oversight

Housing Authority of the City of Tupelo, Mississippi

Published by the Department of Housing and Urban Development, Office of Inspector General on 2002-07-03.

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

                    AUDIT REPORT




             HOUSING AUTHORITY OF THE

              CITY OF TUPELO, MISSISSIPPI

          HOUSING PROGRAMS OPERATIONS

                         2002-AT-1002

                          JULY 3, 2002



                    OFFICE OF AUDIT, REGION IV
                      SOUTHEAST/CARIBBEAN




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                                                               IssueDate
                                                                         July 3, 2002
                                                               Audit   Case Number

                                                                         2002-AT-lOO2




    TO:            William L. Radau,ActingDirector,Office of PublicHousing,
                     MississippiOffice,~
                  S;~'l.~~      b -;C;;c ~
    FROM:        /¥Nancy« Cooper
             I      RegionalInspectorGeneralfor Audit-Southeast/Caribbean,
                                                                       4AGA


    SUBJECT: Housing Authority of the City of Tupelo
                   HousingProgramsOperations
                   Tupelo, Mississippi

    We have completed an audit of the Housing Authority of the City of Tupelo's (Authority)
    operations. The audit was initiated in responseto a requestfrom the Departmentof Housing and
    Urban Development's (HUD) Mississippi State Office of Public Housing regarding the
    Authority's questionable financial condition associated with its participation in a limited
    partnership. Our audit objectives were to determine whether the Authority was operating its
    housing activities in accordancewith HUD requirementsand had establishedcontrols to assure
    effective and efficient administration of program funds. Our report includes five significant
    monetaryfindings totaling over $1.3 million.

    In accordancewith HUD Handbook2000.06REV-3, within 60 days,pleaseprovide us, for each
    recommendationwithout managementdecisions, a status report on: (1) the corrective action
    taken; (2) the proposedcorrective action and the date to be completed; or (3) why action is
    consideredunnecessary. Additional status reports are required at 90 days and 120 days after
    report issuancefor any recommendationwithout a managementdecision. Also, pleasefurnish us
    copies of anycorrespondenceor directivesissuedrelatedto the audit.

    Should you or your staff have anyquestions,pleasecontactme or SonyaD. Lucas, Assistant
    RegionalInspectorGeneralfor Audit, at (404) 331-3369.




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Executive Summary
We completed an audit of the Housing Authority of the City of Tupelo’s operations. We
conducted the audit in response to a request from HUD’s Mississippi State Office of Public
Housing. HUD had concerns with the Authority’s questionable financial condition and its
involvement with Tupelo Apartment Homes, L.P., a Mississippi limited partnership. Our
objectives were to determine whether the Authority was operating its housing activities in
accordance with HUD requirements and had established controls to assure effective and efficient
administration of program funds.

We determined the Authority: (1) improperly advanced public housing program funds for non-
Federal development activities; (2) did not maintain its conventional low-income housing in
good repair and condition; (3) did not spend its Comprehensive Grant Program (CGP) funds, as
approved; (4) inappropriately pledged its assets as collateral for loans; and (5) did not adequately
control its appliance inventory.



                                      The Housing Authority of the City of Tupelo improperly
 Our Audit Disclosed
                                      advanced over $1.4 million of public housing program
                                      funds for non-Federal development activities from 1998 to
                                      2001. The funds were advanced to cover operating and
                                      rehabilitation deficits for a private development, until tax
                                      credits were approved. The former Executive Director
                                      instructed the staff to make the advances, which violated
                                      the Annual Contribution Contract (ACC). The Authority
                                      received repayments of $707,884 between January 1999
                                      and October 2000. However, the Authority’s General Fund
                                      account is still owed $728,159. As a result, the advances
                                      reduced the public housing program funds available for
                                      operating expenses and placed the funds at risk of possible
                                      non-repayment.

                                      The Authority did not maintain its conventional low-
                                      income housing in good repair and condition. We
                                      inspected 25 units which all contained numerous Housing
                                      Quality Standards (HQS) violations. Of the 25 units
                                      inspected, 12 were vacant and 13 were occupied. The
                                      deficiencies were caused by lack of routine and preventive
                                      maintenance, failure to spend CGP funds as approved, and
                                      a lack of management and maintenance efforts to
                                      rehabilitate the units. As a result, the Authority did not
                                      provide decent, safe, and sanitary housing to its residents.




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Executive Summary


                     Contrary to HUD’s requirements, the Authority did not
                     spend its CGP funds on work approved for its Northside
                     development and did not obtain HUD’s approval for any
                     budget revisions.     The former Executive Director
                     improperly certified that the Annual Statements were
                     accurate and the work was completed. As a result, CGP
                     funds totaling $293,544 were spent without adequately
                     documenting the eligibility of the costs and $331,665 was
                     budgeted for work previously completed.

                     The Authority pledged its assets as collateral for loans
                     totaling $1,148,029. The former Executive Director
                     violated the ACC and the Declaration of Trust agreement.
                     These actions occurred because the Board of
                     Commissioners did not: (1) adequately monitor the non-
                     profit and limited partnerships; (2) ensure transactions
                     related to the entities adhered to Federal regulations; and
                     (3) maintain prudent judgment concerning its affiliated
                     entities. The lack of Board oversight resulted in liabilities
                     for non-Federal activities and conflicts of interest, which
                     unjustly enriched private developments at the Authority's
                     expense.

                     The Authority did not adequately control its inventory of
                     appliances. The fixed assets inventory was not current and
                     appliances had not been inventoried for over 2-years. The
                     Inventory Control Clerk stated that in 1999 she was advised
                     to cease accounting for those assets and their locations. As
                     a result, there was an increased risk that assets could be
                     stolen, mishandled or diverted.

                     We recommend that you require the Housing Authority of
 Recommendations     the City of Tupelo to: (1) seek reimbursement of the
                     $728,159 owed from the Tupelo Apartment Homes, L.P.;
                     (2) discontinue further advances to the Tupelo Apartment
                     Homes, L.P.; (3) complete all inspections and correct all
                     HQS violations; (4) provide supporting documentation or
                     reimburse the CGP $293,544 for unsupported expenditures;
                     (5) provide supporting documentation for the $331,665 or
                     reimburse the CGP funds; (6) pursue removal of the
                     guaranty for all loans; and (7) reinstate fixed assets
                     inventory system. We also recommend that you debar the
                     former Executive Director from future participation in
                     HUD related programs.


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                                                           Executive Summary



                    We presented our findings to the Authority and HUD
                    officials during the audit. We provided a copy of the draft
                    report to the Authority and HUD’s Mississippi State Office
                    on June 3, 2002, for their comments. We discussed the
                    report with the officials at the exit conference on June 14,
                    2002. The Authority provided written comments on June
                    14, 2002. The Authority’s comments are summarized in
                    the findings and included in their entirety as Appendix F.




