oversight

Chelsea Housing Authority Chelsea, Massachusetts

Published by the Department of Housing and Urban Development, Office of Inspector General on 2002-09-30.

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

   AUDIT REPORT




CHELSEA HOUSING AUTHORITY

 CHELSEA, MASSACHUSETTS

         2002-BO-1005

     SEPTEMBER 30, 2002




  OFFICE OF AUDIT, NEW ENGLAND
     BOSTON, MASSACHUSETTS
                                                                 Issue Date
                                                                         September 30, 2002
                                                                Audit Case Number
                                                                         2002-BO-1005




TO: Donna J. Ayala, Director, Office of Public Housing, 1APH

FROM: Barry L. Savill, Regional Inspector General, Office of Audit, 1AGA


SUBJECT:       Chelsea Housing Authority
               Chelsea, Massachusetts

We performed an audit of the Chelsea Housing Authority (CHA). Our audit objectives were to
determine whether the CHA was administering its public housing and Section 8 programs in an
efficient, effective and economical manner, and whether the CHA was complying with the terms
and conditions of its Annual Contributions Contract (ACC), applicable laws, HUD regulations and
other applicable directives.

The report contains three findings:

       1. Ineffective Management of Section 8 Vouchers.

       2. Refrigerator Policy Leads to Families being Overcharged.

       3. Inadequate Accounting for Capital Fund Transactions.

For each recommendation in this report, please give us a status report within 60 days (as required
by HUD Handbook 2000.06 REV-2) on: (1) the corrective action taken; (2) the proposed corrective
action and the date to be completed; or (3) why action is considered unnecessary. Additional status
reports are required 90 days and 120 days after report issuance for any recommendation without a
management decision. Also, please furnish us copies of any correspondence or directives issued
because of the audit.

Should you or your staff have any questions, please contact us at (617) 994-8380.
Management Memorandum




                  (THIS PAGE LEFT BLANK INTENTIONALLY)




2002-BO-1005                   Page ii
Executive Summary
We performed an audit of the Chelsea Housing Authority’s operations. Our audit objectives were
to determine whether the Chelsea Housing Authority (CHA) was administering its housing
programs in an efficient, effective and economical manner, and whether the CHA was complying
with the terms and conditions of its Annual Contributions Contract (ACC), applicable laws, HUD
regulations and other applicable directives.



                                    We determined that the CHA needs to:
 Audit Results
                                    Ø Effectively manage its Section 8 vouchers,

                                    Ø Grant tenants in Federal family projects an allowance for
                                      maintenance and replacement of a refrigerator when
                                      CHA does not provide one,

                                    Ø Reconcile its Capital Fund Program (CFP) account.

                                    The CHA did not effectively manage its Section 8 Voucher
                                    Program in accordance with Federal guidelines. The CHA
                                    did not follow the requirements of a Federal District Court
                                    ruling by obtaining permission from initial PHAs located
                                    within Massachusetts before absorbing Section 8 Vouchers.
                                    Also, CHA did not notify out-of-state PHAs, as required by
                                    HUD, that Section 8 Vouchers they had issued had been
                                    absorbed by the CHA. As a result, for the vouchers it
                                    absorbed, the CHA received two payments for each family
                                    receiving the subsidy—one from the initial PHA that issued
                                    the voucher, and another from HUD.

                                    The CHA improperly transferred the ownership of
                                    refrigerators to tenants of its Federally owned family projects
                                    through a resolution by the Board of Commissioners in
                                    January 1994. In this transfer of ownership, the CHA did
                                    not: (1) request HUD approval, (2) provide the tenants an
                                    allowance to cover the additional costs of owning and
                                    maintaining the refrigerators, or (3) revise the tenant leases
                                    removing the responsibility for the refrigerators from the
                                    CHA. As a result, the CHA owes its tenants as much as
                                    $107,000 as an allowance for maintaining and replacing the
                                    refrigerators.




                                        Page iii                                     2002-BO-1005
Executive Summary


                    The CHA was unable to provide supporting documentation
                    for their receipts and disbursements for capital expenditures
                    for fiscal year 2000. During 2000, the CHA requisitioned
                    $406,206 and disbursed $459,707 under the CFP.
                    Additionally, the CHA did not requisition all funds from
                    HUD for their CFP; instead, the CHA borrowed funds from
                    other programs to fund the CFP. As of June 30, 2001, the
                    CFP Program owed $606,896 to other programs and, as a
                    result, the CHA cannot assure that disbursements under CFP
                    are accurate, timely or valid.

