oversight

Low Rent Housing Program, Cash and Procurement Controls Housing Authority of the City of Houma Houma, Louisiana

Published by the Department of Housing and Urban Development, Office of Inspector General on 2002-09-18.

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

         AUDIT REPORT




     LOW RENT HOUSING PROGRAM
   CASH AND PROCUREMENT CONTROLS

HOUSING AUTHORITY OF THE CITY OF HOUMA
          HOUMA, LOUISIANA


               2002-FW-1002

           SEPTEMBER 18, 2002


          OFFICE OF AUDIT, REGION 6
             FORT WORTH, TEXAS
                                                                Issue Date
                                                                    September 18, 2002
                                                                Audit Case Number
                                                                    2002-FW-1002




TO:           Catherine D. Lamberg
              Director, Troubled Agency Recovery Center, PB2

               /SIGNED/
FROM:         D. Michael Beard
              Regional Inspector General for Audit, 6AGA

SUBJECT: Low Rent Housing Program, Cash and Procurement Controls
         Housing Authority of the City of Houma
         Houma, Louisiana


We performed an audit of the Housing Authority of the City of Houma (Authority). The purpose
of the audit was to determine whether the Authority maintained adequate controls over cash and
procurement. Specifically, we determined whether the Authority: (1) expended funds for
eligible activities; (2) accounted for collections and deposits; and (3) complied with federal and
Authority procurement requirements.

The report contains four findings requiring follow-up actions by your office. We will provide a
copy of this report to the Authority.

In accordance with HUD Handbook 2000.06 REV-3, within 60 days, please furnish this office,
for each recommendation without management decisions, a status report on: (1) the corrective
action taken; (2) the proposed corrective action and the date to be completed; or (3) why action is
considered unnecessary. Additional status reports are required at 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.

Please call William W. Nixon, Assistant Regional Inspector General for Audit, at (817) 978-9309
if you or your staff have any questions.
Management Memorandum




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2002-FW-1002               Page ii
Executive Summary
We performed an audit of the Housing Authority of the City of Houma (Authority)’s low
rent program. The purpose of the audit was to determine whether the Authority
maintained adequate controls over cash and procurement. Specifically, we determined
whether the Authority:

       (1) Expended funds for eligible activities;
       (2) Accounted for collections and deposits; and
       (3) Complied with federal and Authority procurement requirements.



                                    The audit concluded the Authority had inadequate controls
      The Authority had             and management over cash and procurement. Specifically,
      inadequate controls and       the Authority improperly procured $1.1 million in
      management over cash          contracts; paid $240,077 in ineligible and unsupported
      and procurement.              expenditures; did not deposit tenant receipts totaling at least
                                    $48,201; and allowed employees to abuse their positions.

                                    As a result of poor management, lax oversight, and a failure
                                    to follow requirements, the Authority mismanaged HUD
                                    funds and may have exposed the funds to fraud, waste, and
                                    abuse.

                                    We are recommending HUD take action to ensure the
    Recommendations                 current management has the necessary policies and
                                    procedures in place to limit future mismanagement; the
                                    Authority support or repay the unsupported or ineligible
                                    expenditures discussed in the findings; and that HUD
                                    should take any warranted administrative sanctions.

                                    We provided the draft copy of the audit report to the
      The Authority generally       Authority on June 19, 2002. We held an exit conference on
      agreed with the findings.     July 18, 2002, with the Executive Director of the Authority
                                    and an official of the HUD Troubled Agency Recovery
                                    Center.

                                    The Authority provided its signed response and attachments
                                    to our findings.1 We have summarized and evaluated the
                                    applicable areas in the individual findings. We have
                                    included the entire response as Appendix B. Generally, the
                                    Authority concurred with the findings and offered actions it
                                    would take to address the recommendations. The Authority

1
    Dated August 15, 2002.

                                           Page iii                                 2002-FW-1002
Executive Summary


                    contends the Authority's previous administration caused the
                    conditions cited in the report. In addition, the Authority
                    believed HUD contributed to the problems experienced at
                    the Authority. The Authority stated problems identified in
                    the report were reported to HUD as far back as 1997-1998
                    and the damage caused by the former administration and
                    board members could have been minimized and contained
                    if proper HUD oversight was in place.

                    We appreciate the Authority’s assistance and cooperation
                    with OIG staff throughout the course of the audit.




2002-FW-1002                     Page iv
Table of Contents

Management Memorandum                                                i


Executive Summary                                                   iii


Introduction                                                         1


Findings

1    The Authority Sole-Sourced $1.1 Million in Contracts            3

2    The Authority Paid $240,077 in Ineligible and                  13
     Unsupported Expenditures

3    The Authority Did Not Deposit Tenant Receipts Totaling         25
     at Least $48,201

4    Authority Employees Abused Their Positions                     31



Management Controls                                                 35


Follow-Up on Prior Audits                                          37


Appendices
      A Schedule of Questioned Costs                                39

      B Auditee Comments                                           41

      C Distribution                                               47



                                Page v                      2002-FW-1002
Table of Contents


Abbreviations

       HUD          U. S. Department of Housing and Urban Development
       OIG          Office of Inspector General
       OMB          Office of Management and Budget




2002-FW-1002                              Page vi
Introduction
                                                The Housing Authority of the City of Houma (Authority) is
    Background                                  a political subdivision of the State of Louisiana
                                                incorporated in 1966. The Terrebonne Parish President
                                                appoints a five-member Board of Commissioners who
                                                provides oversight of the Authority’s operations. The
                                                Authority manages 600 Public Housing units at two sites:
                                                Bayou Towers and Senator Circle. Bayou Towers is a
                                                high-rise facility, designated as elderly/handicapped living.
                                                Senator Circle is a low-rise development, designated as
                                                multifamily living. The Authority maintains records at its
                                                administrative office located at 7491 Park Avenue, 1st floor
                                                of the Bayou Towers high rise.