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Table of Contents
Management Memorandum                                                   i



Executive Summary                                                     iii



Introduction                                                           1



Findings

1.   Housing Funds Were Improperly Advanced to a Private
     Development                                                       3


2.   Housing Did Not Meet Quality Standards                            7


3.   Comprehensive Grant Program Funds Were Not Spent As
     Approved                                                        15


4.   The Authority Inappropriately Pledged Assets                    21


5.   Controls Over Appliances Were Inadequate                        27




Management Controls                                                  31



Follow Up On Prior Audits                                            35




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Appendices
    A. Schedule of Ineligible and Unsupported Costs                           37

    B. Examples of HQS Violations-Vacant Units                                39


    C. Examples of HQS Violations-Occupied Units                              41


    D. Schedule of Questionable CGP Costs                                     43


    E. Non-Profit Corporation and Limited Partnerships                        45


    F. Auditee Comments                                                       47

    G. Distribution                                                           53



Abbreviations

      ACC           Annual Contributions Contract
      CGP           Comprehensive Grant Program
      HQS           Housing Quality Standards
      HUD           U.S. Department of Housing and Urban Development
      LP            Limited Partnership
      PHDEP         Public Housing Drug Elimination Program




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Introduction
The Housing Authority of the City of Tupelo was organized pursuant to the U.S. Housing Act of
1937 to provide safe, sanitary, and affordable housing for qualified individuals.

A five member Board of Commissioners appointed by the Mayor of the City of Tupelo governs
the Authority. The Board is responsible for signing contracts, reassigning or terminating key
personnel, and setting income limits. The Board adopts its own budgets and has sole title to, and
residual interest in, the assets of the housing programs. The Board receives Federal financial
funding and must comply with requirements of the funding source.

The former Executive Director, Harmon C. Pippin, served from May 1991 to May 2001. The
current Executive Director is Dr. Hickman M. Johnson. He served as interim Consulting
Executive Director from May 29, 2001, until his permanent appointment on December 12, 2001.
The Chairperson of the Board of Commissioners is William Smith.

HUD’s Mississippi State Office in Jackson, Mississippi, Office of Public Housing is responsible
for overseeing the Authority. The Authority’s financial records are maintained primarily at its
central office located at 701 South Canal Street, Tupelo, Mississippi. The Authority owns and
manages four project developments consisting of 407 units. Additionally, the Authority is the
Section 8 Housing Assistance Payment contractor between HUD and a Section 8 owner.

The Authority’s major program activities included administering Low Rent Housing, as well as
HUD’s CGP, Section 8, and Public Housing Drug Elimination Program (PHDEP). For calendar
year 2000, the Authority received $501,890 of HUD operating subsidy, $517,324 as the Section 8
Housing Assistance Payment contractor, $766,518 of CGP funds, and $140,100 of PHDEP
funds.



                                     Our objectives were to determine if the Authority was
 Audit Objectives                    operating its housing activities in accordance with HUD
                                     requirements and had established controls to assure
                                     effective and efficient administration of program funds.

                                     To accomplish the objectives, we tested for compliance
 Audit Scope and                     with program regulations and requirements. We also tested
 Methodology                         the Authority’s established controls for effective and
                                     efficient administration of program funds. We reviewed
                                     related Authority files and records; Housing Quality
                                     Standard (HQS) inspections; appliance inventory records;
                                     and HUD’s, the independent auditor’s, and consultant’s




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Introduction


                     studies and reports for years 1999 through 2001. We
                     interviewed Mississippi State Office of Public Housing
                     program officials, Board of Commissioners, Authority
                     staff, and vendors.

                     To test for HQS compliance, we selected 25 of 197 low-
                     income housing units at the Authority’s Northside
                     development to inspect. We selected units from the
                     Northside development because as of May 2001, 83 of 197
                     units, or 42 percent, remained vacant for an average of 585
                     days. We did not inspect units at the Authority’s remaining
                     three developments, totaling 210 units, since the occupancy
                     rate was 97 percent or higher; and HUD’s Real Estate
                     Assessment Center overall scores, as of May 2001, were 75
                     or higher for those developments.

                     Our review generally covered the period January 1, 1999,
                     through July 31, 2001. We extended the periods as
                     necessary. We performed our on-site work between August
                     2001 and March 2002. We conducted our audit in
                     accordance with generally accepted government auditing
                     standards.




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                                                                                        Finding 1


Housing Funds Were Improperly Advanced to a
           Private Development
The Housing Authority of the City of Tupelo improperly advanced over $1.4 million of public
housing program funds for non-Federal development activities from 1998 to 2001. The
Authority advanced the funds to cover operating and rehabilitation deficits for a private
development, until tax credits were approved. The former Executive Director instructed the staff
to make the advances, which violated the ACC. The Authority received repayments of $707,884
between January 1999 and October 2000. However, the Authority’s General Fund account is still
owed $728,159. As a result, the advances reduced the public housing program funds available
for operating expenses and placed the funds at risk of possible non-repayment.



                                    Section 9, Depository Agreement and General Fund, of the
 Criteria                           ACC states that the Authority may withdraw funds from the
                                    General Fund only for: (1) payment of the costs of
                                    development and operation of the projects under ACC with
                                    HUD; (2) the purchase of investment securities as approved
                                    by HUD; and (3) such other purposes as may be specifically
                                    approved by HUD.

                                    The Authority formed a limited partnership with Chevron,
   Background                       as the investor limited partner, to purchase and rehabilitate
                                    Tupelo Apartment Homes, a private development, located
                                    in the Ida Street district. The purchase and rehabilitation
                                    were non-Federal activities. The Ida Street project was
                                    designated for funding from a combination of revenue
                                    bonds and grants, with Chevron making future capital
                                    contributions to the project based on possible tax credits.
                                    However, in March 2001, Chevron withdrew from the
                                    partnership after reviewing the cost certification audit used
                                    for the tax credit qualification. The cost certification audit
                                    documented questionable tenant income records.
                                    Therefore, the Authority was left to continue the
                                    rehabilitation on its own.

                                    The Authority deposited operating subsidies, rent
                                    collections, CGP funds, and PHDEP funds into its General
                                    Fund account. The Authority maintained funds for its
                                    Section 8 Program and the Meadow Creek Apartments


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Finding 1



                          private development in separate accounts. The Authority
                          separated the general ledgers to account for funds received
                          and expenditures charged by program. Generally, the
                          Authority made payments from its General Fund account.
                          Therefore, any inappropriate expenditures or advances
                          would come from the public housing program funds.

 Ineligible Advances of   From December 1998 to July 2001, the Authority
 $1,436,043               improperly advanced $1,436,043 of public housing
                          program funds for non-Federal development activities. Of
                          the $1,436,043 advanced, $1,398,471 was from the
                          operating subsidy and $37,572 from CGP. The Authority
                          received repayments totaling $707,884; therefore $728,159
                          remains due to the Authority.

                          The former Executive Director depleted the Ida Street
                          project’s bank accounts and relied solely on public housing
                          funds for the private project's development and operating
                          costs. For example, salaries advanced to the project totaled
                          over $460,000. The Director of Maintenance stated that the
                          entire maintenance staff worked on the Ida Street project at
                          one time. In some cases, staff members were assigned for a
                          year or more. The Director of Maintenance informed us
                          that both he and his predecessor worked full time at Ida
                          Street until the former Executive Director resigned in May
                          2001.

                          The advances were to cover funding shortages of the Ida
                          Street project, contingent on a repayment from tax credits.
                          However, the tax credits have not been approved; and the
                          Authority did not obtain HUD’s approval for the payments.
                          HUD Officials stated that they would not have approved a
                          request to pay the Ida Street project costs, since it was not
                          covered under the ACC. Without approval, the Authority
                          should have either obtained the funds from other sources or
                          discontinued operating the project. Instead, the Authority
                          continued to advance funds at the expense of the public
                          housing programs, without a funding source for repayment.