                    We have provided specific recommendations to assist the
 Recommendations    CHA in correcting the reported deficiencies. The CHA
                    needs to:

                       Ø Properly record and reconcile Section 8 payments
                         and balances each month.

                       Ø Provide an accounting to HUD identifying all
                         overpayments resulting from absorbed and
                         terminated vouchers and return overpayments to
                         initial PHAs.

                       Ø Determine an appropriate monthly allowance to
                         cover the costs incurred by current tenants for
                         refrigerator repair and replacement and submit the
                         allowance and supporting documentation to HUD for
                         approval.

                       Ø Reimburse current and former tenants the allowance
                         amount for the period of their tenancy.

                       Ø Revise tenant leases to show that the CHA is not
                         providing refrigerators.

                       Ø Reconcile the FY 2000 CFP account and requisition
                         CFP funds from HUD for appropriate administrative
                         and management improvement costs.

                       Ø Eliminate the accounts payable from the CFP fund to
                         the Revolving Fund.

                    The findings were discussed with the CHA’s officials during
                    the course of the audit. We held an exit conference on July
                    24, 2002. On August 8, 2002, we provided the CHA a copy

2002-BO-1005            Page iv
                                      Executive Summary


of the draft report for comment. We received the CHA’s
response on September 11, 2002, and included pertinent
comments from the response in the Findings section of the
report. The CHA’s full response is included as Appendix C.




     Page   v                               2002 –BO-1005
Executive Summary




2002-BO-1005        Page vi
Table of Contents

Management Memorandum                                                  i



Executive Summary                                                    iii



Introduction                                                          1



Findings

1.   Ineffective Management of Section 8 Vouchers                    3


2.   Refrigerator Policy Leads to Families being
     Overcharged                                                     9


3.   Inadequate Accounting for Capital Fund Transactions            13



Management Controls                                                 17



Appendices
 A Schedule of Questioned Costs                                     19


 B Portability Accounts Receivable as of August 17, 2001            21

 C Auditee Comments                                                 23


 D Distribution                                                     27




                              Page vii                     2002-BO-1005
Table of Contents


Abbreviations

ACC            Annual Contributions Contract
CFP            Capital Fund Program
CFR            Code of Federal Regulations
CHA            Chelsea Housing Authority
FY             Fiscal Year
HA             Housing Authority
HAP            Housing Assistance Payment
HQS            Housing Quality Standards
HUD            Department of Housing and Urban Development
OMB            Office of Management and Budget
PHA            Public Housing Authority
PHDEP          Public Housing Drug Elimination Program




2002-BO-1005                          Page viii
Introduction
A five-member Board of Commissioners, chaired by Richard Repici, governs the Chelsea Housing
Authority (CHA). The Executive Director, Michael E. McLaughlin, is responsible for the
administration of daily operations. The CHA office is located at 54 Locke Street in Chelsea,
Massachusetts. The CHA administers 351 units of Federal Low Income Public Housing, 345
vouchers under the Section 8 Housing Choice Program, as well as 560 State Low Income Family
and Elderly units and 145 vouchers under the Massachusetts Rental Voucher Program.


                                   The purpose of our audit was to determine whether the
 Audit Objectives                  CHA is:

                                      Ø Managing its Federal housing programs in an
                                        efficient, effective, and economical manner.

                                      Ø Complying with the terms and conditions of its
                                        Annual Contributions Contract, applicable laws,
                                        HUD Regulations, and other applicable directives.

                                   To accomplish the audit objectives, we:
 Audit Scope and
 Methodology                          Ø Reviewed Federal requirements including the Code
                                        of Federal Regulations, HUD Handbooks, Public and
                                        Indian Housing Notices, Office of Management and
                                        Budget Circulars, CHA Policies and Procedures and
                                        applicable Massachusetts General Laws and Federal
                                        Laws related to public housing.

                                      Ø Reviewed Independent Public Accountant’s reports,
                                        HUD’s Section 8 Management Reviews, HUD’s
                                        Public Housing Drug Elimination Program (PHDEP)
                                        Reviews, HUD’s Occupancy Audit, minutes of the
                                        CHA Board of Commissioners meetings, Inspection
                                        Reports and Reports of the U.S. Corps of Engineers
                                        to obtain information relating to CHA operations.

                                      Ø Reviewed tenant files to verify that tenants: qualified
                                        as a family; were within income limits; and were re-
                                        certified annually.

