not Use The Receiver awarded at least 17 contracts to 11 law firms
Competitive Procedures during our audit period. Federal requirement 24 CFR 85.36
To Procure Legal Services prescribes that public housing authorities conduct all
procurement transactions with full and open competition.
Page 17 2001-PH-1002
Finding 2
HUD Handbook 7460.8 REV-1, paragraph 4-27 generally
amplifies the principles of 24 CFR 85.36 and further
provides that, when contracting for legal services, the goal
is to acquire the services of a highly qualified firm at a
reasonable price. Since qualifications and experience can
be as important as price, the procurement of legal services
should follow the competitive proposal procedures.
The CHA’s Procurement Policy Manual did not reflect
Federal and HUD requirements to acquire legal services
competitively. It made competition for procuring legal
services an option. The only mandatory requirements in
procuring legal services were confidentiality and
negotiation of a reasonable price.
The CHA did not use competition to procure legal services.
The Court directed the Receiver to obtain legal services in
the same manner a private client would obtain legal
services. The General Counsel said the Court and the
Receiver based their selection of legal service firms on the
firm’s expertise and reputation. The Court and the
Receiver would agree on which law firm to select and
ensure the legal fees were reasonable.
According to 24 CFR 85.36 (f)(1), housing authorities are
The CHA Did Not to do a cost analysis in connection with every procurement
Document Actions to action and prepare cost estimates before receiving bids or
Procure Legal Services proposals. Regulation 24 CFR 85.36 (b)(9) requires
housing authorities to maintain records sufficient to detail
the significant history of a procurement to include the basis
for the contract price.
The CHA’s files did not contain evidence of cost estimates
being prepared in anticipation of the bid for services or
documentation explaining the basis of the contract price.
The Court and Receiver maintained they reviewed
projected charges to the CHA for legal services. However,
the evaluation was not documented in the contract file.
In normal circumstances, a housing authority that does not
Court Participated in use free and open competition to select a contractor and
Procuring the CHA Legal does not maintain records to detail its procurement history
Services would raise audit concerns. We recognize the Court has the
personal knowledge and historical perspective to choose
capable law firms for the variety of legal services
2001-PH-1002 Page 18
Finding 2
demanded by the CHA, and negotiate reasonable and
appropriate terms for the CHA. In fact, we found the firms
were highly skilled, and fees charged by these law firms
were in line with fees charged in the region. We believe
the CHA was fortunate the Court engaged itself in the
selection of legal services during the Receivership.
However, the CHA must be prepared for the transition from
Receivership to self-governance by having in effect
procedures that will allow for free and open competition in
all its procurement transactions, including professional
services, and a documented record of the procurement’s
history. Free and open competition will allow all capable
law firms the opportunity to compete for the CHA’s
business.
The Receiver did not obtain required HUD approval for
Court Exempted Receiver
long-term legal service and litigation contracts.
From Complying With
HUD Requirements
• HUD Handbook 7460.8 REV-1, paragraph
4-27(B)(2) prohibits housing authorities from
entering into agreements or contracts for legal
services with any person or firm where the term of
the contract exceeds two years, without the prior
written approval of HUD. The Receiver did not
obtain HUD approval for three legal service
contracts that exceeded a two-year term.
• HUD Litigation Handbook 1530.01 REV-4,
paragraph 5-4 requires housing authorities to submit
a request to HUD Regional Counsel for prior
written approval before entering into litigation
service contracts over $100,000. The Receiver did
not seek the required HUD approval for two
contracts that involved litigation proceedings.
The Court directed the Receiver to obtain legal services in
the manner that a client would obtain such services.
Therefore, the Court exempted the Receiver from following
HUD contracting requirements.
Page 19 2001-PH-1002
Finding 2
The Court said that after the CHA changes over from
Revised Procurement Receivership to self governance, the CHA General Counsel
Policy and Complete Files would ensure the CHA complies with all applicable
Will Ease the Transition regulatory requirements. However, in preparation for the
from Receivership transition, the Receiver should ensure the CHA’s
Procurement Policy Manual is revised to reflect Federal and
HUD requirements. The Receiver should also provide the
CHA complete copies of his legal service contract files.
CHA agrees with the recommendations, but did not accept
Auditee Comments some of the facts. CHA’s response is provided as Appendix
B.
CHA said it will continue to procure legal services as a
private concern during the term of the Receivership, and
follow standard business practice in monitoring its legal
contracts. Following the end of the Receivership, CHA will
adhere to Federal procurement requirements.
We revised the report to update facts based on CHA’s
OIG Evaluation of response and additional information CHA provided. In
Auditee Comments addition, since CHA said it will procure legal services in
accordance with Federal procurement regulations at the end
of the Receivership, we consider this matter closed and we
deleted a recommendation relating to the procurement of
legal services.
Recommendations We recommend that you:
2A. Request the Court to direct the Receiver to improve the
CHA’s Procurement Policy Manual by including
Federal and HUD requirements governing free and
open competition for legal services.
2B. Request the CHA to fully document the future
selection of firms providing legal as well as other
professional services.
2001-PH-1002 Page 20
Finding 2
B. Additional Controls Can Augment the CHA’s Administration of Legal
Service Contracts
During our prior audit we noted that the CHA’s controls for administering its legal service
contracts needed improvement. Since our earlier audit work, the Receiver and the CHA have
taken steps to strengthen these controls. In July 1999, the Receiver appointed an in-house
Counsel. The CHA Counsel’s responsibilities included assigning work to law firms under
contract to the CHA, monitoring the firms’ work, and reviewing and approving law firm invoices
for payment. Though the CHA now has a professional to oversee its substantial legal operations,
the CHA did not record the Counsel’s work responsibilities as written procedures. The absence
of written procedures may have contributed to instances where the CHA’s Counsel did not
critically review invoices by corroborating invoiced work to an independent record of work
assignments or assuring that invoice rates agreed with the payment rates specified in contracts.
Also, Counsel accepted partial and incomplete documentation in support of legal service
invoices.
Basic financial accounting principles define an invoice as
Reviewing Invoices For the basis for entries in the accounting records of both the
Payment buyer and seller. An invoice should contain a description
of the goods or services rendered, the quantities, prices, and
credit terms. The act of verifying an invoice establishes
that an entity actually ordered and received the goods or
services. It also includes verifying that the prices billed
agree with those specified in the contract. Upon receipt of
an invoice, the buyer should verify the following aspects of
the transaction:
• the invoice agrees with the contract as to prices,
quantities and other provisions;
• the invoice is arithmetically correct in all extensions
of price times quantity and in the addition of
amounts; and
• the goods or services provided were satisfactory.
Closely related to the process of reviewing invoices are
controls over expenditures. Good controls will permit the
system to process only properly approved invoices and pay
vendors for approved invoices. A chain of documentary
evidence supports each transaction in an environment with
good controls.
Page 21 2001-PH-1002
Finding 2
The CHA Did Not Have Before July 1999, there was no one at the CHA with
Written Procedures for experience monitoring and reviewing the legal work of
Reviewing Invoices outside counsel. The CHA did not assign anyone
responsibility for validating legal invoices. With the
appointment of a General Counsel in July 1999, the CHA
now had a professional with background for overseeing the
CHA’s legal operations, and reviewing and approving all
legal service invoices for payment.
Hiring in-house Counsel to assign, monitor, and approve
legal work was a large improvement. However, the
procedures Counsel used to effect these functions were not
documented. Because the procedures were not documented,
Counsel described to us the procedures used to review and
approve legal service invoices (seeAppendix
Appendix C).
C
Our review of legal services showed that the CHA’s
Counsel Adjusted Some
General Counsel did review the invoices. We found the
Invoices
General Counsel took exception to and would not approve
labor charges for local travel as well as other labor charges
the Counsel referred to as “administrative time”. Counsel’s
adjustments to invoices reviewed between July and
December 1999 reduced legal expenses by $4,655.
Though the CHA’s General Counsel reviewed invoices
submitted by legal service providers, we found Counsel
could monitor legal services better if a daily log
documenting phone calls and meetings with legal service
representatives was compared to firms’ invoices. It was
during these phone calls and meetings that General Counsel
would assign work to the firms or discuss their legal work.