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                                                                       Finding 1


                     The former Executive Director disregarded the
                     requirements and instructed the staff to make the advances
                     and the Fee Accountant to separate the Ida Street expenses
                     from Authority expenses using accounts receivable. The
                     advances reduced the funds available to operate the Public
                     Housing Program, placing the program in financial
                     difficulty. Further, the Authority collateralized its assets
                     for lines of credit/loans totaling more than $1.1 million to
                     finance the non-Federal development activities. The
                     interest and principal payments for the obligations will
                     become due before the year-end. Currently, the Authority
                     does not have any funding sources available to meet the
                     ongoing expenses and obligations. Therefore, the balance
                     of $728,159 is owed to the General Fund account without
                     guaranteed repayment.



Auditee Comments     Excerpts from the Authority’s comments on our draft
                     finding follow. Appendix F contains the complete text of
                     the comments.

                     The Authority generally agreed with the finding. Regions
                     Bank, interim bond trustee, has been apprised of the L.P.’s
                     subordinate obligation.      This subordinate obligation
                     includes a note to BancorpSouth Bank and the
                     reimbursement to the Authority of advances made to the
                     L.P. To satisfy this secondary obligation, the L.P. has
                     proposed a restructuring of the existing bond indebtedness
                     which would permit excess cash, after stabilization, to be
                     applied to the subordinate obligation. Also, the Board of
                     Commissioners will not authorize or approve any advances
                     of federal funds to the L.P.



OIG Evaluation of    We believe the Authority’s actions will address the
Auditee Comments     deficiencies.




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Finding 1


Recommendations      We recommend that you:

                     1A.     Require the Authority to seek repayment of the
                             $728,159 owed from the Tupelo Apartment Homes,
                             L.P.

                     1B.     Require the Authority to discontinue any future
                             advances to the Tupelo Apartment Homes.

                     1C.     Debar the former Executive Director from future
                             participation in HUD related programs.




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                                                                                      Finding 2




      Housing Did Not Meet Quality Standards
The Authority did not maintain its conventional low income housing in good repair and
condition. We inspected 25 units which all contained numerous HQS violations. Of the 25 units
inspected, 12 were vacant and 13 were occupied. The deficiencies were caused by lack of
routine and preventive maintenance, and a lack of management and maintenance efforts to
rehabilitate the units, including not spending CGP funds as planned. As a result, the Authority
did not provide decent, safe, and sanitary housing to its residents.



                                    Part A, Section 4 of the ACC states that the Authority’s
 Criteria
                                    primary mission is to provide decent, safe, and sanitary
                                    housing, in a manner promoting serviceability and stability.

                                    The Authority’s Maintenance Plan included procedures for
                                    annual inspections and preventive maintenance. The
                                    preventive maintenance included regular checking and
                                    servicing of equipment and systems; and scheduling,
                                    painting, restoration, upkeep, rehabilitation, and
                                    refurbishing of dwelling units. The Maintenance Plan also
                                    required the Executive Director to inspect property on a
                                    monthly basis to evaluate management and maintenance
                                    procedures.

                                    We inspected 25 units at the Authority’s Northside
 OIG Inspections                    development. We selected units from the Northside
                                    development because as of May 2001, 83 of 197 units, or
                                    42 percent, remained vacant for an average of 585 days. As
                                    of November 2001, 12 units were vacant for more than
                                    1,000 days. The vacancies were particularly significant
                                    since the former Executive Director resigned in May 2001
                                    and had utilized the maintenance staff at the non-subsidized
                                    Ida Street development for over two years. We did not
                                    inspect units at the Authority’s remaining three
                                    developments, totaling 210 units, since the occupancy rate
                                    was 97 percent or higher; and HUD’s Real Estate
                                    Assessment Center overall scores, as of May 2001, were 75
                                    or higher for those developments. The score for the
                                    Northside development was 56.




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Finding 2


                     We selected two units vacated in years 1997 and 1999
                     through 2001. We selected three units for 1998, since two
  Vacant Units       units were vacant the same number of days, and selected
                     the only unit remaining vacant since 1996. The 12 units
                     selected were vacant the most days for each year.

                     The 12 vacant units had a total of 168 HQS violations. The
                     Authority was repairing three of the units, which had an
                     average of seven violations. The remaining 9 units
                     averaged 19 violations. Our inspections concentrated on
                     significant HQS violations.

                     Each of the units inspected had electrical, security, window
                     condition, and kitchen cabinet violations. Additionally,
                     each of the nine non-repaired units had ceiling condition,
                     wall condition, and floor condition violations. Most of the
                     nine units also had violations regarding appliances and the
                     furnace/water heater (See Appendix B for examples of the
                     HQS violations for the vacant units).

                     Due to the numerous HQS violations of the vacant units
  Occupied Units     inspected, we expanded the inspections at the Northside
                     development. We selected 13 occupied units where tenants
                     resided the longest. The selected units included two one-
                     bedroom, four two-bedroom, four three-bedroom, two four-
                     bedroom, and one five-bedroom unit.

                     As with the vacant units, the occupied units had numerous
                     HQS violations indicating a serious lack of quality annual
                     inspections and preventive maintenance. Many of the units
                     inspected had violations involving the ceiling condition,
                     wall condition, vent hood, and furnace/water heater.

                     The following provides examples of the violations we
                     found at two occupied units inspected.

                        1706 Forbes Circle, #1

                        We noted HQS violations in at least nine categories.
                        For example, the wall was not repaired after installing
                        the heat duct diffuser (Figure 1). The interior stair step
                        was broken creating a tripping hazard (Figure 2). The
                        bathroom wall was heavily damaged/unsanitary and the
                        toilet seat was broken (Figure 3). Other violations


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                                                                Finding 2


                    noted related to kitchen cabinets, security, ceiling
                    condition, floor condition, kitchen sink, and furnace.




                    Figure 1




                    Figure 2




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Finding 2




                     Figure 3

                     We also noted that the unit did not have: (1) furrdown
                     for the wall cabinets; (2) a new stove, refrigerator, or
                     water heater; and (3) a water heater cabinet. Generally,
                     these items should have been completed with CGP
                     funds.

                     1621 Lockridge, #1

                     In this unit, we noted the kitchen vent hood was
                     unsanitary and a fire hazard (Figure 4). The kitchen
                     cabinets were in disrepair (Figure 5). The bedroom
                     linoleum was hazardously torn with sub-floor exposed
                     (Figure 6). Other violations noted related to security,
                     ceiling condition, and wall condition.




                     Figure 4


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                                                                Finding 2




                     Figure 5




                     Figure 6

                    We also noted that the unit did not have furrdown for
                    the wall cabinets or a new stove and refrigerator.
                    Generally, these items should have been completed with
                    CGP funds.         Appendix C contains additional
                    photographs of the HQS violations for the occupied
                    units.




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Finding 2


                         The Authority’s failure to maintain its units was the major
Routine and Preventive
                         contributor to the poor conditions. Title 24 Code of Federal
Maintenance Was Not
                         Regulation 901.30 requires annual inspections of units and
Performed
                         all buildings and sites, including structures and systems, to
                         determine short-term maintenance needs, as well as long-
                         term modernization needs. The inspections would allow
                         the Authority to examine the condition of housing stock
                         and initiate actions essential to maintaining decent, safe,
                         and sanitary housing.

                         The Authority did not perform inspections in 1998. The
                         former Executive Director instructed the staff not to
                         perform inspections, since CGP funds would be used for
                         major unit renovations. However, the CGP renovations did
                         not excuse the Authority from performing the annual
                         inspections, as required. Without the inspections, the
                         Authority could not identify the potential unit deficiencies.