                                      Ø Interviewed Massachusetts Office of Public Housing
                                        personnel, CHA personnel and its Fee Accountant to
                                        obtain procedures for accounting, administration,
                                        procurement,    maintenance,    occupancy,      cash
                                        disbursements and fixed assets related to their Low

                                       Page 1                                     2002-BO-1005
Introduction


                      Income Housing, Section 8, PHDEP and Capital
                      Fund Programs.

                  Ø Examined CHA’s procurement procedures and
                    supporting documentation.

               We used non-representational samples rather than statistical
               samples for the testing, as this methodology was more
               appropriate for the areas reviewed. The audit was conducted
               between March and November 2001, and covered the period
               from January 1, 1999 to August 31, 2001.                When
               appropriate, the audit was extended to include other periods.

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




2002-BO-1005       Page 2
                                                                                         Finding 1


 Ineffective Management of Section 8 Vouchers
The CHA did not effectively manage the Section 8 Vouchers initially issued by other PHAs. For
the Vouchers initially issued by other PHAs within Massachusetts, the CHA did not follow HUD
guidance that portability procedures did not apply to tenants moving among municipalities within
Massachusetts. For Vouchers initially issued by out-of-state PHAs, the CHA did not notify these
PHAs, as required by Federal regulation, and inform them that these Vouchers had been
absorbed. As a result, the CHA received two payments for each family receiving the subsidy -
one from the initial PHA that issued the voucher, and another from HUD.



                                    Each applicant for assistance under the Section 8 Housing
 Section 8 Voucher                  Choice Voucher Program must meet the definition of a
 Program                            family, using guidelines provided by HUD. HUD establishes
                                    income limits by family size for the area in which the PHAs
                                    are located. All families must meet the program’s income
                                    criteria before eligibility will be determined. A family’s
                                    income must be within the income limits of the initial PHA’s
                                    area at the time the family receives the voucher. Once the
                                    PHA determines the applicant is eligible to receive a Section
                                    8 Voucher, the PHA calculates the family’s Housing
                                    Assistance Payment (HAP) based on the family’s adjusted
                                    income and Federal allowances. HUD regulations allow a
                                    family with a Section 8 Housing Choice Voucher to lease a
                                    unit outside of the jurisdiction of an initial PHA using certain
                                    procedures called portability.

                                    The enabling legislation for PHAs, Massachusetts General
 Portability Regulations Do         Law Chapter 121B, does not define the jurisdiction for
 not Apply in Massachusetts         PHAs. A PHA brought the issue of jurisdiction before the
                                    Federal District Court of Massachusetts. Under a ruling from
                                    the court, PHAs in every municipality in Massachusetts have
                                    the authority to contract for housing anywhere in the State.
                                    HUD provided the information concerning the court ruling to
                                    all of the Massachusetts Executive Directors in a
                                    memorandum dated October 6, 1993. This memorandum
                                    advised that the initial PHA may enter into and administer a
                                    HAP contract for a unit located outside of the PHA’s
                                    municipality; even if the housing is in a municipality of
                                    another PHA that already operates a Section 8 certificate or
                                    voucher program. When the initial PHA in Massachusetts is
                                    presented with a request for Section 8 lease approval, the
                                    initial PHA may directly administer assistance for the family

                                         Page 3                                       2002-BO-1005
Finding 1


                          and deal directly with the owner, or develop other
                          arrangements to administer the certificate or voucher. Since
                          Massachusetts PHAs have statewide jurisdiction, Federal
                          portability procedures allowing a family to be absorbed by a
                          new municipality’s PHA upon relocation to that municipality
                          are not applicable when a family moves within
                          Massachusetts.

 Portability Vouchers     During 2000, the CHA absorbed 86 Portability Vouchers
 Absorbed without         from 33 PHAs without obtaining permission from
 Following Applicable     Massachusetts PHA or providing notification to out-of-state
 Regulations              PHAs. For the 26 PHAs in Massachusetts, the CHA failed
                          to follow HUD’s instructions that portability procedures do
                          not apply to tenants moving from one municipality to another
                          within Massachusetts. For the seven out-of-state PHAs, the
                          CHA did not have documentation to show that they notified
                          the PHAs of the absorption. By not following the
                          appropriate regulations, the CHA caused some of the initial
                          PHAs to continue to forward HAP payments to the CHA.
                          As a result, CHA received two payments for a single
                          subsidized family - one payment from the PHA that issued
                          the voucher and one payment from HUD.