Without making the comparisons, Counsel had to rely on
memory to review invoices and labor charges resulting
from these work assignments or phone discussions. The
comparisons would assist Counsel to corroborate the
accuracy and appropriateness of the invoices.
We reviewed legal invoices totaling $155,681 the CHA
Bulk of Legal Service paid from October through December 1999 to determine
Costs Were Adequately the effectiveness of the General Counsel’s review process.
Supported The legal service costs consisted of labor and reimbursable
expenses such as photocopying, telephone calls, faxes,
postage, and stenographer fees. We reviewed available
documentation supporting the payments and determined
that $108,632 had adequate support.
2001-PH-1002 Page 22
Finding 2
Insufficient Support For The CHA did not have adequate documentation to support
Some Legal Service Costs the remaining $47,049 in legal service payments. Our
review of available contracts and invoices showed that they
were not adequate to determine if the payments were
appropriate. During our review, Counsel requested the law
firms to provide additional information relating to these
invoices. We reviewed the additional information Counsel
provided.
The additional documents supplied by law firms to the
CHA were sufficient to support $26,458 of the $47,049 we
questioned initially. Of the remaining $20,591, we
determined $11,501 were still unsupported, and $9,090
were ineligible costs. The ineligible costs represented
duplicate payments, undetected billing errors, and over-
billings for labor and other expenses. We also found the
CHA underpaid two firms $4,702 which constitutes
unrecorded liabilities.
There are occasions when the General Counsel needs to be
Invoices Need To Be
more thorough in reviewing the invoices. Also, the CHA
Complete and Reviewed
needs to be a more demanding customer; requiring all law
More Thoroughly
firms to provide a level of detail in their invoices that will
allow the CHA to effectively examine charges. Also, the
firms need to provide documentation supporting all claims
for reimbursable expenses.
We found legal service invoices lacking: the names of the
attorneys charging time on the invoice; the attorneys’
billing rates; and extensions of the dollar amounts for
individual time charges. Further, the CHA did not maintain
lists of each firms’ employees by position and the
authorized billing rate for each employee. Without detailed
information of this sort in the CHA’s files, contracts, or
invoices, Counsel lacked the means to do comprehensive
validations of the charges received for legal services.
Generally, the law firms did not provide the CHA
documentation to support the reimbursable expenses they
claimed on their invoices. Though labor was clearly the
greater part of the invoiced costs, the CHA should still
require law firms to provide documentation to substantiate
their claims of reimbursable expenses.
Page 23 2001-PH-1002
Finding 2
The procedures under development for reviewing and
Additional Controls paying invoices will assist the CHA in their administration
Would Improve CHA’s of legal service contracts. However, the CHA needs to
Administration of Legal establish controls to accumulate the data needed to perform
Service Contracts efficient, effective reviews of legal service invoices.
Auditee Comments CHA agrees with Recommendation 2C. CHA also provided
additional documentation for Recommendations 2D through
2F to address some unsupported and ineligible costs, and
unrecorded liabilities. CHA disagrees with some of the facts
and their response is provided as Appendix B.
OIG Evaluation of We modified the report, where necessary, based on an
Auditee Comments evaluation of CHA’s response and additional information
submitted with CHA’s response.
Recommendations We recommend that you request the Court to advise the
Receiver to:
2C. Direct the CHA to establish controls which will
enable the CHA to do efficient and effective
reviews of legal service invoices. The controls
should include:
• written procedures for reviewing invoices;
• a contract register, log, or similar system that
will readily identify contracts, actual and
estimated costs for legal service tasks, and
amounts due and paid for legal services
rendered;
• lists of the law firms’ employees working on the
CHA matters including names, positions and
billing rates;
• a log, maintained by Counsel, which documents
phone conversations and meetings with legal
service representatives;
• invoices from law firms itemizing the names of
the attorneys charging time, the attorneys’
2001-PH-1002 Page 24
Finding 2
billing rates, and extended dollar amounts to
individual time charges; and
• documentation from law firms to support claims
for reimbursable expenses.
2D. Direct the CHA to provide documentation to
explain the $11,501 in unsupported legal service
costs. The CHA should reimburse its operating
account from non-Federal sources, costs that it
cannot support as a justifiable CHA legal service
cost.
2E. Direct the CHA to reimburse the CHA’s operating
fund $9,090, from non-Federal funds, representing
the ineligible costs charged to the CHA legal
services.
2F. Investigate with the appropriate law firms the status
of the $4,702 we identified as unrecorded liabilities.
C. General Counsel’s Conflict of Interest
The CHA hired a General Counsel in July 1999. Counsel’s responsibilities included assigning
legal work to outside law firms, monitoring the firms’ progress, and reviewing and approving
invoices for payment. In June 1998, the Receiver engaged a law firm owned by Counsel's spouse
to perform legal work for the CHA. We found that the CHA Counsel reviewed and approved
payment of invoices submitted by the Counsel’s spouse’s firm. Furthermore, we learned that
Counsel was a joint owner of the law firm. This familial relationship of Counsel to the law firm
principal and Counsel’s ownership interests in the law firm constitutes a conflict of interest.
According to 24 CFR 85.36 (b) (3), no employee, officer or
Guidance For Conflict Of agent shall participate in the selection, or in the award or
Interest Situation administration of a contract supported by Federal funds if a
conflict of interest, real or apparent, would be involved.
Further, the CHA’s Human Resources Policy Manual,
dated July 1999, requires personnel to discuss conflicts of
interest with either their supervisor or the Human
Resources Manager.
We attempted to meet confidentially with the CHA’s
Executive Director to determine whether Counsel disclosed
the apparent conflict of interest. However, we canceled the
meeting because Counsel insisted on attending the meeting.
Page 25 2001-PH-1002
Finding 2
Counsel said that the Court directed Counsel to attend all of
our meetings with the CHA personnel.
We notified the Court to explain the sensitivity of the
conflict of interest situation. The Court said the Executive
Director was already aware of the apparent conflict of
interest. Also, to avoid any perception of impropriety, the
Court directed that services provided by Counsel’s spouse
be scaled back, and assignments of new work to the
spouse’s firm made only with the approval of the Receiver
and the Court. Further, the Court said the Receiver was
reviewing and approving the subject firm's invoices.
We reviewed the subject firm’s invoices and related records
Counsel Reviewed and maintained by the CHA and found no evidence the
Approved Spouse’s Receiver reviewed and approved the invoices for payment.
Invoices From July through December 1999, the firm addressed
invoices totaling more than $16,500 to the CHA and not the
Receiver. While Counsel annotated approval on each
invoice, there was no indication the Receiver had seen the
invoices. The Court did not permit us to discuss this issue
with the Receiver or to review the Receiver’s records,
which may have provided additional information.
Since the Executive Director was aware of Counsel’s
relationship with the subject law firm, we anticipated a
corresponding management control over the processing and
payment of this law firm’s invoices. The CHA Executive
Director was responsible for authorizing payment to the law
firms after the invoices were reviewed and approved by
Counsel. The Executive Director was not responsible for
critically reviewing the invoices. Rather, the Executive
Director relied on Counsel to review the invoices and
ensure that the charges represented assigned work, were
consistent with the contract terms, and were fully
supported.
Counsel, in reviewing invoices from the subject law firm,
did not detect, and the Executive Director authorized
payment for, a $5,000 double billing and a $3,000 bill for
services not supported by a contract. The CHA disbursed
$8,000 for these invoices. We requested the CHA to
provide the contract supporting the $3,000 payment. The
CHA did not provide any documentation to support this
payment. The ineligible and unsupported costs associated
2001-PH-1002 Page 26
Finding 2
with these payments are covered by Recommendations 2D
and 2E under Part B of this finding.
Auditee Comments CHA agrees with the recommendation, but disagrees with
some of the reported facts. CHA’s response is provided as
Appendix B.
OIG Evaluation of CHA’s comments were reviewed and considered, and there
Auditee Comments are no modifications to the report.