                                                The Authority received the following funding from HUD:

                                                Type of                1998               1999               2000
                                                funding
                                                Operating                  $845,906           $815,048           $664,957
                                                Subsidy
                                                Capital                    $464,495           $530,491         $1,100,863
                                                Funding
                                                Drug                                          $131,964
                                                Elimination
                                                Totals                   $1,310,401         $1,477,503         $1,765,820

                                                Based upon information submitted to HUD, HUD
                                                considered the Authority a high performer2 in 1998 and
                                                1999; however, the Authority received a score 36 out of
                                                100 on HUD’s assessment in 2000.

                                                In 2000, both the Executive Director and the Assistant
                                                Executive Director left the Authority. The Executive
                                                Director left on indefinite medical leave in August 2000.
                                                The Authority’s Board of Commissioners officially
                                                terminated the Executive Director in September 2001. The
                                                former Assistant Executive Director quit abruptly in
                                                September 2000. Furthermore, the Board of
                                                Commissioners have also seen turnover.

                                                Since March 2001, an Assistant Executive Director has
                                                managed the day-to-day operations.3 Due to conditions at

2
    HUD considers a housing authority a high performer if it receives a score of 90 or higher.
3
    In May 2002, the Board of Commissioners voted to promote the Assistant Executive Director to Executive Director.

                                                        Page 1                                               2002-FW-1002
Introduction


                    the Authority, HUD’s Troubled Agency Recovery Center
                    took over the supervision of the Authority in January 2002.

                    Our overall objective was to determine whether the
  Audit Objective   Authority maintained adequate controls over cash and
                    procurement. Specifically, we determined whether the
                    Authority:

                    ·   Expended funds for eligible activities;
                    ·   Accounted for collections and deposits; and
                    ·   Complied with federal and Authority procurement
                        requirements.

                    To accomplish the audit objectives we:

                    ·   Reviewed relevant HUD regulations and guidelines;
                    ·   Examined records maintained by the Authority;
                    ·   Reviewed the Authority’s accounting records, financial
                        and budget reports, and operating procedures;
                    ·   Reviewed a non-representative selection of contracts;
                    ·   Analyzed the Authority’s computer information using
                        computer assisted auditing software; and
                    ·   Interviewed Authority personnel, HUD officials,
                        Independent Auditors, Board of Commissioners,
                        consultants, and others possessing knowledge regarding
                        the Authority’s operations.

                    We conducted the audit in accordance with generally
  Audit Scope and   accepted governmental auditing standards. As discussed in
  Methodology       the findings, the Authority’s books and records were in
                    poor condition and the Authority could not supply all the
                    information needed to complete our audit. Throughout the
                    audit, we reviewed various computer-generated data.
                    Specifically, using computer-assisted auditing software we
                    sorted, analyzed, and evaluated the Authority’s financial
                    records. However, we could not satisfy ourselves that these
                    records were complete or accurate. We did not test the
                    reliability of any other computer-generated data.

                    We conducted our fieldwork between April 2001 and
  Audit Period      March 2002. Our audit period generally covered the period
                    from January 1, 1998, through June 30, 2001, with the
                    scope expanded as necessary.



2002-FW-1002               Page 2
                                                                                                      Finding 1


                            The Authority Sole-Sourced
                             $1.1 Million in Contracts
The Authority sole-sourced 164 of the 20 contracts reviewed.5 In addition to poorly
procuring the contracts, the Authority: (1) did not perform proper procurement
administration; (2) did not maintain procurement files; (3) did not perform price/cost
analyses;6 and (4) disregarded HUD instructions to approve and pay contract awards.7
Also, the Authority failed to monitor the work of contracts totaling $949,204.

As a result of not following requirements, it did not know whether it received quality
service for a reasonable price under the contracts. The Authority should establish and
implement proper procedures to procure goods and services. Further, the Authority
should repay HUD ineligible and unsupported amounts.



                                                   According to 24 CFR 85.36, “…all procurement
    The Authority had a duty                       transactions will be conducted in a manner providing full
    to award contracts                             and open competition. Procurement by noncompetitive
    competitively.                                 proposals may be used only when the award of a contract is
                                                   infeasible under small purchase procedures, sealed bids or
                                                   competitive proposals and one of the following
                                                   circumstances applies: the item is available from a single
                                                   source, emergency, competition determined inadequate and
                                                   HUD authorizes the noncompetitive proposals."

                                                   Further HUD Handbook 7460.8 allowed the Authority to
                                                   use the noncompetitive proposals method, in exceptional
                                                   cases, provided it prepares a written justification, follows
                                                   HUD regulations, and obtains any required HUD approval.8

                                                   In a non-representative selection of 20 contracts, the
    The Authority sole-                            Authority sole-sourced 16 of the contracts reviewed. The
    sourced contracts totaling                     contracts totaled $1,174,211. The contracts sole-sourced
    $1.1 million.                                  included: Armand Communications, Bayouland YMCA,
                                                   Bergeron & Lanaux, Bolden Exterminators, Carmon
                                                   Consulting, Cintas, Crescent Guardian, Estes & Associates,
                                                   Houma Police, Legier & Materne, Marcello & Associates,


4
    The 16 contracts totaled $1,174,211.
5
    The Authority could not provide a listing of all contracts procured during the audit period.
6
    A price/cost analysis was only performed in one instance.
7
    In two instances, the Authority paid $207,156 after HUD told them to cease payments.
8
    HUD Handbook 7460.8, paragraph 2-6.

                                                           Page 3                                  2002-FW-1002
Finding 1


                                                McGlinchey Stafford, P. Miller & Associates, Simplex,
                                                Vinson Guard Service, and Waste Management.