                          In addition, CHA did not properly notify initial PHAs that
                          they had terminated some vouchers. The CHA maintains an
                          Accounts Receivable consisting of subsidiary balances for
                          each PHA for payments associated with the absorbed and
                          terminated vouchers. As of August 17, 2001, this Accounts
                          Receivable had a credit balance of $239,488 consisting of
                          overpayments from 34 initial PHAs (see Appendix B).
                          These overpayments consisted of subsidiary CHA credit
                          balances of $226,676 from 28 PHAs in Massachusetts and
                          $12,812 from six out-of-state PHAs. As a result, some of the
                          initial PHAs were unable to assist families on their waiting
                          lists because the PHAs believed that the terminated vouchers
                          were still in use.

                          During the year 2000, the CHA absorbed 21 vouchers and
 Overpayment to One PHA   terminated 12 vouchers from one Massachusetts PHA
 Exceeded $211,000        without properly notifying that PHA of all of the absorptions
                          and terminations. The CHA sent this PHA a notice on May
                          10, 2001 stating that CHA was receiving HAP payments for
                          22 of their 33 vouchers for over a year after they had been
                          absorbed or terminated. This notice disclosed that the
                          absorptions took place on July 1, 2000 and the terminations

2002-BO-1005                  Page 4
                                                                                 Finding 1


                             took place between November 1999 and September 2000.
                             As of May 2001, the CHA owed this PHA $211,911. In
                             June 2001, this PHA began withholding funds from ongoing
                             HAP payments until the $211,911 was offset.

                             The CHA did not reconcile any vouchers during FY 2000.
CHA Attributes Problems      The CHA Director of Finance stated that the person
to Staff Turnover and Lack   responsible for handling the billing for portable vouchers had
of Supervision               little or no supervision because their supervisor left the CHA.
                             The CHA believes this lack of supervision resulted in
                             inadequate record keeping and a failure to reconcile vouchers
                             from other PHAs as required. Turnover of supervisor and
                             staff resulted in an inadequate ability to train, monitor, and
                             retain new employees. From June 4, 1997 to February 14,
                             2000, thirty-one CHA employees vacated positions and
                             twenty-one employees were hired. Our interviews identified
                             that many of the managers are new to their positions.
                             Current staff commented that prior management failed at
                             providing timely supervision or training for new staff
                             members. As a result, the CHA could not determine the
                             reason for the growing Accounts Receivable balance owed to
                             other PHAs.

                             If the CHA reconciled the vouchers from other PHAs
                             regularly, the overpayments could have been handled in a
                             timely manner.




                                 Page 5                                       2002-BO-1005
Finding 1


                     In 24 CFR 982.152(d), HUD regulations state:
HUD May Reduce
Administrative Fee      HUD may reduce or offset any administrative fee to the
                        PHA, in the amount determined by HUD, if the PHA
                        fails to perform PHA administrative responsibilities
                        correctly or adequately under the program

                     In FY 2000, the CHA absorbed 86 vouchers without
                     providing all PHAs proper notification. During that year
                     HUD paid the CHA $259,220 in Section 8 administrative
                     fees. Absorbed vouchers represent approximately 25
                     percent of the current 345 Section 8 vouchers administered
                     by the CHA. The CHA is in the process of determining the
                     accuracy of Accounts Receivable owed to other PHAs. The
                     CHA has reconciled the Accounts Receivable for the period
                     of January 1, 2000 to August 17, 2001. For the period of
                     March 1998 to January 2000, the CHA decided not to
                     reconcile the Accounts Receivable as it believes that
                     checking tenant rental charges and other data needed to
                     identify discrepancies is time consuming.

                     In our opinion, the CHA’s decision does not adequately
                     address the problem. Since the CHA did not plan to
                     reconcile its Accounts Receivable/Payable to other PHAs
                     for the period of March 1998 to January 2000 when the
                     supervisory problem in the Section 8 Department became
                     evident, the CHA should return to HUD the administrative
                     fees attributable to the administration of the absorbed
                     vouchers in 1998 and 1999. If the percentage absorbed in
                     FY 2000 is representative of absorptions in FYs 1998 and
                     1999, the CHA should return $119,156 to HUD. This
                     calculation represents the FY 2000 absorption percentage
                     multiplied by the total administrative fees paid to the CHA
                     in 1998 and 1999.