Recommendation We recommend that you:
2G. Request the Court to direct the Receiver to remove the
CHA General Counsel from participating in the future
assignment of work to, or reviewing invoices
submitted by, the law firm owned by Counsel and
Counsel’s spouse. The individual assigning work to,
and reviewing the invoices submitted by, Counsel’s
spouse should be independent of the CHA General
Counsel.
Page 27 2001-PH-1002
Finding 2
(THIS PAGE LEFT BLANK INTENTIONALLY)
2001-PH-1002 Page 28
Finding 3
CHA Has Not Yet Established Adequate
Controls Over Out-of-Pocket Expenses and
Credit Card Charges
During our prior audit work, we noted that the CHA did not have the prerequisite controls to
ensure out-of-pocket expenses and credit card charges were adequately supported and eligible for
payment. During the current review, we decided to update these conditions to learn whether the
CHA had developed the necessary procedures. The following two sections explain the results of
our updated audit work.
A. The CHA Lacked Documentation to Support Reimbursements for
Receiver Out-of-pocket Expenses
In April 1995, the Court authorized the Receiver up to $5,000 per month for actual out-of-pocket
expenses. This allowance was retroactive to January 1995. Beginning March 1, 1997, the Court
reduced the allowance to $2,500 per month at the Receiver’s request. The Receiver made the
request because he would not be incurring automobile and housing costs due to the departure of
the Acting Executive Director, a Receiver employee. During the period from January 1995 to
December 1999, the CHA paid $215,000 to the Receiver for out-of-pocket expenses.
Office of Management and Budget (OMB) Circular A-87, Cost Principles for State, Local, and
Indian Tribal Governments, provides principles for determining allowable costs for Federal
awards. This Circular stipulates costs must be reasonable, necessary, adequately documented and
consistently treated. Title 24 CFR 85.20 requires that accounting records be supported by source
documentation such as canceled checks and paid invoices. Also, the Court, in authorizing the
out-of-pocket expenses, noted that the funds were to reimburse the Receiver for actual out-of-
pocket expenses incurred.
There was considerable discussion between HUD and the
Out-of-Pocket Expenses Receiver in defining what type of costs should be included
Defined as out-of-pocket expenses. In a December 6, 1995 meeting,
HUD and the Receiver’s representatives agreed that out-of-
pocket expenses would include the Receiver’s travel
expenses to Philadelphia for meetings related to the CHA,
travel expenses to the CHA for Receiver employees, and
copying expenses for documents related to the
Receivership. The Court never defined in writing the types
of expenses that would be out-of-pocket expenses.
However, the Court informed us during a meeting that out-
of-pocket expenses would include travel and related costs
Page 29 2001-PH-1002
Finding 3
incurred by the Receivership in providing services to the
CHA. In our view, the Court, HUD, and Receiver were
reasonably consistent in their understanding of what costs
constituted out-of-pocket expenses for the Receivership.
During our earlier audit work, we noted that the CHA
CHA Did Not Maintain reimbursed the Receiver for his out-of-pocket expenses but
Documentation did not maintain documentation to support that the costs
were reasonable or that the expenditures represented
appropriate uses. We informed the CHA of this condition
at the time of our earlier work and decided to update this
condition during the resumed audit.
CHA personnel did not review Receiver claims for out-of-
CHA Did Not Review pocket expenses. The CHA, as a matter of routine, simply
Receiver’s Claims paid the Receiver’s out-of-pocket expense invoices without
question and without requiring the Receiver to produce
documentation to support the claim. Further, though the
payments to the Receiver were designed to be
reimbursements for actual costs, the Receiver billed the
CHA at the beginning of the month in anticipation of costs
being incurred. The CHA advanced the maximum
authorized amount for out-of-pocket expenses without
objection or observation that the practice was contrary to
the procedure set by the Court.
The CHA personnel were subordinate to the Receiver.
CHA Responsibility for Consequently, having a subordinate review and possibly
Reviewing Out-of-Pocket questioning the expenses submitted by the Receiver would
Expenses not have been appropriate. Therefore, the CHA managers
may not have considered developing procedures for
processing Receiver out-of-pocket expenses as being in
their authority. It is a management weakness for
subordinates to review the expenses of a manager having
significant control and authority over the subordinates. As
a consequence, the Court was in the best position to provide
oversight for the Receiver’s out-of-pocket expenses.
The Court assumed responsibility for reviewing the
Court Review of Out-of- Receiver’s out-of-pocket expenses. The Court informed us
Pocket Expenses the Receiver provides the Court with a monthly summary of
the out-of-pocket expenses, and the Court reviews the costs
claimed for reasonableness and appropriateness. The Court
instructed the auditors not to audit these expenses.
Therefore, we relied on the Court’s assurances that out-of-
2001-PH-1002 Page 30
Finding 3
pocket expenses claimed by the Receiver and reimbursed
by the CHA were reasonable and for authorized purposes.
The Court said that the Receiver did not submit
Court Authorization to documentation to support the costs listed on the summary
Pay Out-of-Pocket of out-of-pocket expenses. However, the Court noted that
Expenses it was familiar with cost reasonableness for transportation,
hotel accommodations and meals, and would be able to
identify amounts that were out of line. The Court also
noted that invariably the Receiver’s out-of-pocket expenses
were greater than the monthly allowance for these costs.
Therefore, there was no need to pay the Receiver less than
the maximum amount established for out-of-pocket
expenses. The Court acknowledged that, as a matter of
practice, it did not provide the CHA written notification of
its reviews nor written authorization that the CHA should
reimburse the Receiver. The Court said that in the future,
after reviewing the Receiver’s out-of-pocket expenses, it
would submit written authorization to the CHA to
reimburse the Receiver.
Providing the CHA with written authorization offers
Need to Fully Support
assurance that there is oversight for the out-of-pocket
Out-of-Pocket Expenses
expenses claimed by the Receiver. The CHA not making
disbursement until it receives the Court’s authorization
should preclude further advances of out-of-pocket expenses
being made to the Receiver. However, for the CHA to
comply with the Federal requirement that costs be
adequately documented by source documentation, the Court
should forward the Receiver’s cost summaries with the
payment authorization to the CHA. Also, the Court should
direct the Receiver to submit the actual payment receipts
for the out-of-pocket expenses to the CHA so that its
accounting records will be complete. Recording these
procedures in writing and providing them to the CHA will
enhance fiscal controls.
CHA agrees with the recommendations, but did not agree
Auditee Comments with some of the reported facts. CHA’s response is provided
as Appendix B.
OIG Evaluation of CHA’s comments were reviewed and considered, and there
Auditee Comments are no modifications to the report.
Page 31 2001-PH-1002
Finding 3
Recommendations We recommend that you:
3A. Confirm that the CHA does not reimburse Receiver
out-of-pocket expenses until it receives the Court’s
written notification that it has reviewed the
expenses and that the CHA is authorized to pay the
reimbursement.
3B. Request the Court to help the CHA maintain
complete records of its financial transactions by
forwarding to the CHA the approved Receiver
summary of out-of-pocket expenses to serve as a
supporting document. Also, request the Court to
direct the Receiver to submit to the CHA the actual
payment receipts for the out-of-pocket expenses
claimed on the summary.
3C. Request the Court to direct the Receiver to provide
the CHA written procedures that require receipt of
the Court’s written notification and authorization,
and the Receiver’s supporting documentation prior
to reimbursing the Receiver for actual out-of-pocket
expenses.
B. The CHA Lacked Documentation to Support Payments for Credit Card
Expenses and Incurred Unnecessary Expenses
The Receiver, the former CHA Acting Executive Directors, and the current CHA Executive
Director had the use of the CHA credit cards. From July 1995 through December 1999, the CHA
paid $59,066 in credit card charges. The Court did not grant access to credit card information
covering the period April through December 1998 because it believed this information was
unnecessary to accomplish our audit objective.
OMB Circular A-87 describes the principles for
Costs Must be Supported determining allowable costs for Federal awards. Circular
A-87 stipulates that costs must be reasonable, necessary,
adequately documented and consistently treated. Also, 24
CFR 85.20 requires that accounting records be supported by
source documentation.