                         The Authority completed its inspections for years 1999,
                         2000, and 2001. However, based on our noted violations,
                         the quality of the 1999 and 2000 inspections was poor.
                         Further, when the Authority cited violations, corrections
                         were rarely made. For 2001, the Director of Maintenance
                         conducted the inspections. The quality of the inspections
                         improved, although a few deficiencies were not cited.

                         The Authority’s Maintenance Plan included procedures for
                         annual inspections and preventive maintenance.             The
                         preventive maintenance included regular checking and
                         servicing of equipment and systems; and scheduling,
                         painting, restoration, upkeep, rehabilitation, and refurbishing
                         of dwelling units. However, the Director of Maintenance
                         stated that they did not follow the Plan, since annual
                         inspections did not insure proper maintenance was
                         completed and preventive maintenance had occurred.
                         Without appropriate inspections and preventive maintenance,
                         the Authority could not identify, plan for, and systematically
                         correct deficiencies. Our inspections clearly documented the
                         lack of a preventive maintenance.




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                                                                              Finding 2



                            The Authority’s former Executive Director did not provide
  Insufficient Management   adequate oversight and direction, and did not spend the CGP
  Oversight and Planning    funds as planned for its Northside development. The
                            Maintenance Plan required the Executive Director to
                            inspect the property on a monthly basis to evaluate
                            management and maintenance procedures; the inspection
                            was not performed. In addition to not providing needed
                            oversight and direction, the former Executive Director had
                            the Maintenance staff working at the Ida Street development,
                            a non-sudsidized development. As a result, numerous HQS
                            violations continued, and the Authority did not provide
                            decent, safe, and sanitary housing to its residents.



                            Excerpts from the Authority’s comments on our draft
Auditee Comments
                            finding follow. Appendix F contains the complete text of
                            the comments.

                            The Authority generally agreed with the finding. Twenty-
                            seven units were inspected during the course of this
                            investigation. Of the 27 units inspected, 14 were vacant
                            and 13 were occupied. Twenty-two of the 27 units were
                            placed in the modernization program and were slated for
                            renovation. Construction has been completed on 8 of the
                            27 units, bringing them up to HQS. One additional unit
                            will be completed within the next 30-days. Thirteen units
                            are scheduled for fiscal year 2003. Five units are still
                            occupied as of this date. Three transfers will be made when
                            modernization releases completed units. The remaining
                            two units meet HQS.

                            The Authority conducted an inspection of all units,
                            including systems, and corrected all HQS violations.
                            Correction of deficiencies was a priority. The 2001 average
                            REAC score was 76.5. The February 2002 average REAC
                            score was 94.25. The significant improvement in REAC
                            inspection score is evidence that the Authority has
                            addressed this issue of deficiencies.




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Finding 2



                     The Board of Commissioners adopted a revised
                     Maintenance Policy on March 21, 2002. This policy
                     addresses the following issues: emergency, work orders,
                     general cleaning, unit turnover, inspections and preventive
                     maintenance. Adherence to this policy will guarantee the
                     timely performance of all duties required of that
                     department.




OIG Evaluation of    Although, we only inspected 25 units, 12 vacant and 13
Auditee Comments     occupied, we believe the actions are responsive to the
                     finding. If timely and adequately implemented, the actions
                     should essentially correct the deficiencies.



Recommendations      We recommend that you require the Authority to:

                     2A.      Correct all HQS violations noted during our
                              inspections.

                     2B.      Inspect all units, including structures and systems,
                              and correct all HQS violations.

                     2C.      Implement its Maintenance Plan to ensure annual
                              inspections and preventive maintenance are
                              performed.




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                                                                                       Finding 3


Comprehensive Grant Program Funds Were Not
            Spent As Approved
Contrary to HUD’s requirements, the Authority did not spend its CGP funds on work approved
for its Northside development and did not obtain HUD’s approval for any budget revisions. In
addition, the Authority did not have the required fiscal year 2000 audit performed to verify the
expenditures. The former Executive Director improperly certified that the Annual Statements
were accurate and the work was completed. As a result, CGP funds totaling $293,544 were spent
without adequately documenting the eligibility of the costs and $331,665 was budgeted for work
previously completed.



                                    Paragraph 3-6 of HUD’s On-Site Confirmatory Review
 Criteria                           Guidebook 7460.5 G, dated April 1997, states, in part, that
                                    CGP Authorities shall expend modernization funds only on
                                    work identified in the HUD approved CGP annual
                                    statements or obtain prior HUD approval for required
                                    budget revisions. Part II of the instructions for preparing
                                    the Annual Statements indicate that when all grant funds
                                    have been expended, the Authority should complete Part II
                                    indicating the actual funds expended.

                                    The former Executive Director submitted Annual
   Background                       Statements, which included the Northside development, to
                                    HUD for fiscal years 1996 through 1998. He also signed
                                    and submitted the Actual Modernization Cost Certificates
                                    applicable to these years, wherein he certified that all
                                    modernization work in connection with the Modernization
                                    Grant was completed and all information provided was true
                                    and accurate. HUD approved the forms in September 1998,
                                    April 1999, and June 1999 subject to verification by a fiscal
                                    year audit. The former Executive Director also signed the
                                    initial fiscal years 1999 and 2000 Annual Statements
                                    showing estimated costs. The current Executive Director
                                    signed the Cost Certificate and a revised Annual Statement
                                    for fiscal year 1999. The Executive Director has not signed
                                    or submitted the Cost Certificate for fiscal year 2000.




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                             The 1998 audited financial statements included CGP
                             expenditures paid at the time of the audit for fiscal years
                             1996 and 1997. The 1999 audit included the paid
                             expenditures for fiscal years 1997 and 1998.           The
                             Independent Public Accountant has not completed the fiscal
                             year 2000 audit, as required by Section 7502 (b)(1) of the
                             Single Audit Act. He stated that he was waiting on the
                             Office of Inspector General audit results, rather than
                             duplicate the work.

                             The OIG inspection results for 13 occupied units at
  OIG Inspections            Northside confirmed that the Annual Statements and Cost
                             Certificates were inaccurate for some work categories
                             completed and the number of units involved. For instance,
                             seven units did not have new water heater cabinets
                             installed; eight units did not have new water heaters; and no
                             units had the furrdown for the wall cabinets completed.
                             The following describes detailed examples by fiscal years.
                             See Appendix D for the total questionable expenditures.

                             The Annual Statements included expenditures totaling
  Fiscal Years 1996-1998     $247,944 for work items that were not completed or
  Annual Statements          adequately documented to support the costs. With the
                             exception of the covers for combustion air, every other work
                             category reported had questionable costs. For example, the
                             Annual Statements for fiscal years 1996 and 1997
                             documented the replacement of 380 water heaters at the
                             Northside development, however the development only has
                             200 units (197 residential units and 3 off-line units used for
                             police housing). Our inspections revealed that many units
                             did not have new water heaters. The Authority’s fixed
                             assets inventory records supported that 83 units
                             did not receive new water heaters, resulting in 117 units
                             receiving new water heaters. Therefore, 263 of the 380
                             water heaters were unaccounted for.

                             Our inspection results showed that air conditioning was
  Fiscal Years 1999 Annual
                             installed as documented. However, concerns were raised
  Statement
                             about the number of new appliances purchased, since only
                             1 of the 13 units inspected had a new range and no units
                             had new refrigerators. The Annual Statement cited the
                             purchase of 90 new ranges and 90 new refrigerators. In
                             February 2002, the maintenance staff inventoried the
                             appliances per the inventory records, the Authority only
                             installed 14 new ranges and 14 new refrigerators.

