oversight

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)

   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.




        Page v                                2001-PH-1002
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.




       Page 5                                  2001-PH-1002
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.




                           Page 13                                  2001-PH-1002
Finding 1




               (THIS PAGE LEFT BLANK INTENTIONALLY)




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).

.




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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.




                                          Page 55                                2001-PH-1002
Follow Up On Prior Audits




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2001-PH-1002                       Page 56
                                                                            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.




                                       Page 57                                   2001-PH-1002
Appendix A




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                             Appendix B


Auditee Comments




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          Appendix B




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                       Appendix B




          Executive Summary

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2001-PH-1002                 Page 80
                                                                              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




                                           Page 81                               2001-PH-1002
Appendix C




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2001-PH-1002                 Page 82
                                                                                 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