                      Administrative Fee Attributable to Absorptions in FYs 98 and 99
                      1998 Administrative Fee                               $217,404
                      1999 Administrative Fee                               $259,220
                                                                 Subtotal   $476,624
                      Absorption Percentage (86 absorbed out of 345 total)      25%
                      Estimated Administrative Fee related to Absorption    $119,156




2002-BO-1005             Page 6
                                                                       Finding 1



Auditee Comments    The CHA advised that they were in the process of returning
                    all overpayments to the initial PHAs. The CHA also
                    indicated that they would reconcile the accounts from
                    January 1998 forward and are currently reconciling the
                    accounts on a monthly basis. The CHA further stated that
                    they are complying with regulations requiring the initial
                    PHA’s (Massachusetts only) permission to absorb vouchers
                    and will notify the initial PHA’s of terminated vouchers.



OIG Evaluation of   The actions taken and planned by the CHA should correct all
Auditee Comments    of the deficiencies noted in the finding. The CHA should
                    provide your staff evidence that the reconciliation is
                    complete and that all overpayments have been returned to the
                    initial PHAs.

                    The draft report contained recommendations 1F, 1G and 1H
                    concerning monthly reconciliations, permission from initial
                    PHAs to absorb vouchers, and notification to initial PHAs on
                    terminated vouchers.      We have deleted these three
                    recommendations based on the CHA’s response.



Recommendations     We recommend that you:

                    1A.     Require the CHA to provide your staff an accounting
                            for all overpayments resulting from absorbed and
                            terminated vouchers beginning with January 1998.

                    1B.     Require the CHA to assure that all overpayments are
                            returned to the initial PHAs.

                    1C.     Require the CHA to reconcile the Accounts Owed
                            To/From Other PHAs from January 1998 forward.

                    1D.     Reduce CHA’s Administrative Fee if CHA is unable
                            to reconcile Accounts Owed To/From other PHAs
                            back to January 1998.

                    1E.     Instruct the initial PHAs on the proper accounting of
                            the returned overpayments.

                          Page 7                                    2002-BO-1005
Finding 1




               (THIS PAGE LEFT BLANK INTENTIONALLY)




2002-BO-1005                Page 8
                                                                                    Finding 2




                   Refrigerator Policy Leads to
                   Families being Overcharged
The Chelsea Housing Authority (CHA) no longer provides refrigerators to tenants in their
Federal family projects. CHA officials stated they were unaware that HUD requires PHAs who
do not provide appliances to: (1) obtain HUD approval for disposing of appliances; and (2)
provide tenants an allowance for maintenance and replacement of appliances. As a result of the
CHA’s non-compliance with HUD requirements, the CHA overcharged needy families as much
as $107,000 over the past eight years.



                                    In December 1993, the CHA’s Board of Commissioners
 1994 Resolution Passed
                                    passed a resolution approving a refrigerator policy which
 by Board
                                    stated that CHA would no longer provide refrigerators to
                                    the tenants in family units. This policy advises:

                                       As of January 1, 1994, the Authority will no longer
                                       provide nor maintain refrigerators for the households
                                       of the Authority’s conventional family housing . . .
                                       except those households . . . that:

                                       1. Are unable to afford a refrigerator, and that they
                                          have exhausted every public source of funding for
                                          appliances to obtain a refrigerator.

                                       2. Have a disability that requires them to use a
                                          refrigerator that is not a standard size or design,
                                          and they are unable to afford or otherwise obtain
                                          that atypical refrigerator.

                                    The Annual Contributions Contract (ACC) between the
 ACC has Covenant Against           CHA and HUD states that the CHA shall develop and
 Disposition                        operate all projects covered by this ACC in compliance
                                    with all applicable statutes, executive orders, and
                                    regulations issued by HUD. Section 7 of Part A of the
                                    ACC, Covenant against Disposition and Encumbrances,
                                    states:

                                       The HA shall not demolish or dispose of any project, or
                                       portion thereof, other than in accordance with the
                                       terms of this ACC and applicable HUD requirements . .

                                        Page 9                                   2002-BO-1005
Finding 2


                             . the HA shall not in any way encumber any such
                             project, or portion thereof, without the prior approval
                             of HUD (Emphasis added).

                             Appliances such as refrigerators are a portion of a
                             project.

                          In addition to the ACC, HUD issued Notice H83-53, PHA’s
Allowances Required for   Requests to Phase out the Provision of Major Appliances on
Tenants                   July 13, 1983. In Section 3 of this Notice, HUD advises that
                          allowances are required for tenants when the PHA does not
                          provide appliances. To dispose of and no longer provide
                          appliances, PHAs must request HUD approval and provide a
                          written justification identifying substantial cost savings and a
                          plan that establishes:

                          Ø A monthly allowance for tenants to provide their own
                            appliances, and a plan for dealing with tenants who
                            cannot afford their own appliances.