2001-PH-1002 Page 32
Finding 3
During our earlier work we recognized the CHA did not
The CHA Did Not Have have written procedures governing the use of credit cards or
Written Procedures explaining the administration of credit card transactions.
Consequently, the CHA lacked guidance for ensuring credit
card expenditures were reasonable and necessary to the
CHA’s operations and adequately supported. Due to the
CHA’s earlier procedural weakness over credit card usage
and processing credit card statements, we wanted to
determine the updated status of these conditions to see if
the CHA made the obligatory improvements to this portion
of its financial operations.
Our overall review covered CHA’s credit card activity from
Scope of Credit Card July 1995 through December 1999, excluding the period
Review April through December 1998. The Court did not permit us
access to the records for these nine months. Our prior
review work covered the period July 1995 through March
1998, and our current work covered the period January
through December 1999. We noted the same conditions
during both periods.
Though we wanted to review the source documents
supporting credit card expenses, the CHA did not grant
access to the original documents. We had to rely on copies
of the documents. Normal audit practice is to rely on the
original documents.
Our review of credit card transactions during the period
July 1995 through March from July 1995 through March 1998 disclosed ineligible
1998 Credit Card Activity expenditures and other charges without documentation to
explain their purpose or support their eligibility. Total
credit card charges paid by the CHA during this period
amounted to $39,569. However, the CHA did not have
procedures requiring credit card statements to be supported
with documentation prior to being paid. The statements we
reviewed did not contain receipts or information to explain
how the credit card charges were related to the CHA’s
operations. At our request, the CHA researched its records
and gathered for our review documentation for $29,255 of
the $39,569 charged to the credit card account. The CHA
did not provide adequate documentation to support
$10,314.
We reviewed the documentation supporting $29,255 in
credit card charges for adequacy and ensured the charges
represented an appropriate use of the credit cards. We
Page 33 2001-PH-1002
Finding 3
found $520 in credit card charges, for items such as
flowers, were unrelated to the CHA’s operations and
ineligible for payment with Federal funds. Another $2,239
represented costs attributable to the Receiver’s services,
such as local travel expenses, and meals and automobile
expenses for the Acting Executive Director. The
Receiver’s allowance for out-of-pocket expenses was the
appropriate funding source for these items, and historically
the Receiver charged these types of costs as out-of-pocket
expenses. Therefore, the $2,239 was ineligible as a credit
card expense. Without credit card receipts, the CHA lacked
the means to determine if cardholders were using credit
cards appropriately.
Credit card charges during 1999 totaled $19,497. During
January 1999 through
our current review, we found the CHA made improvements
December 1999 Credit
in administering credit card charges for payment. Because
Card Activity
of concerns raised by the auditors during our earlier work in
1998, the CHA began collecting credit card receipts and
supporting documents and attaching them to the credit card
statements. This allowed the CHA to reconcile the credit
card statements with the supporting receipts and ensure
charges were adequately supported. Though the CHA has
the means to assure credit card charges are adequately
supported, we found that the CHA needed to provide the
cardholders additional guidance to ensure credit cards were
being used for appropriate purposes.
We reviewed the documentation supporting the $19,497 in
1999 credit card charges. We found the CHA did not have
adequate documentation for $701 of its 1999 credit card
charges. There was either no support for the charges or else
the documentation was insufficient to explain how the
charges related to the CHA’s operations.
We attributed the ineligible credit card payments to: staff
not having a clear understanding of what charges were
permitted; the absence of written guidance specifying the
purpose of the credit card; and the types of costs for which
credit cards may be used.
In response to our inquiries to the CHA policies and
The CHA Develops procedures governing credit card use, the CHA
Credit Card Procedures supplemented its Human Resources Policy Manual with a
policy on credit card use on May 12, 2000. The policy
covered: the positions authorized to hold and use credit
2001-PH-1002 Page 34
Finding 3
cards; the official business uses of credit cards; credit card
security; the process for approving credit card transactions;
and the reconciliation process prior to paying the credit card
statement.
We are encouraged the CHA adopted the credit card
New Procedures Need procedures and believe their implementation will correct
Strengthening the conditions we noted in this finding. However, we
believe the procedures can be more complete and more
effective if they also: remind the card holder that credit
card charges should be reasonable and necessary; prescribe
a maximum amount for an individual credit card
transaction; specify a CHA position with responsibility for
reconciling credit card statements with credit card receipts
and assuring the charges are for authorized CHA purposes;
and specify appropriate actions in the event of unsupported
charges or charges for unauthorized purposes.
CHA generally agrees with the three recommendations, but
Auditee Comments disagrees with Recommendation 3F. CHA said
Recommendation 3F was not part of the current audit
because it addressed pre-1999 credit card costs. CHA also
submitted additional documentation relating to unsupported
and ineligible costs. In addition, CHA disagrees with some
of the reported facts. CHA’s response is provided as
Appendix B.
We modified the report, where necessary, based on an
OIG Evaluation of evaluation of CHA’s response and additional information
Auditee Comments submitted with CHA’s response.
Regarding Recommendation 3F, CHA contended that the
audit was not to include a review of pre-1999 credit card
expenses and we had closed this issue. This was not the
case. In our letter notifying the Court, the Receiver, and the
CHA of our resumed audit, we said we needed to update
conditions we noted during our earlier review. We reiterated
this to the Court during our audit. As such, CHA still needs
to explain the $11,015 in credit card charges lacking
adequate support ($10,314 from 1995 through 1998 and
$701 from 1999).
Page 35 2001-PH-1002
Finding 3
Recommendations We recommend that you request the Court to:
3D. Advise the Receiver/CHA to amend its credit card
procedures by including requirements that:
• stipulate that credit card purchases be reasonable
and necessary;
• establish a maximum amount for individual
credit card transactions;
• charge a specific CHA position with
responsibility for reconciling credit card
statements with credit card receipts and ensuring
the charges are for authorized CHA purposes;
and
• specify actions the CHA will take in the event of
unsupported credit card charges or charges
incurred for unauthorized purposes.
3E. Advise the Receiver that the $2,239 in credit card
charges attributable to the Receivership should have
been claimed as part of Receiver’s out-of-pocket
expenses. Therefore, direct the Receiver to pay $2,239
to the CHA’s operating fund.
3F. Advise the Receiver to secure from the appropriate
cardholder, documentation to explain the $11,015 in
credit card charges lacking adequate support ($10,314
from the 1995 through 1998 period and $701 from
1999). Any portion of the $11,015 the CHA cannot
support with documentation, or if the charge is found
to be for unauthorized or otherwise ineligible
purposes, must be reimbursed to the CHA operating
account from non-Federal sources.
3G. Advise the Receiver to direct the Authority to
reimburse $520 (from the 1995 through 1998 period)
to the operating fund with non-Federal funds for the
ineligible expenses paid with Federal funds.
2001-PH-1002 Page 36
Finding 4
CHA Should Effect Further Improvements In Its
Rents Receivable and Rent Collection Practices
During our prior audit work, we noted that CHA’s Tenant Accounts Receivable (TARs) were
excessive and that the CHA encountered significant challenges in maintaining adequate rent
collections. Since that time, the Receiver and the CHA have reduced TARs significantly and
established a more effective rent collection operation. Although the Receiver and the CHA made
significant progress to improve its rent collections, the CHA can screen prospective tenants
better, be more consistent in applying its rent collection strategies, and ensure that collection
efforts are not ended prematurely.
CHA Has Moderated A 1999 consultant’s report noted that prior to the
Problems In Rent appointment of the Receiver in 1994, the CHA historically
Collections and suffered from severe management problems.
Delinquencies Mismanagement impacted heavily the quality and condition
of the CHA’s public housing units. CHA management
would not or could not act against tenants who chose not to
pay rent. Also, residents who voluntarily entered into
repayment agreements for back rent regularly failed to live
up to their agreements. Consequently, the CHA often
initiated tenant eviction actions in an effort to collect
overdue rent. However, since housing was often
substandard, the Court excused tenants from their rent
obligations and ordered the CHA to abate their rent. The
CHA’s modernization program has improved housing
quality. Therefore, the matter of tenants not paying rent
because of substandard housing conditions is no longer an
issue.