                                                The Authority failed to prepare a written justification and
                                                obtain HUD approval as required for the 14 noncompetitive
                                                contracts. The Authority provided written justification for
                                                just two sole-sourced contracts: McGlinchey Stafford and
                                                Legier & Materne. However, the Authority neglected to get
                                                the required HUD approval. HUD did not grant approval
                                                and as a result, HUD considered the contracts with
                                                McGlinchey Stafford and Legier & Materne and Bergeron
                                                & Lanaux improper. In an August 1, 2001 letter to the
                                                Authority, HUD told the Authority to cease "payments to
                                                these firms for services provided." The Authority ignored
                                                HUD’s warning. As of August 17, 2001, the Authority
                                                paid $207,156 to the two service providers.9 The Authority
                                                should follow HUD’s instruction and direction and cease
                                                making improper procurements and payments.

                                                With respect to architectural services, the Authority did not
                                                advertise for the services. The Authority contacted
                                                Marcello & Associates directly. The Authority did not
                                                retain files regarding its procurement of Marcello &
                                                Associates. Marcello & Associates provided contract files
                                                dating back to August 6, 1997. The Authority hired the
                                                firm to perform design services for both sites, Senator
                                                Circle and Bayou Towers. However, in 1998 and 1999
                                                Marcello & Associates submitted addenda, which the
                                                Authority accepted and paid. The Authority allowed
                                                Marcello & Associates to add on services without
                                                competition or a new contract. Authority files showed the
                                                Authority continued to make payments to Marcello &
                                                Associates until June 2001. The Authority paid Marcello &
                                                Associates a total of $107,603 from January 1998 to June
                                                2001. The contract and addenda during the same period
                                                totaled $99,930. Marcello & Associates billed the
                                                Authority for $11,980 for work where no valid contract
                                                exists. The Authority should not make payments to
                                                contractors that are not supported by valid contracts.

                                                The Authority also overpaid for security services. From
                                                January 1998 to August 2000, the Authority simultaneously
                                                paid two security service providers to perform security

9
    HUD originally considered the contract with Begeron & Lanaux improper, but in October 2001, allowed the Authority to pay
    the firm.

2002-FW-1002                                              Page 4
                                                   Finding 1


patrol service. The Authority procured the services of both
Vinson Guard Service and the Houma Police Department
without the benefit of competition. The Authority
disregarded both HUD and the Authority procurement
requirements. The contract amount not only required HUD
review and approval, but the noncompetitive nature of the
contracts also required it. The Authority did not provide
written justification or obtain HUD approval. The
Authority paid 41 Houma police officers $265,040 from
January 1998 to June 2001. During the same period,
Vinson Guard Service received a total of $242,145, for a
total of $507,185. Based upon the files, it did not appear
the Authority controlled the contracts. The Authority could
not provide a reason for this level of security service. For
the period, the Authority expended 5 percent of its funds on
security services. It does not appear cost effective to pay a
total of $507,185 for two different providers to perform
effectively the same services. The Authority should
evaluate the need for and level of security services and
follow procurement requirements in obtaining and
monitoring them.

As another example, in May 2000, the former Executive
Director decided to obtain a summer youth program. The
former Executive Director directly contracted with
Bayouland YMCA. The former Executive Director did not
consider any other service providers. The Authority paid
Bayouland $26,109 for the summer program. Again, the
former Executive Director did not follow the Authority and
HUD regulations concerning procurement of services.
Furthermore, Terrebonne Parish offered similar services as
Bayouland YMCA for free. However, the former
Executive Director failed to submit the Authority
application to the Terrebonne Parish officials, and as a
result the Authority missed the deadline. Accordingly, the
Authority should repay the $26,109 to HUD.

By excluding other service providers, the Authority
effectively sole-sourced the contract awards and as a result,
the Authority restricted competition and lessened the
assurance that it obtained quality services. For instance, it
did not appear the Authority received quality auditing
service from Estes & Associates. In October 1999, the
former Executive Director contracted with Estes &
Associates to provide audit services for the fiscal year

     Page 5                                     2002-FW-1002
Finding 1


                              ending September 30, 1999. However, HUD noted
                              significant problems in the quality of Estes & Associates’
                              work during a quality assurance review. HUD’s review
                              concluded Estes & Associates did not perform audits and
                              attestation services in accordance with standards.
                              Furthermore, the Authority received an unqualified opinion
                              from Estes & Associates on the September 30,1999 audit.
                              In comparison, Bergeron & Lanaux disclaimed an opinion
                              in the September 30, 2000 audit. The report contained 23
                              financial statement findings. The Authority paid Estes &
                              Associates $14,900 from 1998 to March 2000. It appears
                              the Authority wasted these funds. The Authority should
                              ensure it receives a quality product by monitoring and
                              following proper procurement.

                              The Authority did not perform cost analyses for 15 of the
     The Authority did not    20 contracts reviewed, totaling $1,169,726. HUD required
     perform cost analyses.   the Authority to perform a cost analysis on every
                              procurement to ensure the prices paid are reasonable. This
                              is particularly true for sole-source procurements. In the 15
                              cases where the Authority did not perform a cost analysis,
                              the Authority sole-sourced the contracts. Since the
                              Authority failed to perform cost analyses, they cannot
                              justify the reasonableness of the payments made to the
                              contractors.

                              According to HUD requirements,10 the Authority “must
                              perform a cost or price analysis in connection with every
                              procurement action including contract modifications. The
                              method and degree of analysis is dependent on the facts
                              surrounding the particular procurement situation...A cost
                              analysis will be necessary when adequate price competition
                              is lacking, and for sole source procurements, including
                              contract modifications or change orders.”

                              HUD should require the Authority to justify the costs it
                              paid on contractors. The Authority should return any
                              amount considered unreasonable. Further, HUD should
                              ensure the Authority prepares a cost analysis for all future
                              procurements.