                          Ø Plans for the disposition of appliances currently supplied
                            and for the provision of, and maintenance of, appliances
                            during the phase-out period.

                          Ø Estimates of the replacement and maintenance cost for
                            appliances currently provided, and proposed lease
                            revisions reflecting the change in ownership of
                            appliances.

                          The CHA disposed of 200 refrigerators by transferring
 Families Overcharged     ownership to Low-Income Public Housing tenants at the
                          Federal family projects without obtaining HUD’s approval
                          and without providing these tenants an allowance for
                          maintenance and replacement of the refrigerators. In
                          addition, the CHA did not modify the existing leases to
                          identify that refrigerators were no longer provided. The
                          CHA officials stated they were unaware that HUD approval
                          was required for disposing of the appliances, or that HUD
                          requires PHAs to provide tenants an allowance for
                          maintaining and replacing those appliances not provided by
                          the PHA. As a result, the CHA overcharged families as
                          much as $107,000 by not providing either a refrigerator for
                          each unit or an allowance for the family to purchase and
                          maintain their own refrigerator.


2002-BO-1005                  Page 10
                                                                                    Finding 2


                              The CHA provides an allowance for appliances in another
 Section 8 Families Receive   HUD-funded housing program it administers – the Section 8
 an Allowance                 Program. Beginning November 2001, the CHA provided
                              Section 8 families an allowance of $13 per month when the
                              Section 8 landlord does not provide a refrigerator. Prior to
                              November 2001, this allowance was $5 per family per
                              month. In our opinion, the CHA Public Housing tenants
                              should receive an allowance similar to the CHA Section 8
                              tenants. Using the same allowances, the CHA would need to
                              reimburse Public Housing tenants as much as $107,000 for
                              the period of January 1994 to March 2002, as shown below:

                                  Building              11/1/01 to   01/1/94 to      Total per
                                    Name        Units    03/31/02     10/31/01       Building
                               Mace              95       $6,175     $44,650         $50,825
                               Scrivano         105       $6,825     $49,350         $56,175
                               Total            200     $13,000      $94,000        $107,000




Auditee Comments              The CHA has contracted with a private vendor to revise their
                              Utility Allowance schedule, including an allowance for
                              refrigerators.    The CHA indicated agreement with
                              reimbursing current and prior tenants for occupancy between
                              January 1, 1994 and July 31, 2002. The CHA also advised
                              that they are following HUD regulations in revising their
                              lease.


OIG Evaluation of             CHA’s planned actions will address our six
Auditee Comments              recommendations once these actions are completed.
                              However, you should obtain assurances from the vendor
                              providing the refrigerator allowance that the allowance is for
                              maintaining and replacing the refrigerator and not for
                              electricity.


Recommendations               We recommend that you require the CHA to:

                              2A.      Determine an appropriate monthly allowance to
                                       cover the additional costs incurred by tenants for
                                       owning their refrigerators.

                              2B.      Submit    this    allowance       and     appropriate
                                       documentation to your staff for approval.


                                    Page 11                                       2002-BO-1005
Finding 2


               2C.      Reimburse all current and former tenants for this
                        monthly allowance multiplied by the duration of their
                        tenancy from January 1, 1994 to July 1, 2002.

               2D.      Reduce the rent of current tenants by the amount of
                        the monthly allowance.

               2E.      Publish a legal notice advising former tenants of their
                        entitlement to reimbursement provided they can
                        document the duration of their tenancy between
                        January 1, 1994 and July 31, 2002.

               2F.      Submit for your approval a revised tenant lease
                        identifying that the CHA is not providing
                        refrigerators. Upon HUD’s approval, CHA needs to
                        execute these revised leases with its tenants.




2002-BO-1005         Page 12
                                                                                       Finding 3


                     Inadequate Accounting for
                      Capital Fund Transactions
The Chelsea Housing Authority (CHA) did not properly account for receipts and disbursements in
its Capital Fund Program (CFP) for 2000. For 2000, the CHA requisitioned $406,206 and
disbursed $459,707 under the CFP. Through its Revolving Fund, the CHA borrowed funds from
other programs to fund the CFP for several years. Additionally, the CHA has not requisitioned all
funds from HUD for their CFP. As of June 30, 2001, the CHA has recorded a total payable to the
other programs of $606,896, which it cannot validate until it completes a reconstruction of the
account. As a result, the CHA cannot assure that disbursements under the CFP are accurate, timely
or valid.