The CHA has been able to substantially improve its
collections of tenant rent and reduce its tenant rent
delinquencies. The CHA was able to accomplish these
improvements by adopting several strategies that included:
implementing a Federal Master System for evictions;
abating TARs; using repayment agreements; counseling
tenants on negative effects of bankruptcy filings;
developing a policy to evict tenants that habitually paid rent
late; and refusing to accept partial payments of rent once
the CHA initiated the eviction process.
Page 37 2001-PH-1002
Finding 4
The CHA Reduced TARs The CHA tenant rent is due on the first of the month and
and Losses, and Improved payable by the fifth of the month. When the CHA provides
Rent Collections housing to a tenant, it records the amount due as rental
income and as a TAR if the tenant does not initially pay the
rent due. If the CHA later determines that a TAR is
uncollectable, the CHA records the amount as a loss.
Applicant screening practices, rent collection strategies,
loss recording policies, and modernization efforts can have
a major impact on the Rental Income, TAR, and Losses
Accounts. The impact of the Receiver’s and the CHA’s
initiatives on the three accounts follow.
Rental Income
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$0
1995 1996 1997 1998 1999
The Rental Income Account, amounts earned but not
Rental Income necessarily collected, decreased from $2,125,538 in 1995 to
$1,796,092 in 1999, or 16 percent. This was due primarily
to the reduction in the number of tenants because of the
ongoing modernization efforts. The CHA informed us that
for 1999, 86 percent of the tenants paid rent during the
month it was due and that overall rent collections for the
year were 97 percent of rents due. During 1995, the CHA
only collected 57 percent of rents due. According to the
CHA, overall rent collections improved a significant 40
percent.
2001-PH-1002 Page 38
Finding 4
Downward Trend In CHA TARs And Losses
$1,000,000
$900,000
$800,000
$700,000 1995
$600,000 1996
$500,000 1997
$400,000 1998
$300,000 1999
$200,000
$100,000
$0
TARs Losses
TARs and losses decreased substantially from 1995 through
TARs and Losses 1999. The CHA reduced its TARs from $925,055 in 1995
to $169,841 in 1999, a decrease of 82 percent. This
decrease is even more notable when examining TAR
balances for individual tenants. We compared August 1997
TAR data to March 2000 data. In August 1997, the TAR
balance was $676,691. Of this amount, there were 150
tenants with TAR balances over $1,000. The balances for
these 150 tenants totaled $602,054, with individual
balances as high as $17,474. As of March 2000, the TAR
balance was $122,940. Of this amount, there were 30
tenants with TAR balances over $1,000. The TAR
balances for these 30 tenants totaled $73,068, with
individual balances as high as $6,256.
The CHA also reduced its losses from $660,746 in 1995 to
$310,641 in 1999, a decrease of 53 percent. Of more
importance was the relationship of the losses and TARs to
the rental income for the same period.
Page 39 2001-PH-1002
Finding 4
Comparison of Losses and Receivables
to Rental Income
60%
40% Losses/Rent
20% Receivables/Rent
0%
1995 1996 1997 1998 1999
The TAR/Rental Income indicator decreased from 44
percent in 1995 to 9 percent in 1999. This was a significant
improvement. The Losses/Rent indicator decreased from
31 percent in 1995 to 17 percent in 1999, another
significant improvement.
We wanted to determine the methods CHA used to improve
rent collections and reduce TARs. We found the changes
could be attributed mainly to four factors:
• modernization of housing stock
• screening applicants
• collection strategies
• recording losses
We reviewed the CHA’s files and performed other tests to
determine how well the CHA employed these factors and to
see if the CHA could realize additional improvements in its
rent collections and TARs.
A. HUD and the CHA Devoted Resources to Modernize Housing Stock
From 1995 to 1999, HUD provided over $98 million to improve the CHA’s housing. The CHA
gutted, partially demolished and rehabilitated one development, and completely demolished and
rebuilt another development. Presently, the CHA is demolishing and reconstructing two other
developments. Due to these modernization efforts, the condition of the CHA’s housing stock has
improved considerably. Because of the improved housing stock, the number of Court ordered
TAR abatements went down substantially since abatements were based mainly on the condition
of the units. Therefore, the amount of TAR write-offs (losses) decreased. Also, the ongoing
modernization efforts enabled the CHA to divest itself of hard-core tenants who refused to pay
their rent.
2001-PH-1002 Page 40
Finding 4
B. A Strong Applicant Screening Program Can Create More Acceptable
TAR Levels
According to HUD’s Public Housing and Occupancy Handbook, HUD Handbook 7465.1 Rev-2,
a public housing authority must make an informed judgment about an applicant’s suitability as a
tenant. The handbook prescribes the authority to examine the applicant’s history of meeting
financial obligations, especially rent. The CHA’s Admissions and Continued Occupancy Plan
(ACOP) revised October 1999, Chapter 2, reiterates HUD guidance and defines the CHA’s
criteria for admission to public housing. It states the CHA will screen applicants to assess their
suitability as renters. The CHA Procedures Manual, dated August 15, 1994, identifies the
detailed steps admission personnel perform when they screen applicants.
An effective applicant screening program considers such factors as an applicant’s rent payment
history, housekeeping practices, social interaction with neighbors, and police history. We found
the CHA could do a better job evaluating prospective tenants. For example, the CHA did not
always: do criminal checks; analyze credit reports nor have evaluation standards for reviewing
credit reports; contact prior landlords to determine applicants’ rent paying habits; and correctly
apply its housekeeping inspection standards. We attributed these conditions to a lack of
diligence, inadequate training, and incomplete procedures. As a result, the CHA did not ensure it
was accepting applicants for its units who could or would meet their full obligations as tenants.
Better tenant screening should lead to a tenant population that creates a more acceptable level of
TARs and improved rent collections.
A CHA report of rejected applicants covering the period
The CHA Screened from July 1999 to June 2000 identified 57 applicants denied
Prospective Tenants for cause. The reasons for denial included: 18 for negative
criminal reports; 23 for negative credit checks; four for
negative rental references; seven for negative housekeeping
inspections; and five for other causes. Although the report
indicated the CHA was screening applicants, we reviewed
CHA records to determine the documentation maintained to
substantiate applicant screening.
We reviewed the files of 20 tenants, who occupied the
Review of Files CHA units between July 1999 and May 2000, to confirm
the CHA’s screening checks. We looked for evidence the
CHA did criminal checks, obtained and analyzed credit
reports, obtained rental references from prior landlords, and
performed housekeeping inspections. Following are the
results of our review.
Applicant Criminal Checks
Page 41 2001-PH-1002
Finding 4
CHA procedures require admissions personnel to do
criminal checks for applicants of the CHA units and site
managers to maintain the criminal checks in the tenants’
files. The tenant files for 7 of 20 tenants we reviewed did
not contain evidence of criminal checks being done. The
Deputy Executive Director later provided evidence of
criminal checks for 5 of the 7 tenants but did not explain
why the checks were not in the tenants’ files. There was no
information of criminal checks for the two remaining
tenants. Drug and criminal activity has been a problem at
the CHA. The CHA’s General Counsel informed us that 4
of the last 12 eviction actions were for the “One Strike
You’re Out” policy. Thorough applicant criminal checks
will aid the CHA to avoid these types of tenants.
Applicant Credit Checks
CHA procedures require admissions personnel to perform
credit checks for housing applicants and site managers to
maintain these checks in the tenants’ files. Only 1 of the 20
tenant files we reviewed lacked an applicant credit report.
More importantly, however, the files did not contain
evidence that anyone from the CHA critically reviewed the
credit reports to determine the applicant’s financial
suitability for a CHA unit. Further, the CHA procedures
did not contain guidance for reviewing, or standards for
evaluating credit report histories. The credit reports for five
tenants showed creditors writing off the applicants’ debts as
uncollectable. For three of the five tenants, creditors wrote-
off tenants’ debts at least four times. The creditors for one
tenant wrote-off debts 11 times.