10
     24 CFR 85.36 (f)(1).

2002-FW-1002                          Page 6
                                                                                                                  Finding 1


                                                 The Authority failed to properly monitor 14 of the 20
     The Authority did not                       contracts reviewed (70 percent). Not only did the Authority
     perform proper contract                     not monitor the work of the contractors, but it consistently
     administration.                             renewed the contracts as well, thereby repeating the cycle.
                                                 HUD required11 the Authority to ensure the supplies,
                                                 services, or construction under contract were performed in
                                                 an acceptable manner. The Authority did not meet this
                                                 requirement.

                                                 For instance, the Authority originally contracted with
                                                 Bolden Exterminators in 1986 through a competitive
                                                 proposal. From 1995 until 2000, the Authority simply
                                                 renewed the pest control contract without competition.
                                                 According to residents’ complaints, the apartments still had
                                                 pests after Bolden performed the monthly pest control
                                                 service. Had the Authority monitored the work of Bolden,
                                                 they would have known whether the services were
                                                 effective. If the Authority had monitored the contract, it
                                                 could have taken action to ensure the services were
                                                 effective or addressed the resident’s concern. The
                                                 Authority paid Bolden a total $26,600 in 2000.

                                                 Furthermore, the Authority did not ensure that contracts
                                                 were current and properly executed. The Authority
                                                 continued to make payments on the following expired
                                                 contracts:

                                                 Marcello & Associates12- the contract expired in 1997, but
                                                 Marcello submitted an addendum in May 1998 for design
                                                 services at the sites and again in 1999 without the benefit of
                                                 a new contract. The Authority paid Marcello & Associates
                                                 $107,603 from January 1998 to June 2001.

                                                 Miller & Associates13- the contract expired on October 1,
                                                 2000, and the Authority continued to make monthly
                                                 payments of $950, as late as June 2001.

                                                 The Authority should follow HUD requirements and ensure
                                                 it has current contracts and it reconciles its payments to the
                                                 services rendered under the contract. The Authority needs
                                                 to maintain information on the contracts. Also, HUD

11
     HUD Handbook 7460.8.
12
     They provided architectural services.
13
     They provided fee accounting services. Considering the condition of the books and records, HUD and the Authority should
     closely monitor this contractor.

                                                         Page 7                                              2002-FW-1002
Finding 1


                             should require the Authority to reconcile and support its
                             payments to these contractors.

                             The Authority could not provide a procurement history for
     The Authority did not   14 of 20 contracts reviewed. HUD required the Authority
     document procurement    to “maintain records sufficient to detail the significant
     history.                history of procurement.”14 While performing the review,
                             contractors had to be contacted to supply basic information
                             regarding the contracts. Types of information that the
                             Authority’s files lacked included: invitation for bids, bid
                             sheets, request for proposals, cost analyses, funds
                             certification, independent cost estimate, technical
                             evaluation plans, contracts, and payments. The Authority
                             staff should attend training on procurement and the
                             importance of maintaining orderly files. Considering the
                             importance of procurement to the proper functioning of the
                             Authority, the Authority should consider establishing a
                             standard organization and checklist for procurements. The
                             following table details the results of the audit.




14
     24 CFR 85.36 (b)(9)

2002-FW-1002                         Page 8
                                                                                                                    Finding 1


                                          SUMMARY OF NONCOMPETITIVE CONTRACTS
                      Name of               Contract Amount of Cost      Contract                              Procurement
                      Contractors           Procured Contract  Analyses  Work                                  History
                                            Properly           Performed Monitored                             Documented
                      Armand                No          $1,800 No        No                                    No
                      Communications
                      Bayouland              No                   26,109 No                   No               Yes
                      YMCA
                      Bergeron &             No                   23,964 No                   Yes              No
                      Lanaux
                      Bolden                 No                   89,025 No                   No               No
                      Carmon                 No                   16,700 No                   No               No
                      Consulting15
                      Cintas                 No                    4,485 Yes                  N/A              No
                      Crescent               No                   75,146 No                   No               No
                      Guardian
                      Estes &                No                   14,900 No                   No               No
                      Associates
                      Houma Police           No                 265,040 No                    No               No
                      Legier &               No                 184,554 No                    Yes              Yes
                      Materne
                      Marcello &             No                 107,603 No                    No               No
                      Associates
                      McGlinchey             No                   22,602 No                   Yes              Yes
                      Stafford
                      P. Miller &            No                   40,110 No                   No               No
                      Associates
                      Simplex                No                  21,580 No                    No               No
                      Vinson Guard           No                 242,145 No                    No               No
                      Service
                      Waste                  No                   38,448 No                   No               Yes
                      Management
                                             TOTAL           $1,174,211




     Auditee Comments                             The Authority's complete written response is at Appendix
                                                  B. The Authority agreed with most of the
                                                  recommendations. In agreeing with the recommendations,
                                                  the Authority provided actions it will take to correct the
                                                  conditions noted. The Authority maintained that many of
                                                  the conditions cited occurred as the result of previous
                                                  management.



15
     A principal in this firm subsequently worked as the Authority’s Assistant Executive Director from January through September
     2000.

                                                         Page 9                                                2002-FW-1002
Finding 1


                    However, the Authority disagreed with the
                    recommendations to repay HUD for the improper contract
                    payments to Legier & Materne and McGlinchey & Stafford.
                    The Authority believes the report issued and documentation
                    obtained by Legier & Materne was useful to HUD, OIG,
                    and the Terrebonne Parish District Attorney's office.
                    Further, it was "crucial in winning each Civil Service
                    Appeal." With respect to McGlinchey & Stafford, the
                    Board of Commissioners appointed the firm as its legal
                    counsel. "This action was deemed an emergency due to on-
                    going staff mismanagement, waste and abuse, to ensure
                    auditors were allowed entry into office to complete annual
                    audit and to obtain verification of employment status of
                    former E.D. and existing staff."