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                            Therefore, the Annual Statement contained expenditures
                            totaling $45,600 which did not adequately document the
                            eligibility of the costs.

                            The Annual Statement budgeted $331,665 for air
 Fiscal Years 2000 Annual   conditioning and $85,593 for carpet and paint. However,
 Statement                  the air conditioning was included and completed in the
                            fiscal year 1999 Annual Statement. The current Executive
                            Director has not submitted the Cost Certificate to HUD;
                            therefore support should be submitted documenting the
                            $331, 665 spent, which was budgeted for air conditioning.

                            The Authority’s accounting staff stated that the former
                            Executive Director insisted on preparing the Annual
                            Statements and Cost Certificates. While funds totaling
                            $293,544 were spent without adequately documenting the
                            eligibility of the costs, the Authority did not provide
                            adequate housing needs to its residents.



Auditee Comments            Excerpts from the Authority’s comments on our draft
                            finding follow. Appendix F contains the complete text of
                            the comments.

                            We will concede that cost certifications for the years 1996-
                            1999 contain errors. This report indicated that in the 1996
                            CGP, the Authority proposed to install 200 water heater
                            cabinets. This number was based on insufficient data found
                            in the Physical Needs Assessment (CGP) dated June 24,
                            1996. The number of current units was 200. However, the
                            consultant failed to indicate in the application, that the
                            water heater cabinets/closets were to be installed only in the
                            two and four bedrooms, since the one, three and five
                            bedroom units had built-in closets.          Therefore, the
                            maximum number of water heater cabinets that could
                            possibly be installed was 88. The total funds expended for
                            this work item, as reflected in the cost certification, was
                            $8,800. The per unit cost was in fact greater than the $44
                            unit cost reflected in this report at Appendix D. In the
                            final estimate, as submitted by Chris Dardaman, dated May
                            9, 1997, the cost of installing 88 water heater cabinets was
                            $200 per unit. This being the case, the amount budgeted
                            for this item should have been $17,600 instead of the
                            $8,800 as reflected in the budget and the cost certification.

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                     While it would be a laborious process, revised cost
                     certifications for the periods 1996-1999, might substantially
                     reduce this liability. While incurring costs which might
                     have been unapproved, I am confident that the Authority
                     did not incur costs which were disallowed under the terms
                     of CGP. While we are in agreement with the finding that
                     the cost certifications and/or annual statements were
                     incorrectly prepared, the actual amount of questioned costs
                     may be far less than $293,544.

                     The Authority can submit a revised 2000 Annual
                     Statement. However, since all but $5,290 of the $732,573
                     was expended prior to April 25, 2001, the revised Annual
                     Statement, deleting the HVAC, will not resolve this
                     finding. The total grant was expended within 5-months of
                     approval. The most plausible explanation for this rather
                     quick depletion of CGP funding is no doubt explained by
                     Finding 1 of this report. Therefore, this amount ($331,665)
                     is included in the repayment sought (Recommendation 1A)
                     from the L.P.

                     A 2-year audit contract with Brewster & Associates, CPA
                     was executed on June 13, 2000, to audit the records of the
                     Authority for the periods, ending December 31, 1999, and
                     December 31, 2000. The fiscal year 1999 audit was
                     completed, however, to this date, Brewster has failed to
                     complete the fiscal year 2000 audit. A letter was sent to
                     him on April 18, 2002 reminding him of his contract and
                     the need to meet HUD’s audit submission requirements.
                     Brewster advised the Authority in a letter, dated April 25,
                     2002, “we have been in touch with Mr. Max Walls of the
                     HUD IG office and we will not finish our work until they
                     finish with their work. We do not intend to cover the areas
                     that they have audited in depth and have no reason to
                     duplicate the work. Once they are completed with their
                     audit work, we will converse with them, then complete our
                     work.”




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 OIG Evaluation of   The questioned expenditures totaling $293,544 and
 Auditee Comments    $331,665 respectively, were based on Comprehensive
                     Grant cost certificates from 1996 to 1999, check vouchers,
                     and other supporting documentation. The expenditures
                     were not adequately supported or identifiable as
                     Comprehensive Grant expenditures. Additionally, we
                     analyzed the Authority’s account receivables account,
                     which documented the funds spent on the Ida Street project,
                     in order to determine the advances (Recommendation 1A).
                     The records revealed that operating subsidy funds included
                     the majority of funds advanced to the Ida Street project.
                     We identified about $37,000 of CGP funds going directly to
                     the Ida Street project. As a result, the $331,665 was not
                     included in recommendation 1A.

                     The Authority needs to immediately obtain the required
                     fiscal year 2000 audit. Our OIG audit started in August
                     2001, which was after the time period the Independent
                     Public Accountant, was required to start the contracted
                     fiscal year 2000 audit.




Recommendations      We recommend that you require the Authority to:

                     3A.      Provide proper supporting documentation or
                              reimburse the CGP $293,544 of unsupported
                              expenditures.

                     3B.      Provide proper support for the $331,665 of
                              expenditures for the fiscal year 2000 Annual
                              Statement, or reimburse the CGP funds.

                     3C.      Obtain the required fiscal year 2000 audit or seek
                              other sources to complete it.




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  The Authority Inappropriately Pledged Assets
The Authority pledged its assets as collateral for loans totaling $1,148,029. The former
Executive Director violated the Annual Contributions Contract and the Declaration of Trust
agreement. These actions occurred because the Board of Commissioners did not: (1) adequately
monitor the non-profit and limited partnerships; (2) ensure transactions related to the entities
adhered to Federal regulations; and (3) maintain prudent judgment concerning its affiliated
entities. The lack of Board oversight resulted in liabilities for non-Federal activities and conflicts
of interest, which unjustly enriched private developments at the Authority's expense.



                                       Part A, Section 7 of the ACC, Covenant Against
 Criteria                              Disposition and Encumbrances, states, in part, with the
                                       exception of entering into dwelling leases with eligible
                                       families for dwelling units in the projects covered by this
                                       ACC, and normal uses associated with the operation of the
                                       project(s), the housing authority shall not in any way
                                       encumber any such project, or portion thereof, without the
                                       prior approval of HUD. In addition, the housing authority
                                       shall not pledge as collateral for a loan the assets of any
                                       project covered under this ACC.

                                       Further, the HUD Declaration of Trust agreement requires
                                       the Authority to refrain from transferring, conveying,
                                       assigning, leasing, mortgaging, pledging, or otherwise
                                       encumbering or permitting any transfer, conveyance,
                                       assignment, lease mortgage, pledge or other encumbrance
                                       of Authority’s assets for a 20-year period without HUD
                                       approval.

                                       The Office of the Inspector General’s Program Integrity
                                       Bulletin for Public Housing Agency Commissioners states
                                       the Commissioners have ultimate responsibility for public
                                       housing agency operations including approving policies and
                                       procedures, and ensuring that the public housing agency
                                       acts legally and with integrity in its daily operations.

                                       Part A, Section 19 of the ACC, Conflict of Interest,
                                       prohibits the Authority from entering into any contract or
                                       arrangement in connection with any project under the ACC
                                       in which any Authority employee who formulates policy or
                                       who influences decisions with respect to the project(s), has


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                         an interest, direct and indirect, during his or her tenure or
                         for one year thereafter.