References From Prior Landlords
As part of the CHA’s evaluation of applicants for housing,
the CHA should contact prior landlords to consider their
experiences with the applicant. The CHA’s ACOP requires
admissions personnel to obtain rental references from the
prior landlord when a housing applicant resided less than
five years with the current landlord.
While the CHA received positive references from
applicants’ landlords, there were 9 tenants in our sample of
20 who had resided less than five years with their current
2001-PH-1002 Page 42
Finding 4
landlords. The CHA did not obtain rental references from
the prior landlords for these nine tenants.
One tenant’s file from another review illustrated the result
of not obtaining landlord references. That file contained
documentation that the tenant’s prior landlord was another
public housing authority. We contacted that authority and
found the tenant owed that authority $1,059. The CHA’s
files did not contain any evidence that it requested a rental
reference from the other authority. The CHA eventually
evicted the tenant for non-payment of rent.
Housekeeping Inspections
Housekeeping inspections assure that prospective tenants
exhibit acceptable housekeeping habits. The CHA’s ACOP
contained a checklist for use by admissions personnel to
evaluate prospective tenants. However, CHA personnel
used a different checklist, less detailed than the ACOP
checklist, when inspecting applicants’ residences. The
Deputy Executive Director said the detailed checklist was
for the CHA’s annual unit inspection, and the less detailed
checklist was more appropriate for applicant home
inspections.
We examined the less detailed inspection checklist and
found it effective for evaluating housekeeping habits. If the
CHA intends to use the less detailed inspection checklist in
this manner, it should amend its procedures to stipulate this
checklist as the mechanism for inspecting prospective
tenant housekeeping.
Though the inspections appeared effective, we found that 2
of the 20 tenant files we reviewed did not pass the
housekeeping inspection and yet the tenants were granted
admission to the CHA units. There was no information in
the tenants’ file justifying giving units to tenants who failed
the housekeeping inspections. The two tenants were too
recent to have received the CHA’s annual housekeeping
inspection.
Effective use of screening procedures would enable the
Need to Develop
CHA to make further progress in reducing TARs and
Complete Procedures,
improving rent collections. CHA has entered into a
Train and Monitor Staff
Page 43 2001-PH-1002
Finding 4
contract to develop written procedures for screening
housing applicants. CHA needs to ensure these procedures
are complete and contain criteria for performing criminal
checks; analyzing credit reports; contacting prior landlords;
and performing housekeeping inspections. The staff will
need to be trained and monitored on the use of the
procedures to ensure the procedures and training are
effective.
CHA agrees with the recommendations, but disagrees with
Auditee Comments some of the reported facts. CHA’s response is provided as
Appendix B.
OIG Evaluation of CHA comments were reviewed and considered, and there are
Auditee Comments no modifications to the report.
We recommend that you request the Court to direct the
Recommendations Receiver to:
4A. Ensure procedures under development prescribe the
CHA to screen applicants. The screening program
should include:
• criminal checks;
• credit checks;
• rental references from prior landlords; and
• housekeeping inspections.
Also, the screening program should include
guidelines for interpreting data obtained from the
checks, references, and inspections.
4B. Define the Housekeeping Inspection Checklist to be
used during the admission process.
4C. Advise the CHA to train and monitor admissions
personnel on the procedures to ensure the
procedures are effective and applied correctly.
C. The CHA Did Not Demonstrate It Implemented Collection Strategies
2001-PH-1002 Page 44
Finding 4
The CHA did not have up-to-date comprehensive written rent collection and eviction procedures
to provide its employees guidance for executing effective rent collection strategies. The CHA
officials said the procedures were out-of-date and were being rewritten to reflect a change in
management philosophy. The CHA contracted with a consultant to write the rent collection
procedures. Incomplete tenant files complicated our efforts to examine the CHA’s actions to
collect delinquent rents and pursue evictions for non-paying tenants. We also could not
determine the effectiveness of the training received by the CHA staff to apply the rent collection
strategies because training was not always documented. From our review, we did learn that the
CHA staff was not consistent when preparing and forwarding payment requests to delinquent
vacated tenants. Also, the CHA did not report delinquent vacated accounts to a credit-reporting
agency. Further, we noted the CHA’s contract with a collection agent for vacated tenant
receivables was silent regarding the actions the agent must take to collect past due rent.
The ACOP, Chapter 14, provides that when families owe
The CHA Did Not Have
money to the CHA, the CHA will make every effort to
Comprehensive Written
collect it. It requires the CHA to use a variety of collection
Procedures for Rent
tools to recover debts including, but not limited to,
Collection
preparing requests for lump sum payments, and reporting
delinquent vacated accounts to collection agencies and
credit reporting agencies. The CHA Procedures Manual
contains steps for preparing and forwarding lump sum
payment requests to vacated tenants, forwarding delinquent
accounts to collection agencies, and requesting collection
agencies to report uncollectable debts to a credit-reporting
agency.
The CHA did not have up-to-date comprehensive written
procedures to guide its rent collection efforts and eviction
proceedings. The CHA’s General Counsel provided the
following narrative description of the CHA’s process for
delinquent tenants.
A tenant who has not paid rent is sent a CHA late notice on
the fifth day of the month. If the tenant has not paid the
rent due by the 15th day, the CHA sends the tenant a Notice
to Quit. This Notice informs the tenant to vacate the
premises unless the tenant pays all the rent within the next
15 days. It also informs the tenant of the grievance process
should the tenant believe there is a just cause for not
paying rent. Failure to pay or vacate will result in the
CHA notifying the law firm responsible for eviction
litigation. The law firm files a Request for Hearing and
Order to initiate the eviction process. Court hearings can
result in judgments, eviction orders, abatement of rent, and
Page 45 2001-PH-1002
Finding 4
repayment agreements. When delinquent tenants leave
public housing, the CHA provides them lump sum payment
requests.
The CHA’s General Counsel stated it could take over 10
months to evict a tenant for non-payment of rent.
CHA entered into a contract with a consultant to develop
these procedures to move from a central-based to a site-
based management system. Meanwhile, employees relied
on fragmented guidance found in other documents such as
the ACOP and standard lease.
The CHA General Counsel told us managers trained their
Training Not Documented staff on new or changed policies, procedures or initiatives
at weekly staff meetings. We reviewed the Property
Management Director’s minutes from weekly staff
meetings held in 1999 to determine the extent of staff
training. From January to August, minutes were available
for 14 meetings. There were no minutes of meetings after
August. While there was evidence of training at some
meetings, we could not determine the extent of training
provided or establish the training’s effectiveness because of
the lack of documentation.
Tenants’ files did not contain information that identified
Tenant Files Were Not significant events relating to a tenant's occupancy. The
Complete files frequently lacked: late notices, Notices to Quit,
repayment agreements, Requests for Hearing and Order,
Notices of Hearing Date, Notices of Disposition, appeals,
and Notices of Intent to Vacate. These documents are
necessary for the eviction process.
In September 1999, HUD recommended the CHA use
Notation Sheets to record significant events for tenants.
Since files were incomplete and the CHA did not record all
significant events on the Notation Sheets, the CHA lacked a
ready means to determine all the significant actions that
occurred during a tenant’s residency.
We reviewed the files of 20 tenants, who became
Review of Recent
delinquent during 2000, to determine if the CHA used the
Delinquent Tenants
procedures narrated to us by the CHA Counsel. We found
2001-PH-1002 Page 46
Finding 4
no evidence in the tenants’ files that the CHA prepared late
notices for 19 of 20 delinquent tenants. Similarly, Notices
to Quit were absent for 17 of 20 files sampled. We
requested Counsel to research legal files for the documents,
and 4 additional notices to quit were provided.
Though the CHA’s documented collection efforts for the 20
delinquent tenants were incomplete, we found the 20
tenants eventually paid in full or the CHA initiated eviction
actions.
Having the CHA take aggressive action to collect
Tenants Vacated Owing delinquent rent, even after a tenant vacates a CHA unit, can
Back Rent encourage remaining tenants to keep their rent current. The
CHA’s ACOP and Procedures Manual prescribed specific
actions in the event a tenant vacated a unit owing rent.
These actions included forwarding the TAR to a collection
agency for action and having the collection agent report
uncollectable accounts to a credit-reporting agency.