                    Regarding Recommendation 1B, the Authority stated the
                    Board of Commissioners determined "that the scope of
                    work was required to avoid and prevent additional losses,
                    including the loss of utility services to six hundred families.
                    The determination or 'cost analysis' was completed based
                    upon their limited abilities and knowledge at that time."



                    Based upon the Authority's response and additional
OIG Evaluation of   documentation, we amended the draft report where
Comments            necessary. The Authority has made strides to correct the
                    conditions noted and hopefully, will continue to make
                    progress by working with HUD's Troubled Agency
                    Recovery Center and implementing the actions promised in
                    its response.

                    Although the Authority may have benefited from the
                    services of Legier & Materne and McGlinchey & Stafford,
                    this does not justify violating HUD procurement
                    requirements. Further, the Authority provided insufficient
                    documentation to support its assertion that hiring
                    McGlinchey & Stafford was an emergency. To ensure it
                    does not repeat conditions noted in the report, the Authority
                    must follow HUD requirements.

                    In regards to the Authority's comment on Recommendation
                    1B, the Authority did not provide any documentation of the
                    Board of Commissioner's determination or the contracts
                    specifically involved.

2002-FW-1002                Page 10
                                                                         Finding 1


Recommendations   We recommend the Director of the Troubled Agency
                  Recovery Center require the Authority to:

                  1A.    Repay its programs $207,156 for the improper
                         contract payments made to Legier & Materne and
                         McGlinchey &Stafford.

                  1B.    Determine and repay to its programs any excessive
                         costs on contracts procured without cost analyses.

                  1C.    Cease payments to improperly procured service
                         providers and re-procure the services.

                  1D.    Cease payments on expired contracts. If the services
                         are needed, the Authority should properly procure the
                         services.

                  1E.    Perform a reconciliation of contracts to payments and
                         determine whether contracts are current and have not
                         expired.

                  1F.    Continue to defer to HUD for all procurements of
                         goods and services until such time as HUD
                         determines the Authority can properly procure goods
                         and services.

                  1G.    Provide procurement training to its staff.

                  1H.    Establish such management controls as necessary to
                         ensure compliance with procurement requirements,
                         including maintaining a contract log, filing system,
                         and procurement history.




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Finding 1




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2002-FW-1002       Page 12
                                                                                                                  Finding 2


          The Authority Paid $240,077 in Ineligible
               and Unsupported Expenditures
Due to lax management controls and oversight, the Authority did not minimize its
vulnerability to fraud, waste, and abuse. The Authority paid $240,077 for ineligible and
unsupported expenditures. The Authority could not support payments of $147,879 (69
percent) of the $214,087 vendor payments reviewed.16 Of the remaining, $64,716, the
Authority ineligibly expended $11,140 (17 percent). Of the $19,941 employees’ payments
reviewed, the Authority could not support $15,382 (77 percent). Of the remaining $4,559,
$4,433 (97 percent) was considered ineligible. Employees, Board members, and other
persons used vendor accounts for personal use and/or received or incurred ineligible
payments and costs. Other ineligible payments and disbursements totaled $31,982.17 The
Authority could not provide an explanation for $36,390 in checks payable to the Authority,
which in most cases the Authority subsequently deposited into the same account on which
it was drawn.

HUD required the Authority to expend funds for reasonable and necessary items and to
maintain financial records. Specifically, the Authority’s Board of Commissioners and
Executive Director were responsible for ensuring that systems were in place to measure,
monitor, and report program performance. The Authority did not develop and implement
written policies and procedures for disbursements to ensure its funds were properly
expended. The Authority did not maintain records to identify the source and application of
funds provided for HUD-assisted activities. Also, the Authority failed to meet their
responsibilities. The Authority should repay the ineligible amounts, either support or
repay the unsupported amounts, and develop and implement the necessary controls to
ensure it reduces its exposure to fraud, waste, and abuse.



                                                 Although HUD required the Authority to have systems in
     The Authority did not                       place to measure, monitor, and report program
     have written policies and                   performance, the Authority never established written
     procedures for vendor                       procedures. The stated procedure for disbursements18
     disbursements.                              required employees to request and obtain authorization for
                                                 purchases from the Office Manager. In other cases, the
                                                 Executive Director authorized the purchases. Employees
                                                 obtained products or services with a purchase order and
                                                 returned the receipt(s) to the Office Manager. The Office
                                                 Manager remitted payment to the vendor upon receipt of an
                                                 invoice. Since March 2001, the new Executive Director

16
     A non-representative selection.
17
     $7,129 was also considered ineligible under the review of vendor payments.
18
     Covering the beginning of the audit period, January 1998, until the new Executive Director amended them in March 2001.

                                                        Page 13                                               2002-FW-1002
Finding 2


                                                 has required employees to request and obtain authorization
                                                 for purchases from the Executive Director. Employees
                                                 obtained products or services with a purchase order and
                                                 returned the receipt(s) to the Executive Director for
                                                 approval. The Accounts Payable clerk remitted payment to
                                                 the vendor upon approval from the Executive Director and
                                                 receipt of an invoice.

                                                 We tested disbursements to 13 vendors from January 1998
                                                 to June 2001 totaling $214,087.19 Of the $214,087 of
                                                 disbursements tested, the Authority did not have support for
                                                 $147,879 (or 69 percent). Further, $11,140 was considered
                                                 ineligible.