                         The Authority created the Tupelo Affordable Properties
Background               System, Inc. as a non-profit corporation to assist in
                         developing low and very low-income housing. The
                         Authority created two limited partnerships through the non-
                         profit, which included the Tupelo Apartment Homes, L.P.
                         and Tupelo II Apartment Homes, L.P. The partnerships
                         purchased and developed properties known as Ida Street
                         and Meadow Creek, respectively. After completion, both
                         properties were to be combined into one low and very low-
                         income housing development. The former Executive
                         Director served as President for each of the affiliated
                         entities. Three of the five Authority Commissioners served
                         on the Boards of either the non-profit or an affiliated entity.
                         See Appendix E for the details of the entities and their
                         relationship to the Authority.

                         From August 1999 through January 2001, the former
                         Executive Director obtained a series of loans totaling over
                         $1.1 million dollars. The loans were to rehabilitate the Ida
                         Street and Meadow Creek private developments on behalf
                         of the limited partnerships. The former Executive Director
                         obtained each loan from Bancorp South.

                         We identified five loan obligations guaranteed by Authority
  Collateralized Loans   assets. However, the Board of Commissioners improperly
  Totaling $1,148,029    approved three of the loans. The loans totaled $1,148,029
                         as of the former Executive Director’s May 2001
                         resignation.

                         Board Resolutions for the approved loans indicated that the
                         loan guarantees were in accordance with the Authority’s
                         operational rules, regulations, and bylaws to further the
                         mission and goals for low-income housing. However,
                         HUD neither approved nor was aware that the Authority
                         pledged its assets for loans. The description and purpose
                         for each loan is summarized below.

                            Ida Street Renovation Costs-$500,000

                            An architect estimated costs of $2,960,577 to
                            rehabilitate the Ida Street development.     After
                            discussion with the former Executive Director, the

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                    architect reduced the estimate to $2,789,000. However,
                    per the Architect’s Application and Certificate for
                    Payment, costs exceeded the estimate and overruns
                    occurred. Per a Board Commissioner, only 96 out of
                    242 units were completed in 1999 and cash flow was
                    not sufficient to rehabilitate the remaining units. To
                    compensate, the Board guaranteed a $500,000 loan to
                    finish renovation.

                    The Board did not ensure the guarantee complied with
                    the ACC or Declaration of Trust, which strictly
                    prohibits encumbrances without HUD approval.
                    Instead, the Board authorized the former Executive
                    Director to do whatever was necessary to complete the
                    Ida Street development. His actions resulted in a
                    contingent liability contrary to Federal regulations and
                    agreements.

                    Meadow Creek Apartments Rehabilitation-$300,029

                    In November 1999, the former Executive Director
                    obtained a loan to rehabilitate Meadow Creek
                    Apartments. The promissory note showed loan security
                    as the 23 units of the Meadow Creek development and
                    the Authority. Although the board minutes did not
                    reflect the Meadow Creek loan approval, a Board
                    Commissioner confirmed that the Board agreed to
                    guarantee the note with payments payable from Ida
                    Street’s cash flow.

                    Loan repayment from Ida Street funds was unlikely
                    since its cash flow was insufficient. In 1999, the
                    Authority started enforcing tenant policies such as
                    credit checks and not housing convicted felons. As a
                    result, the Ida Street's occupancy rate dwindled from 95
                    percent to around 10 percent Due to poor occupancy,
                    the development’s cash flow was inadequate to meet
                    everyday expenses, as well as additional obligations.

                    The Board did not properly review Ida Street’s cash
                    flow before the guaranty. We did not identify any
                    outside funding sources or plans to obtain funds to pay
                    the Meadow Creek obligation. As a result, the
                    Authority’s decision to guarantee the loan was not
                    prudent.

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                     Ida Street Costs Overruns-$200,000

                     The former Executive Director requested a $200,000
                     loan to address additional cost overruns for the Ida
                     Street development. As before, the Board approved the
                     loan guarantee without proper oversight.

                     The Board relied solely on the former Executive
                     Director’s status on the Ida Street development. Per a
                     Board Commissioner, the Board had no knowledge that
                     the development’s renovation exceeded projected costs.

                     Apparently, the former Executive Director withheld
                     crucial financial deficiency information, leaving the
                     Board uninformed. As a result, the Board approved the
                     guaranty.

                     Ida Street Taxes-$62,000

                     The former Executive Director obtained a $62,000 loan
                     to pay ad valorem taxes for Ida Street. The Board did
                     not approve the loan or its guaranty. The former
                     Executive Director executed the loan pledging
                     Authority’s assets as collateral security.

                     Interest for Prior Ida Street Loans-$86,000

                     The former Executive Director overrode Board
                     authority in obtaining an $86,000 loan. The loan was to
                     pay interest for prior loans. The Board was unaware
                     that loan payments were due or that the former
                     Executive Director obtained a loan for such payments.

                     In summary, the Board of Commissioners did not
                     establish sufficient controls to monitor the non-profit
                     and limited partnerships and ensure transactions
                     relating to the entities adhered to Federal regulations.
                     The decisions to guarantee the obligations were not
                     prudent considering the private developments
                     insufficient cash flows. As a result, the former
                     Executive Director and the Board of Commissioners
                     compromised the Authority’s assets by incurring
                     contingent liabilities for non-Federal activities.


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                        The former Executive Director serving in dual capacities
Conflicts of Interest   for both the nonprofit and limited partnerships represented
                        a conflict of interest. According to Board Resolutions, the
                        Authority’s limited partnerships mandated a narrow
                        purpose, essentially to assist the Authority in developing
                        low-income housing. The developments were owned by a
                        limited partnership, with the Authority receiving financial
                        benefits through management fees. We did not observe any
                        evidence that the limited partnerships provided
                        management fees or other financial benefits to the
                        Authority. In fact, the Authority improperly advanced over
                        $1.4 million of public housing program funds for the Ida
                        Street development.

                        The former Executive Director’s activities involving both
                        the limited partnerships and the Authority influenced
                        crucial decisions. While serving these entities, the former
                        Executive Director formulated policy and made day-to-day
                        decisions. However, some of these decisions were not
                        beneficial to the Authority.

                        For instance, the former Executive Director had knowledge
                        of Ida Street’s financial difficulty. Yet, he continued to
                        communicate to the Board that the development was
                        thriving. With the former Executive Director’s influence,
                        the Board guaranteed a series of loans for the private
                        developments. However, the Ida Street project was
                        unsuccessful, leaving the Authority with over $1.1 million
                        in liabilities.

                        Therefore, the former Executive Director’s decisions were
                        not in the Authority’s best interest, and unjustly enriched the
                        private developments.


                        Excerpts from the Authority’s comments on our draft
Auditee Comments        finding follow. Appendix F contains the complete text of
                        the comments.

                        The Authority will comply fully. The Authority has
                        informally discussed this matter with BancorpSouth and
                        will formally request BancorpSouth Bank to release and/or
                        cancel the guaranty associated with the debt to the limited
                        partnership.


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OIG Evaluation of    The Authority generally agreed with the finding. We
Auditee Comments     believe the Authority’s actions will correct the deficiencies
                     and prohibit future encumbrances.



Recommendations      We recommend that you:

                     4A.      Instruct the Authority to pursue removal of the
                              guaranty for all loans.

                     4B.      Require the Authority to ensure its assets are not
                              encumbered without HUD approval.

                     4C.      Assist the Authority in either bringing its limited
                              partnerships into compliance functionally within
                              HUD’s regulations and agreements, or abolishing
                              them.