 HUD Requirements                    The Annual Contributions Contract between the CHA and
                                     HUD, Part A, Section 15 (A), Books of Account, Records,
                                     and Government Access states:

                                        The HA must maintain complete and accurate books of
                                        account for the projects of the HA in such a manner as to
                                        permit the preparation of statements and reports in
                                        accordance with HUD requirements, and to permit
                                        timely and effective audit.

                                     Standards for Financial Management Systems, 24 CFR
                                     85.20, paragraph (b) (6) states:

                                        Accounting records must be supported by such source
                                        documentation as cancelled checks, paid bills, payrolls,
                                        time and attendance records, contract and sub grant
                                        award documents, etc.

                                     Cost Principles for State, Local, and Indian Tribal
                                     Governments, OMB circular A-87, Attachment A, paragraph
                                     C. 1 provides the factors affecting allowability of costs.
                                     Among other items costs must:

                                        Be necessary and reasonable for proper and efficient
                                        performance and administration of Federal awards.

                                        Be adequately documented.




                                         Page 13                                    2002-BO-1005
Finding 3


                        The Comprehensive Grant Program (CGP) was the primary
 Program Name Changes   source of modernization funds for physical improvements to
                        public housing units through 1999. In 2000, the Quality
                        Housing and Work Responsibility Act of 1998 (incorporated
                        into 1999 HUD budget) replaced CGP funding with the CFP.
                        For the purpose of this report, CFP is used to refer to funds
                        from both programs.

                        For 2000, the CHA could not support requisitions or
 Requisitions and       disbursements for their CFP. The current Director of
 Disbursements not      Finance, who joined CHA in December 2000, advised that
 Documented for 2000    the CHA would need to reconstruct the account. The former
                        Assistant Director, who was previously responsible for
                        maintaining the documentation, left the CHA in November
                        2000. For the year ending December 31, 2000, the CHA
                        recorded requisitioned funds of $406,206 and disbursements
                        of $459,707.

                        The CHA maintains a Revolving Fund to provide financing
                        for continuous operations. This financing derives from the
                        grants and subsidies received. Expenditures through the
                        Revolving Fund must be charged back to the appropriate
                        grant or subsidy. The CHA has been resourcing funds in the
                        Revolving Fund to pay for shortfalls in the CFP. To record
                        the amount resourced, CHA created an Interfund Accounts
                        Payable from CFP to the Revolving Fund.

                        The Interfund Accounts Payable due from the CFP to the
                        Revolving Fund totaled $606,896 as of June 30, 2001. The
                        Director of Finance advised that the CHA could not validate
                        the Accounts Payable until the CHA completed a
                        reconstruction of the CFP account. The Director of Finance
                        stated that the shortfall that led to an increase in the Accounts
                        Payable for 2001 resulted from expending funds for CFP
                        without requisitioning all CFP funds from HUD. The CHA
                        advised that it did not requisition CFP funds for allowed
                        Administrative Costs and Management Improvement Costs
                        until September 2001 due to its lack of experience with the
                        requisition process. The CHA’s failure to requisition funds
                        timely from HUD resulted in: (1) lost interest income, (2)
                        expenditures exceeding requisitions and (3) unsupported
                        costs.




2002-BO-1005                Page 14
                                                                      Finding 3




Auditee Comments    The CHA advised that: (1) the CFP requisitions and
                    disbursements have been reconciled and fully requisitioned,
                    and (2) all funds owed to the revolving fund have been
                    repaid. In addition, the CHA advised that they are currently
                    requisitioning administrative and management costs timely.


OIG Evaluation of   The CHA should provide documentation evidencing the
Auditee Comments    reconciliation and the overpayment to the Revolving Fund
                    for your staff’s review. Based on the CHA’s response and
                    review of recent requisitions, we have deleted the
                    recommendation in our draft report concerning timely
                    requisitions of administrative and management improvement
                    costs.


Recommendations     We recommend that you require the CHA to:

                    3A.      Reconcile requisitions and disbursements to their
                             CFP Program from January 2000 forward and
                             provide documentation to support the reconciliation
                             for your staff’s review.

                    3B.      Provide evidence that the amount borrowed from the
                             Revolving Fund has been repaid from the CFP fund.




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Finding 3




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2002-BO-1005               Page 16
Management Controls
In planning and performing our audit, we considered the management controls of the Chelsea
Housing Authority (CHA) that were relevant to our audit objectives. We reviewed the CHA’s
management control systems to determine our auditing procedures and not to provide assurance on
management controls.