                                                     Vendor payments from January 1998 to June 2001

                                                                                 Total
                                                     Vendor Name                Reviewed       Unsupported Ineligible
                                                Radiofone/Cingular               $12,409            $6,734    $1,710
                                                A World of Travel                   3,608                      3,041
                                                Shell Oil Company                   4,659            2,877        55
                                                Mobile Fleet                        1,926            1,099
                                                Texaco Refining &                 15,173            11,235       342
                                                  Marketing
                                                Frigidaire                         12,225               9,510
                                                Wal-Mart                           12,025               4,795          5,215
                                                Lowe’s                             32,472              21,572            777
                                                Barrett Interiors                   9,552               3,261
                                                Great Southern                     36,976              16,600
                                                  Computers
                                                Duncan Sports                      5,070               4,170
                                                The Trophy & Athletic              3,687               3,661
                                                General Electric                  64,305              62,365
                                                TOTALS                          $214,087            $147,879       $11,14020

                                                 The Authority could not provide an accurate record of
                                                 vendors used from January 1998 to June 2001. The
                                                 Authority did not maintain a vendor listing. Also, the
                                                 Authority’s accounting system did not differentiate between
                                                 employee, vendor, and contractor disbursements, for
                                                 instance, by establishing sub-classification in payables or
                                                 expenses. Approved purchase orders did not exist for
                                                 nearly all purchases made by the Authority, although

19
     The Authority did not have a vendor listing; therefore, the total number of vendors was unknown. We made a non-
     representative selection of vendors from those available.
20
     $7,129 of ineligible payments also discussed under sensitive payments.

2002-FW-1002                                               Page 14
                                                                                    Finding 2


                                 purchase orders were referenced on some vendor invoices.
                                 The purchase orders provided minimal explanation or
                                 information. Due to a lack of adequate management
                                 controls at the Authority, the Authority’s files were
                                 inadequate and extremely disorganized.

                                 For example, the Authority purchased refrigerators and
                                 unknown items from General Electric. The Authority paid
                                 General Electric $64,305 from January 1998 to June 2001.
                                 The Authority did not have receipts or invoices to support
                                 $62,365 (or 97 percent) of payments. Further, the
                                 Authority did not have an inventory listing that it could use
                                 to trace appliances to apartments or location if this is what
                                 they purchased.

                                 In another example, the Authority purchased various items
                                 from Lowe’s.21 The Authority paid Lowe’s $32,472 from
                                 January 1998 to June 2001. The Authority did not have
                                 receipts or invoices to support $21,572 (or 66 percent) of
                                 payments. For instance, the Authority could neither
                                 support nor account for the purchase of six “SOS Bali
                                 Blinds” at a total cost of $72722 or three 72x64 mini blinds
                                 at a total cost of $49.23 The Authority did not furnish
                                 blinds in the dwelling units. Due to the lax management of
                                 the Authority at the time and conditions of the files, it
                                 might never be known what the Authority purchased or for
                                 whom.

                                 The Authority must develop and implement adequate
                                 written policies regarding vendor disbursements modeling
                                 federal laws and regulations. In addition, the Authority
                                 must develop a vendor log and an adequate inventory of
                                 assets. The Authority should account for missing assets
                                 and take necessary action to recover the assets.
                                 Additionally, the Authority should support or repay the
                                 ineligible and unsupported amounts.




21
     A home improvement store.
22
     November 25, 2000.
23
     April 24, 2000.

                                     Page 15                                     2002-FW-1002
Finding 2


                                                 Of the $19,941 disbursements to seven employees tested,24
     The Authority could not                     the Authority did not have support for $15,382 (77 percent)
     support $15,382 of                          and payments of $4,433 (22 percent) were determined
     payments made to                            ineligible. The Authority did not have adequate written
     employees and $4,433 of                     policies and procedures for employee disbursements.
     payments were determined                    Furthermore, Authority employees were able to circumvent
     ineligible.                                 good business practices. The Authority’s 1999 written
                                                 travel policy, adopted by the Board of Commissioners, was
                                                 very vague and only specified allowances for meals as
                                                 ‘reasonable amounts’ and a set rate for mileage
                                                 reimbursement. The Executive Director decided who could
                                                 travel. The Office Manager reviewed employee’s travel
                                                 vouchers. The Executive Director then signed the
                                                 reimbursement checks for submission to employees.

                                                 The ineligible payments of $4,433 were paid to an Office
                                                 Manager at the Authority for expenses incurred while
                                                 attending college ($4,294) and for other miscellaneous
                                                 purchases such as dance supplies and planners ($139). At
                                                 the Authority’s January 2000 Board of Commissioner’s
                                                 meeting, the Authority proposed to reimburse or pay tuition
                                                 and book costs for management personnel for training in
                                                 courses in the area of Business Management/
                                                 Administration, Accounting, and Finance or Public
                                                 Administration. The motion was unanimously accepted.
                                                 However, the Authority neither adopted a Board Resolution
                                                 nor written procedures on the subject. Contrary to subjects
                                                 listed in Board discussions, the Authority reimbursed the
                                                 Office Manager for courses in Sociology, Communications,
                                                 Humanities, Philosophy, and History. The Authority needs
                                                 to clarify its intent including how such expenses will be
                                                 paid. Further, the Authority should reimburse its program
                                                 for the $4,433.

                                                 The former Executive Director, former Assistant Executive
     Former staff, Board                         Director, employees, Board members, and other persons
     members, and others                         used vendor accounts for personal use and/or received or
     misused funds.                              incurred ineligible payments and costs totaling $31,982.
                                                 OMB Circular A-87 C.1.a states: “A cost is reasonable if,
                                                 in its nature and amount, it does not exceed that which
                                                 would be incurred by a prudent person under the
                                                 circumstances prevailing at the time the decision was made
                                                 to incur the cost...”