                     4D.      Ensure the Board of Commissioners fulfills its
                              responsibilities and duties, as required.




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    Controls Over Appliances Were Inadequate
The Authority did not adequately control its inventory of appliances. The fixed assets inventory
was not current and appliances had not been inventoried for over 2-years. The Inventory Control
Clerk stated that in 1999 she was advised to cease accounting for those assets and their location.
As a result, there was an increased risk that assets could be stolen, mishandled or diverted.



                                     The Public and Indian Housing Low-Rent Technical
 Criteria                            Accounting Guide, 7510.1, Section II-3 states, in part, that
                                     effective control and accountability must be maintained for
                                     all cash, real and personal property, and other assets. The
                                     Housing Authority must adequately safeguard all such
                                     property and must assure that it is used solely for
                                     authorized purposes.

                                     Paragraph 15 of the Authority’s September 29, 1999,
                                     Maintenance Plan, states that the Maintenance/Inventory
                                     Clerk shall establish an appliance inventory system. A card
                                     shall be kept on each unit with the serial number of the
                                     stove and refrigerator in the unit, the date the appliance was
                                     placed in the unit, and the date it was removed from the
                                     unit. When the appliance becomes inoperable and needs to
                                     be sold or salvaged, the clerk shall keep a copy of the serial
                                     number and type of disposal.

                                     We inspected 13 occupied units at the Northside
   Appliance Inspections             development to compare the appliance serial numbers with
                                     the fixed assets inventory listing. We determined that the
                                     inventory listing was not current or accurate. The listing
                                     did not include nine refrigerators and five ranges, and was
                                     incorrect for another four ranges. Overall, the listing did
                                     not document 58 refrigerators and 51 ranges for the 197
                                     units.

                                     The Inventory Control Clerk stated that in 1999, the Fee
                                     Accountant advised her to stop accounting for appliances, if
                                     the cost was less than $500. She said the accounting staff
                                     ordered appliances over the years, but she was not
                                     accounting for them or performing an inventory. Currently,
                                     she remains about 1-year behind in updating the inventory
                                     list. The Fee Accountant stated the Authority changed its
                                     capitalization policy to $500 in 1999, as permitted by

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                     generally accepted accounting principles. He said the
                     change pertained to accounting treatment, and should not
                     have precluded maintaining an appropriate inventory list.
                     Regardless, an adequate inventory system was not in place
                     to account for the Authority’s fixed assets.

                     A May 2001 consultant review of the maintenance
                     department included comments stating that the Authority’s
                     annual inspection forms should provide space for the
                     equipment serial numbers. The information should be
                     checked against the equipment cards to ensure correct
                     documentation with each unit’s inventory. The Authority’s
                     annual inspections did not include an inventory of the
                     appliances.

                     Due to the lack of inventory controls, 70 refrigerators and
                     99 ranges purchased with Authority’s funds were located at
                     the Ida Street non-subsidized development.



 Auditee Comments    Excerpts from the Authority’s comments on our draft
                     finding follow. Appendix F contains the complete text of
                     the comments.

                     The Authority has implemented an inventory control
                     procedure. The Authority will conduct an annual inventory
                     of its physical properties.

                     The partnership has been notified that the Authority will
                     require reimbursement on all refrigerators and ranges
                     improperly purchased with federal funds.



OIG Evaluation of    The Authority generally agreed with the finding. We
Auditee Comments     believe the Authority’s actions will strengthen controls over
                     its inventory.




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Recommendations      We recommend that you require the Authority to:

                     5A.      Implement the inventory procedures required in its
                              Maintenance Plan.

                     5B.      Perform periodic physical inventory counts of
                              appliances to ensure effective control and
                              accountability.

                     5C.      Remove the refrigerators and ranges from the Ida
                              Street development or require reimbursement from
                              the partnership.




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Management Controls
In planning and performing our audit, we considered the management controls of the Housing
Authority of the City of Tupelo in order to determine our auditing procedures, not to provide
assurance on the controls. Management is responsible for establishing effective management
controls to ensure that its goals are met. Management controls include the plan of organization,
methods and procedures adopted by management to ensure that its goals are met. Management
controls include the processes for planning, organization, directing, and controlling program
operations. They include the systems for measuring, reporting, and monitoring program
performance.



                                    We determined the following management controls were
   Relevant Management
                                    relevant to our audit objectives:
   Controls
                                    o    Program Operations – Policies and procedures that
                                         management has implemented to reasonably ensure
                                         that a program meets its objectives.

                                    o    Validity and Reliability of Data – Policies and
                                         procedures that management has implemented to
                                         reasonably ensure that valid and reliable data are
                                         obtained, maintained, and fairly disclosed in reports.

                                    o    Compliance with Laws and Regulations – Policies and
                                         procedures that management has implemented to
                                         reasonably ensure that resource use is consistent with
                                         laws and regulations.

                                    o    Safeguarding Resources – Policies and procedures that
                                         management has implemented to reasonably ensure
                                         that resources are safeguarded against waste, loss and
                                         misuse.

                                    We assessed the relevant controls identified above by:
 Assessment Procedures
                                    o Reviewing the regulations governing the program;

                                    o Interviewing HUD officials, Authority staff, Board of
                                      Commissioners, and vendors;

                                    o Performing unit and appliance inspections;

                                    o Reviewing cash disbursement records and files related
                                      to the eligibility and use of HUD program funds;
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                          o Reviewing receipts, deposits, and applicable records
                            and files; and

                          o Analyzing studies and reports from a consultant and its
                            independent public accountant.

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

                          Based on our review, we believe the following items are
                          significant weaknesses:

                          o Program Operations         The Authority did not
                             maintain its housing units in good repair and condition.
                             (See Finding 2)

                          o Validity and Reliability of Data The former Executive
                            Director improperly certified that the CGP Annual
                            Statements were accurate and the work was completed.
                            (See Finding 3)           The Authority’s Board of
                            Commissioners lack of oversight resulted in
                            inappropriate pledging of assets. (See Finding 4) The
                            Authority’s fixed assets inventory was not current.
                            (See Finding 5)

                          o Compliance with Laws and Regulations The Authority
                            improperly advanced over $1.4 million of funds for
                            non-Federal activities, which violated the ACC. (See
                            Finding 1) The Authority did not perform the required
                            inspections for its housing units. (See Finding 2)
                            Contrary to HUD requirements, the Authority did not
                            spend its CGP funds on work approved or obtain
                            HUD’s approval for budget revisions. (See Finding 3)
                            The former Executive Director violated the ACC and
                            Declaration of Trust Agreement, by pledging the
                            Authority’s assets as collateral for loans totaling
                            $1,148,029. (See Finding 4) The Authority did not
                            adequately inventory its appliances as required by it
                            Maintenance Plan. (See Finding 5)




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                    o Safeguarding Resources The Authority improperly
                       advanced over $1.4 million for non-Federal activities.
                       (See Finding 1) The Authority did not spend its CGP
                       funds on work approved. (See Finding 3) The
                       Authority pledged its assets as collateral for loans
                       totaling $1,148,029. (See Finding 4) The Authority
                       did not adequately control its inventory of appliances.
                       (See Finding 5)




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Follow Up On Prior Audits
This was the first Office of Inspector General audit of the Housing Authority of the City of
Tupelo.

Brewster and Associates, P.A. completed the last Independent Auditor audit report for the year
ending December 31, 1999. The report issued August 24, 2000, did not contain any findings.