Management controls include the plan of organization, methods and procedures adopted by
management to ensure that resource use is consistent with laws, regulations and policies; that
resources are safeguarded against waste, loss and misuse; and that reliable data is obtained,
maintained and fairly disclosed in reports.



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

                                    Ø General administration and accounting controls

                                    Ø Safeguards over assets and records

                                    Ø Section 8 Program

                                    Ø Capital Fund Program

                                    Ø Procurement and Contracting

                                    Ø Admissions and Occupancy

                                    Ø Tenants Accounts Receivables and Security Deposits

                                    A significant weakness exists if management controls do
 Significant Weakness               not provide reasonable assurance that resource use is
                                    consistent with laws, regulations and policies; that
                                    resources are safeguarded against waste, loss and misuse;
                                    and that reliable data is obtained, maintained and fairly
                                    disclosed in reports.

                                    Our review identified significant weaknesses in management
 Assessment Results                 controls over Section 8 vouchers, disposal of refrigerators
                                    and administration of the Capital Fund Program. These
                                    weaknesses are described in the Findings and
                                    Recommendations section of this report.




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Management Controls




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2002-BO-1005                      Page 18
                                                                                             Appendix A

Schedule of Questioned Costs


Findings                                                        Ineligible Costs 1/   Unsupported Costs 2/

1- Overpayments on Section 8 Portability Vouchers                    $239,488

1- Administrative Fees Earned in 1998 and 1999                                             $119,156

2 - CHA Refrigerator Policy causes Families to be Overcharged        $107,000

Total                                                                $346,488              $119,156




        1/    Ineligible costs are costs that are questioned because of an alleged violation of a
              provision of a law, regulation, contract, grant, cooperative agreement, or other
              agreement or document governing the expenditure of funds.

        2/    Unsupported costs are costs whose eligibility cannot be clearly determined during
              the audit since such costs were not supported by adequate documentation.




                                             Page 19                                         2002-BO-1005
Appendix A




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2002-BO-1005               Page 20
                                                  Appendix B

Portability Accounts Receivable as of
August 17, 2001
                    Massachusetts PHAs
                1                       $10,497
                2                       $27,970
                3                        $1,031
                4                      $127,200
                5                        $1,297
                6                         $335
                7                         $258
                8                         $720
                9                         $634
               10                        $1,146
               11                       $10,016
               12                         $958
               13                        $4,981
               14                        $2,018
               15                         $466
               16                        $2,687
               17                        $4,373
               18                         $745
               19                         $171
               20                        $5,275
               21                           $18
               22                        $2,765
               23                       $12,798
               24                           $27
               25                         $223
               26                        $4,644
               27                         $179
               28                        $3,244
             Subtotal                  $226,676
                      Out of State PHAs
                1                        $2,262
                2                        $7,182
                3                           $36
                4                         $650
                5                        $2,646
                6                           $36
             Subtotal                   $12,812
              Total                    $239,488


                         Page 21                  2002-BO-1005
Appendix B




2002-BO-1005   Page 22
                             Appendix C

Auditee Comments




                   Page 23   2002-BO-1005
Appendix D




2002-BO-1005   Page 24
          Appendix C




Page 25   2002-BO-1005
Appendix D




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2002-BO-1005               Page 26
                                                                                 Appendix D

Distribution Outside HUD
The Honorable Joseph Lieberman, Chairman, Committee on Government Affairs

The Honorable Fred Thompson, Ranking Member, Committee on Governmental Affairs

Sharon Pinkerton, Senior Advisor, Subcommittee on Criminal Justice, Drug Policy & Human
Resources

Andy Cochran, House Committee on Financial Services

Clinton C. Jones, Senior Counsel, Committee on Financial Services

Kay Gibbs, Committee on Financial Services

Stanley Czerwinski, Director, Housing and Telecommunications Issues, U.S. GAO

Steve Redburn, Chief Housing Branch, Office of Management and Budget

Linda Halliday, Department of Veterans Affairs, Office of Inspector General

William Withrow, Department of Veterans Affairs, OIG Audit Operations Division

George Reeb, Assistant Inspector General for Health Care Financing Audits

The Honorable Dan Burton, Chairman
Committee on Government Reform, 2185 Rayburn Building
House of Representatives, Washington, D.C. 20515

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




                                        Page 27                                  2002-BO-1005
Appendix D




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2002-BO-1005                  Page 28