24
     Transactions were selected from January 1998 to June 2001.

2002-FW-1002                                               Page 16
                                                                                                                      Finding 2


                                                   The former Executive Director misused $3,052. In June
     The former Executive                          2000, only 1 month before the former Executive Director
     Director misused funds.                       went on extended medical leave, the former Executive
                                                   Director used funds to pay airfare to take a personal trip. In
                                                   addition, while on medical leave, the former Executive
                                                   Director continued to use the Authority vehicle, cellular
                                                   phones, and gas credit cards. The Authority could not
                                                   provide an explanation or documentation of approval
                                                   supporting the former Executive Director’s personal use of
                                                   the Authority vehicle, cellular phones, and gas credit cards
                                                   while on medical leave.

                                                   The former Executive Director inappropriately traveled at
                                                   the Authority’s expense in June 2000.25 The travel cost the
                                                   Authority $2,314. OMB Circular A-87 Attachment B 41a
                                                   states: “Travel costs are allowable for expenses for
                                                   transportation, lodging, subsistence, and related items
                                                   incurred by employees traveling on official business.” The
                                                   former Executive Director traveled from June 7 to June 14,
                                                   2000. The former Executive Director traveled to Kansas
                                                   City, Minneapolis, and Washington, D.C. Before June 11,
                                                   2000, only one party traveled. Travel on June 11, 2000,
                                                   included a second party evidenced by two tickets, both
                                                   originating from Minneapolis at approximately the same
                                                   time, with different destinations of New Orleans and
                                                   Washington, D.C.

                                                     Travel Itinerary for former Executive Director

                                            DATE         FROM                    TO                    LEAVE           ARRIVE
                                            6/7/00       New Orleans             Kansas City           10:40 a.m.      2:09 PM
                                            6/8/00       Kansas City             Minneapolis/          7:35 p.m.       9:03 PM
                                                                                 St. Paul
                                            6/11/00      Minneapolis/ St.        Washington,           1:15 p.m.       4:39 PM
                                                         Paul                    DC
                                                         Minneapolis/St.         New Orleans           1:10 p.m.       3:49 PM
                                                         Paul
                                            6/14/00      Washington, DC          New Orleans           8:00 p.m.       9:35 PM

                                                   The former Executive Director used the Authority vehicle,
                                                   cellular phones, and credit cards while on medical leave.26
                                                   In February 2001 at the Board of Commissioner’s request,

25
     The former Executive Director went on extended medical leave in July 2000.
26
     An article dated January 4, 2001, disclosed the former Executive Director remained in possession of the Authority vehicle,
     cellular phones, and gas credit cards while on extended medical leave.

                                                         Page 17                                                 2002-FW-1002
Finding 2


                                                  the former Executive Director returned the Authority
                                                  vehicle, cellular phones, and gas credit cards.

                                                  The former Executive Director should not have used the
                                                  Authority's two cellular phones while on extended medical
                                                  leave. Usage for the cellular phones totaled $341.27
                                                  Further, many of the calls did not appear to pertain to
                                                  Authority business. For instance on August 12, 2000, the
                                                  former Executive Director placed a call to Anchorage,
                                                  Alaska. The minutes used totaled 146 (over 2 hours). In
                                                  addition, based upon the roaming charges on the November
                                                  2000 and January 2001 invoices, it appeared the former
                                                  Executive Director used the cellular phone while in Tulsa,
                                                  Oklahoma, and Minneapolis, Minnesota.

                                                  The former Executive Director should not have used the
                                                  Authority's two gas credit cards while on extended medical
                                                  leave. Usage for the gas credit cards totaled $398.28 The
                                                  former Executive Director used the cards for purchases
                                                  such as gasoline, car wash, oil change, and other
                                                  miscellaneous items.

                                                  It appears the former Assistant Executive Director
     The former Assistant                         (Assistant) misused $727 of federal funds. The Assistant
     Executive Director                           used funds to pay airfare for a personal trip. OMB Circular
     misused federal funds.                       A-87 Attachment B.41.a states: “Travel costs are allowable
                                                  for expenses for transportation, lodging, subsistence, and
                                                  related items incurred by employees traveling on official
                                                  business.” The Assistant inappropriately traveled in July
                                                  2000. The Assistant departed on a Saturday and returned
                                                  the next day. The Assistant’s itinerary showed the
                                                  Assistant lodged at a Marriott at the leisure rate. The
                                                  Authority believed the Assistant may have attended a
                                                  training seminar but did not provide supporting
                                                  documentation. The Authority paid $727 for the trip.




27
     From August 2000 to March 2001.
28
     While on extended leave, the former Executive Director should have returned the Authority’s vehicle.

2002-FW-1002                                                 Page 18
                                                                                                              Finding 2


                                                          Travel Itinerary for Assistant

                                             DATE                FROM              TO          LEAVE         ARRIVE
                                             July 29, 2000       New               Salt Lake   7:55 a.m.     10:15 AM
                                             (Saturday)          Orleans           City
                                             July 30, 2000       Salt Lake         New         8:25 p.m.     12:40 AM
                                             (Sunday)            City              Orleans                   (Monday)

                                                 The Assistant worked at the Authority from January 2000
                                                 to September 2000. The Assistant’s personnel file did not
                                                 contain information regarding status of employment, hire
                                                 date, or termination date. The Authority’s Board minutes
                                                 did indicate intentions of hiring an Assistant Executive
                                                 Director but did not reflect any confirmation of hiring an
                                                 Assistant Executive Director.

                                                 The former Chairman of the Authority’s Board of
     Board member misused
                                                 Commissioners (Chairman) continued to use the
     federal funds.
                                                 Authority’s cellular phone from January 2001 to March
                                                 2001, after the Chairman’s term ended in December 2000.
                                                 The Chairman should not have used the Authority's cellular
                                                 phone after his term ended.29 Furthermore, the Chairman
                                                 did not obtain authorization to obtain cellular phone
                                                 services. The cellular phone plus service cost the Authority
                                                 $1,237 from September 2000 to March 2001.