We reviewed the files pertaining to the 20 largest losses
recorded by the CHA in 1999 to determine if the CHA took
the required actions. We found the CHA forwarded the
accounts to the collection agency for collection, but did not
authorize its collection agency to report tenants’
uncollectable debts to a credit-reporting agency until
February 2000. The act of reporting uncollectable debts to
a credit-reporting agency is meant to induce tenants to pay
their back rents.
Chapter 11, paragraph 1.B.4 of the CHA’s Procedures
Uncollectable Accounts Manual, requires CHA personnel to refer uncollectable
Not Reported to a Credit tenants’ accounts to a collection agent. CHA personnel are
Reporting Agency also required to request the agent to report the information
to a credit-reporting agency. The CHA’s contract with the
collection agent did not address reporting referred tenants
to a credit-reporting agency. The CHA’s Deputy Executive
Director did not know if the CHA’s collection agent
reported uncollectable accounts to a credit-reporting
agency. The Deputy Executive Director recognized that the
CHA did not have sufficient staff to report uncollectable
accounts themselves.
At our request the CHA queried the credit-reporting agency
on eight tenants who vacated the CHA units owing rent.
Page 47 2001-PH-1002
Finding 4
The credit-reporting agency did not list any of the eight
tenants’ rent delinquencies.
The CHA entered a collection service contract in 1998. The
collection service contract was essentially an engagement
letter whereby the collection agent acknowledged its
engagement by the CHA. The contract was incomplete in
that it did not:
• explain how funds collected were to be transferred
to the CHA;
• specify the minimum steps the collection agent will
take to collect funds;
• explain how collections or uncollectable amounts
were to be reported to the CHA; and
• identify the information the CHA would provide to
the collection agent.
CHA officials informed us that they contracted for
Need for Formal development of new rent collection and eviction procedures
Procedures, Training, and to reflect a change in management philosophy. Upon
Monitoring completion of the procedures, the CHA will need to train its
staff to use the procedures, and arrange monitoring to
ensure the procedures are effective, and that staff correctly
apply the procedures.
CHA agrees with the recommendations and provided
Auditee Comments additional documentation for review. CHA’s response is
provided as Appendix B.
In responding to the recommendations, CHA provided a
copy of a new collection recovery procedure that required
preparation and forwarding of lump sum payment requests to
vacated tenants, and required reporting of uncollectable rents
to a collection agency and credit-reporting agencies. CHA
also provided copies of the missing five lump sum payment
requests.
We modified the report, where necessary, based on our
OIG Evaluation of evaluation of CHA’s response and the additional information
Auditee Comments submitted with CHA’s response.
2001-PH-1002 Page 48
Finding 4
Recommendations We recommend that you request the Court to direct the
Receiver to:
4D. Ensure that the CHA’s staff is trained in the use of
the rent collection and eviction procedures, and that
the staff is monitored to determine the effectiveness
of the procedures.
4E. Advise the CHA to execute a new contract for
collection services. The contract should describe:
• information the CHA will provide to the
collection agent;
• minimum steps the collection agent must take to
collect funds;
• collection progress reporting to the CHA; and
• details on how funds collected are transferred to
the CHA.
4F. Establish procedures that ensure tenant files
document significant events relating to a tenant’s
occupancy. The documents include: late notices,
Notices to Quit, repayment agreements, Requests
for Hearing and Order, Notices of Hearing Date,
Notices of Disposition, Notices of Intent to Vacate,
Requests for Lump Sum Payment, and Notation
Sheets.
D. The CHA Recorded Losses For Tenant Rent When Collections Were
Still Possible
We attributed a portion of the reduced level of TARs to the CHA’s more effective housing
applicant screening, and more timely and active pursuit of rent delinquencies. However, we
discerned a major reason for the reduced TARs was the CHA’s write-off of uncollectable TARs
as losses to the CHA. From 1995 through 1999, the CHA wrote-off TARs totaling $2,257,226.
Though these write-offs were decreasing each year, the CHA write-offs in 1999 still amounted to
$310,641. Because recorded losses were so significant, we wanted to learn the process the CHA
used for determining TAR losses, survey the process for effectiveness, and examine a sample of
the losses the CHA has recorded for compliance with its procedures to ensure the loss
designation was appropriate. We learned that the CHA process for writing-off TARs was not
effective and caused potentially collectable TARs to be written-off prematurely.
CHA Leverage To Collect Page 49 2001-PH-1002
Delinquent Rent
Finding 4
As discussed in the preceding section, our audit work for
the vacated tenants was to assure the CHA referred these
delinquencies to their contract collection agency, and
reported the delinquent vacated tenant to a credit-reporting
agency. Other delinquent tenants vacated their public
housing units because of reconstruction, but continue to
receive housing assistance in the form of Section 8
vouchers. It was with these delinquent tenants, still relying
on the CHA for housing assistance, where the CHA
retained authority and leverage to persuade the tenant to
pay rent delinquencies.
CHA Reaction To It was the CHA procedure to compel delinquent vacated
Defaulted Repayment tenants to enter into repayment agreements with the CHA.
Agreements Through a repayment agreement, delinquent vacated
tenants acknowledged their debts to the CHA and tenants
had an avenue for repayment. Our review of delinquent
tenants, relocated during 1999 from public housing to
Section 8 housing because of modernization efforts,
showed the CHA was inconsistent in its use of repayment
agreements. Also, in those cases where the CHA executed
a repayment agreement with a vacated tenant, the CHA did
not aggressively pursue collection or eviction actions when
the tenant failed to live up to the repayment agreement.
The CHA’s lack of aggressive action may have sent the
wrong message to the CHA tenants that they could get
away without paying their rent, and may have caused the
CHA to record rent losses that were collectable if it had
been more diligent in its collection efforts.
According to 24 CFR 982.552 (b), an authority may at any
time terminate program assistance for a tenant, if the tenant
currently owes rent to an authority in connection with
Section 8 or public housing assistance. Also, an authority
may terminate a tenant’s Section 8 assistance if the tenant
breaches an agreement to pay amounts to an authority. The
CHA’s ACOP in Chapter 14, provides that when families
owe money to the CHA, the CHA will make every effort to
collect it. Further, the Section 8 Administrative Plan
requires the use of repayment agreements to collect past
due rents.
We reviewed files applicable to 13 delinquent tenants who,
Delinquent Tenants
because of the CHA’s modernization program, relocated
Relocated to Section 8
from public housing to Section 8 housing during 1999. The
Housing
2001-PH-1002 Page 50
Finding 4
13 tenants owed $28,958, ranging from $322 to $8,537 per
tenant, at the time of their move-out.
The CHA entered into voluntary repayment agreements
Repayment Agreements with only 3 of the 13 relocated delinquent tenants. The
Not Used for All three agreements were valued at $5,603. Two other tenants
Delinquent Tenants with TAR balances totaling $2,395 executed repayment
agreements about six months before they relocated to
Section 8 housing. The two tenants stopped paying on
these agreements when they relocated and CHA recorded
the balances as losses.
The CHA did not execute repayment agreements with the
other eight tenants who owed $20,961 in back rent. The
CHA wrote off the balances as losses even though the eight
tenants continued to receive Section 8 housing benefits
from the CHA. The CHA’s Deputy Executive Director
could not explain why the CHA did not enter into
repayment agreements with these eight tenants.
The payment record for the three tenants who entered into
Relocated Tenants repayment agreements when they relocated was only partly
Defaulted On Their satisfactory. One tenant, with a $743 rent delinquency, was
Repayment Agreements current with payments. The remaining two tenants stopped
making payments on $4,860 in acknowledged debt after
paying a total of $58. Subsequently, the CHA recorded the
remaining $4,802 as losses.
The CHA recorded losses for $28,158 of the $28,959 owed
Withholding Section 8 by tenants who relocated to Section 8 housing. Though the
Assistance Not Used As CHA could have used withholding Section 8 assistance as
Motivator motivation for tenants to pay their back due rents, the CHA
chose not to take this action. More recently, the CHA
entered repayment agreements with two delinquent tenants
and notified another tenant, without a repayment
agreement, that it would terminate housing assistance
unless the back rent is paid. We asked what action the
CHA initiated on the other tenants, but the Deputy
Executive Director did not respond to the question.