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                                                                                     Appendix A

Schedule of Ineligible and Unsupported Costs


          Recommendation
              Number                     Ineligible 1/            Unsupported 2/
                1A                         $728,159
                3A                                                      $293,544
                3B                                                      $331,665

          Totals                           $728,159                     $625,209




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

2/      Unsupported costs are costs charged to a HUD-financed or HUD-insured program or
        activity and eligibility cannot be determined at the time of audit. The costs are not
        supported by adequate documentation or there is a need for a legal or administrative
        determination on the eligibility of the costs. Unsupported costs require a future decision
        by HUD program officials. This decision, in addition to obtaining supporting
        documentation, might involve a legal interpretation or clarification of Departmental
        policies and procedures.




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                                                                               Appendix B

Examples of HQS Violations-Vacant Units




Living room wall was heavily damaged.             Bathroom door was hazardously damaged.




Window was missing perimeter trim.                Hall ceiling was damaged.




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                                                                        Appendix C

Examples of HQS Violations-Occupied Units




Refrigerator was unsanitary.             Washer connection for electrical outlet
                                         was missing and wiring exposed.




Walls had peeling paint.                       Combustion pipes were not sealed.




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                                                                                         Appendix D

Schedule of Questionable CGP Costs
                                Fiscal   Quantity Funds         Cost Per     Quantity Questioned
Work Category                    Year    Reported Expended       Unit        Installed Costs

Install Water Heater             1996          200     $8,800      $44         88 (a)      $4,928
Cabinets

Replace Wall Furnaces            1996          200     64,800      324        162 (b)      12,312

Replace Water Heater             1996          200     60,000      300        117 (c)      24,900

Replace Water Heater             1997          180     96,000      533           0         86,616 (d)

Replace Wall Furnaces            1997          136    117,158      861           0 (e) 117,158

Furrdown for Wall                1998          102     29,600      290          95 (f)      2,030
Cabinets

Cover for Combustion Air         1998                  33,812                                    0

Install HVAC                     1999          200   342,465      1,712           200            0

New Stoves                       1999           90     18,900      210         14 (g)      15,960

New Refrigerators                1999           90     35,100      390         14 (h)      29,640


Total Questioned Costs                                                                    $293,544

Notes:
a. 88 units had new water heater cabinets.
b. 162 units is the maximum number of units for furnace installations.
c. 83 units did not receive new water heaters.
d. Water heaters were paid in the prior fiscal year. Finding 1 includes ineligible costs of $9,384
   for 69 units purchased for the Ida Street development. Therefore, questioned cost is $86,616
   ($96,000 – $9,384).
e. Wall furnaces were paid in the prior fiscal year.
f. Cabinet furrdowns were planned for 3, 4, and 5 bedroom units, which totaled 102 units; 7
   units did not have the furrdown cabinet completed based on the inspections performed.
g. 14 units had new stoves.
h. 14 units had new refrigerators.




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                                                                                     Appendix E

Non-Profit Corporation and Limited
Partnerships
The following information explains the Authority and its subsidiaries’ involvement in the Ida
Street and Meadow Creek non-subsidized developments.

The Housing Authority of the City of Tupelo, Mississippi

The Authority served a number of roles in both the Ida Street and Meadow Creek developments.
The Authority was the initial limited partner for Tupelo Apartment Homes, L.P., with planned
replacement by Chevron, as invested partner, after tax credit approval. Also, the Authority was
the initial limited partner for Tupelo II Apartment Homes, L.P., with plans of combining both Ida
Street and Meadow Creek.

The Authority obtained bonds and an Affordable Home Program grant to purchase and rehabilitate
Ida Street. The Authority, through a limited partnership, purchased Meadow Creek with a
promissory note. The Authority was to serve as manager for both projects.

Tupelo Affordable Properties System, Inc.

Formed by the Authority, Tupelo Affordable Properties System, Inc. is a Mississippi non-profit
corporation utilized to develop opportunities for low and very low-income housing. The
organization’s role in the private developments was to provide social services and serve as
developer for the rehab work on both the Ida Street and Meadow Creek projects. Tupelo
Affordable Properties System, Inc. was to retain any developer fees incurred from the rehab work
of both projects to further its affordable housing goals.

Tupelo Housing Authority/Tupelo Affordable Properties System, LLC

The Authority and Tupelo Affordable Properties Systems, Inc. formed a Mississippi limited
liability company to own all stock in Tupelo Apartment Homes, Inc. Tupelo Affordable
Properties Systems, Inc. maintained a 99 percent interest; and, the Authority had a 1 percent
interest in the organization, which was an Affordable Home Program grant requirement. The
organization’s primary roles included: (1) electing a Board of Directors for Tupelo Apartment
Homes, Inc.; and, (2) approving matters involving Tupelo Apartment Homes, Inc., which
required shareholder approval. Tupelo Affordable Properties System, Inc. served as the manager
of the company.

Tupelo Apartment Homes, Inc.

Tupelo Apartment Homes, Inc. is a Mississippi for-profit corporation formed solely to act as
General Partner for the limited partnerships. Tupelo Apartment Homes, Inc. governed the limited
partnership, which included signature authority on all primary documents and transfer of the
Affordable Home Program grant to Tupelo Apartment Homes, L.P.


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Tupelo Apartment Homes, L.P.

Tupelo Apartment Homes is a Mississippi limited partnership, consisting of Tupelo Apartment
Homes, Inc. (general partner) and the Authority (initial limited partner). Chevron U.S.A was to
make capital contributions to the partnership based on tax credit approval. Then, Chevron was to
replace the Authority as limited partner. The partnership would own the project during a 15-year
period for tax credit purposes, with the Authority receiving management fees. After the 15-years
expiration period, Tupelo Apartment Homes, L.P. would sell the development to the Authority.

Chevron withdrew from the partnership agreement due to questionable tenant income records,
which lead to the Authority not being approved for tax credits. HUD required the Authority to
relinquish management of Ida Street in May 2001. Regions Bank, trustee, currently manages the
Ida Street development.

Tupelo II Apartment Homes, L.P.

Tupelo II Apartment Homes, L.P. is a Mississippi limited partnership established to purchase and
rehabilitate Meadow Creek, a private development, located in the Ida Street district. Tupelo II
Apartment Homes, L.P. owned Meadow Creek, with the Authority obtaining management fees.
To date, the Authority remains manager of Meadow Creek.




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Auditee Comments




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                                                                            Appendix G

Distribution
Executive Director, Housing Authority of the City of Tupelo, Mississippi
Principal Staff
Regional Directors
OIG Staff
State Coordinator, State Office, Jackson, Mississippi, 4GS
Director, Office of Public Housing, 4GPH
Acquisitions Librarian, Library, AS

Sharon Pinkerton, Senior Advisor
Subcommittee on Criminal Justice
Drug Policy and Human Resources
B373 Rayburn House Office Building
Washington, DC 20515

Stanley Czerwinski, Associate Director
Resources, Community, and Economic Development Division
U.S. General Accounting Office
441 G Street N.W., Room 2T23
Washington, DC 20515

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

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

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




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Appendix G


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


The Honorable Henry A. Waxman
Ranking Member
Committee on Government Reform
2204 Rayburn Building
United States House of Representatives
Washington, DC 20515

Andy Cochran
House Committee on Financial Services
2129 Rayburn House Office Building,
Washington, DC 20515

Clinton C. Jones, Senior Counsel
Committee on Financial Services
U. S. House of Representatives
B303 Rayburn House Office Building
Washington, DC 20515




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