The CHA needs to make clear to its tenants that relocating
Need to Collect Funds from public housing to other housing assistance does not
from Prior Delinquent erase debt, nor will it preclude the CHA from aggressively
Tenants Receiving pursuing such debts. The CHA needs to make repayment
Housing Assistance agreements with former delinquent tenants a precondition
for their receiving Section 8 assistance. Tenants who
Page 51 2001-PH-1002
Finding 4
choose not to enter repayment agreements, or do not
comply with the agreement terms, should expect the CHA
to terminate their Section 8 assistance payments.
CHA agrees with the recommendations, but took exception
Auditee Comments with some of the reported facts. CHA’s response is provided
as Appendix B.
OIG Evaluation of CHA comments were reviewed and considered, and there are
Auditee Comments no modifications to the report.
Recommendations We recommend that you request the Court to advise the
Receiver to:
4G. Ensure the CHA has repayment agreements with all
former public housing tenants, who relocated to
Section 8 units from public housing, owing rent to
the CHA.
4H. Direct the CHA to end Section 8 assistance
payments for tenants who:
• choose not to execute repayment agreements for
their delinquent rent; or
• acknowledge their debt with a repayment
agreement, but do not comply with the terms of
their repayment agreements.
2001-PH-1002 Page 52
Management Controls
In planning and performing our audit, we considered the management control systems used by the
CHA to determine our auditing procedures and to provide assurance on the management control.
Management control is a process effected by an entity’s management, and other personnel, designed
to provide reasonable assurance for achieving objectives for program operations, validity and
reliability of data, compliance with applicable laws and regulations, and safeguarding resources.
We determined the following control systems were relevant
Internal controls assessed
to our audit objectives:
• analysis and development of management’s policies
and procedures and related training;
• procurement and administration of legal services;
• development of procedures for credit card use and
out-of-pocket expenses; and
• reduction of rent receivables and improvement in rent
collections.
With the exceptions as noted in our scope limitations
discussed elsewhere in this report, we obtained an
understanding of the control structure for the above systems,
as they relate to the audit objectives. We determined the risk
exposure to design audit procedures. We concluded that we
could perform the audit more efficiently by doing substantive
tests without reliance on management control. Therefore, we
did not necessarily make a complete assessment of the
control design or determine whether the CHA placed all
policies and procedures in operation.
A significant weakness exists if management control does
Significant Weaknesses
not provide reasonable assurance that control objectives are
Were Noted
met. We observed significant weaknesses with: the update
of CHA’s procedures (Finding 1); procurement and
administration of legal services (Finding 2); processing for
payment Receiver’s out-of-pocket expenses and credit card
charges (Finding 3); and CHA practices to reduce tenants’
rent receivables and improve rent collections (Finding 4).
.
Page 53 2001-PH-1002
Management Controls
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2001-PH-1002 Page 54
Follow Up On Prior Audits
This audit represented a resumption of audit work we did at the CHA between July 22, 1997 and
July 24, 1998. The initial audit work covered the period April 1, 1995 through March 31, 1998.
Many of the conditions we planned to report as a result of the earlier audit work concerned
Housing Quality Standards and maintenance issues which became invalid due to the CHA’s
housing and modernization activities. However, there remained conditions, noted earlier, which
remained unsettled and required updating to reflect current conditions. These conditions
represented reportable matters and are addressed in this report.
The OIG issued an internal Audit Related Memorandum (No. 99-PH-202-0801) to HUD that
addressed an issue relating to the Receiver’s compensation and term of services to the CHA.
Although we did not perform additional audit work in this area, we monitored HUD’s progress in
implementing the recommendations from that internal audit report.
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Follow Up On Prior Audits
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Appendix A
Schedule Of Ineligible and Unsupported Costs
Finding Type of Questioned Costs
Number Ineligible 1/ Unsupported 2/
2 $9,090 $11,501
3 2,759 11,015
1/ Ineligible amounts are those that are questioned because of an alleged violation of a
provision of a law, Regulation, contract, grant, cooperative agreement or other
agreement or document governing the use of funds, or are otherwise prohibited.
2/ Unsupported amounts are those whose eligibility or reasonableness cannot be clearly
determined during the audit since they were not supported by adequate documentation
or due to other circumstances. Under Federal cost principles, a cost must be adequately
supported to be eligible.
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Appendix B
Auditee Comments
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Appendix B
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Appendix B
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Appendix B
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Appendix B
Executive Summary
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Appendix C
General Counsel’s Review Procedures
The CHA’s General Counsel established undocumented review procedures for processing legal
service invoices. The review procedures described by Counsel were as follows:
• General Counsel receives all incoming invoices for legal services.
• Counsel reviews invoices for “fluff” charges and obvious errors. Counsel requests
corrected invoices if problems exist with the original invoices.
• Counsel approves only current charges for payment on any invoice.
• Counsel does not authorize payment upon receipt of “past due” or “reminder” notices
unless supported by a copy of the original detailed invoice.
• Counsel approves amounts for payment by circling the amount on the invoice which
Counsel initials and dates.
• Counsel sends approved invoices to the Accounting Department.
• Accounts Payable will not process any invoices for payment without Counsel’s approval.
• The Accounting Department directs the approved invoices to the appropriate operational
department for their approval.
Finding 2
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Appendix C
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Appendix D
Distribution
Director, Office of Troubled Agency Recovery, PB
Director, Office of Public Housing, Pennsylvania State Office, 3APH
Secretary’s Representative, Mid-Atlantic, 3AS
Audit Liaison Officer, 3AFI
Departmental Audit Liaison Officer, FM (Room 2206)
Deputy Chief Financial Officer for Finance, FF (Room 2202)
Director, Office of Budget, FO (Room 3270)
Acquisitions Librarian Library, AS (Room 8141)
Principal Staff
The Honorable Fred Thompson, Chairman, Committee on Governmental Affairs, 340 Dirksen
Senate Office Building, US Senate, Washington, DC 20510
The Honorable Joseph Lieberman, Ranking Member, Committee on Governmental Affairs, 706
Hart Senate Office Building, US Senate, Washington, DC 20515
Ms. Cindy Fogleman, Subcommittee on Oversight and Investigations, Room 212, O’Neil House
Office Building, Washington, DC 20515
Director, Housing and Community Development Issue Area, US GAO, 441 G Street, N.W.,
Room 2474, Washington, DC 20548, Attn: Stanley Czerwinski
The Honorable Dan Burton, Chairman, Committee on Government Reform, 2185 Rayburn
Building, House of Representatives, Washington, DC 20515
The Honorable Henry Waxman, Ranking Member, Committee on Government Reform, 2204
Rayburn Building, House of Representatives, Washington, DC 20515
Mr. Steve Redburn, Chief, Housing Branch, Office of Management & Budget, 725 17th Street,
N.W., Room 9226, New Executive Office Building, Washington, DC 20503
Executive Director, Chester Housing Authority, 1010 Madison Street, PO Box 380, Chester,
Pennsylvania 19016-0380
Honorable Norma S. Shapiro, United States District Court, Eastern District of Pennsylvania,
10614 United States Courthouse, Independence Mall West, Philadelphia, Pennsylvania
19106-1774
Mr. Robert Rosenberg, Receiver, Chester Housing Authority, c/o Rosenberg Housing Group,
Inc., 419 Park Avenue South, Suite 807, New York, NY 10016
Ms. Evette Hester, Deputy Executive Director, Chester Housing Authority, 1010 Madison Street,
PO Box 380, Chester, Pennsylvania 19106-0380
Ms. Maria Zissimos, General Counsel, Chester Housing Authority, 1010 Madison Street, PO
Box 380, Chester, Pennsylvania 19106-0380
Page 83 2001-PH-1002
Chester Housing Authority, Chester, PA
Published by the Department of Housing and Urban Development, Office of Inspector General on 2001-02-15.
Below is a raw (and likely hideous) rendition of the original report. (PDF)