                                                 The Chairman purchased and signed a contract for cellular
                                                 service with Authority funds in September 2000. The
                                                 Chairman used the cellular phone extensively and many
                                                 calls occurred between 6:00 p.m. and 5:00 a.m., after
                                                 normal Authority business hours. For instance, the
                                                 Chairman placed a phone call at 1:10 a.m. in December
                                                 2000. In addition, based upon the roaming charges on the
                                                 December 2000 and January 2001 invoices, it appeared the
                                                 Chairman used the cell phone while in Tulsa, Oklahoma.
                                                 The former Executive Director also incurred roaming
                                                 charges in Tulsa, Oklahoma, in January 2001.

                                                 Staff at the Council on Aging used the Authority’s Wal-
     Council on Aging misused                    Mart credit card to make purchases to fund the Council on
     federal funds.                              Aging’s activities. The staff made many purchases totaling
                                                 $1,980. In addition, the staff received payments from the
                                                 Authority totaling $131. The Authority, when asked, could
                                                 not provide an explanation or documentation of approval
29
     The Chairman returned the cellular phone upon the Authority’s request in March 2001.

                                                       Page 19                                             2002-FW-1002
Finding 2


                                               for the transactions. The Authority should reimburse its
                                               program for this cost.

                                               The Authority purchased two tickets, costing $250, to
     Louisiana Democratic                      attend a dinner party hosted by a political party. OMB
     Party received                            Circular A-87 states: “Contributions and donations,
     unallowable contributions.                including cash, property, and services, by governmental
                                               units to others, regardless of the recipient, are
                                               unallowable.” It further states: “Costs of entertainment,
                                               including amusement, diversion, and social activities and
                                               any costs directly associated with such costs (such as tickets
                                               to shows or sports events, meals, lodging, rentals,
                                               transportation, and gratuities) are unallowable.” Clearly,
                                               the Authority should not have used HUD funds for this
                                               expenditure.

                                               Eighteen Authority employees received multiple checks for
     Additional compensation                   certain pay periods and/or misused vendor services without
     and use of services to                    explanation or written approval in the Authority’s records.
     employees and others cost                 In addition, other parties received compensation without
     the Authority $24,605.                    explanation or written approval in the Authority’s records.
                                               The Authority, when asked, could not provide an
                                               explanation or written approval supporting these groups of
                                               payments.

                                               OMB Circular A-87 required the Authority to maintain
                                               documentation reflecting an after-the-fact distribution of
                                               actual activity and account for the total activity for provided
                                               compensation.

                                               The Authority could not explain a total of $36,390 in
     The Authority could not                   checks written to itself. In some instances, checks were
     provide an explanation for                used to transfer money from one Authority account to
     checks payable to the                     another Authority account. Authority officials explained
     Authority totaling                        the Authority collected large amounts of cash from tenants
     $36,390.                                  for rent, utilities, previous balances, security deposits, court
                                               fees, maintenance fees, and other charges on a regular
                                               basis. During rent collection, the Authority needed large
                                               amounts of cash on hand to cash Social Security and
                                               payroll checks; submitting the difference between the rent
                                               charge and the amount of the check.30 The Authority
                                               produced checks payable to the Authority. The current
                                               Executive Director stated the Authority cashed the checks
                                               using tenant collections.
30
     The Authority should not act as a bank.

2002-FW-1002                                           Page 20
                                                                               Finding 2



                             In some cases, the Authority then included the checks in the
                             daily deposits and deposited them into the same account
                             they were drawn; giving the appearance that the total
                             deposit coincided with the daily tenant receivables report.
                             However, the Authority could not explain how it used the
                             $36,390. Therefore, it should either support this amount or
                             reimburse the program for this amount.

                             The Authority could not provide an accurate record of
The Authority’s files were   vendors used or employees that received disbursements
insufficient.                during the audit period. The Authority did not maintain a
                             vendor listing. The vendor and employee files were
                             extremely disorganized. The Authority’s accounting
                             system did not differentiate between employee, vendor, and
                             contractor disbursements (for instance by establishing sub-
                             classification in payables or expenses).

                             According to the current Executive Director, the
                             Authority’s entire payroll records before 2001 were deleted
                             from the accounting system and many files and documents
                             were missing.

                             Approved purchase orders did not exist for nearly all
                             purchases made by the Authority, although purchase orders
                             were referenced on some vendor invoices. The purchase
                             orders provided minimal explanation and/or information.

                             The Authority needs to establish and maintain adequate
                             files to ensure it expends funds appropriately. Furthermore,
                             the Board of Commissioners must exercise due diligence in
                             overseeing the activities of the Authority.




                                 Page 21                                    2002-FW-1002
Finding 2


                                               Summary of Ineligible and Unsupported
                                                                                Total
                                      Disbursement Category                     Reviewed Unsupported  Ineligible
                                      Vendors/Employees                          $234,028    $163,261    $8,444
                                      Sensitive; personal use by:31
                                      Executive Director                          $ 3,052                                 $3,052
                                      Asst. Executive Director                         727                                   727
                                      Board member                                   1,237                                 1,237
                                      Outside agency                                 2,111                                 2,111
                                      Political contribution,                          250                                   250
                                      Unauthorized payments, Other                  24,604                                24,605

                                      Unusual (checks payable to the              $339,035             $36,39032
                                      Authority)
                                      Totals                                      $605,044           $199,651           $40,426




     Auditee Comments                              The Authority concurred with the finding. The Authority
                                                   stated its "new Administration and Board had inherited the
                                                   responsibility of correcting numerous known and unknown
                                                   problems affecting the overall organization and
                                                   administration of its Low Rent Housing Program." The
                                                   Authority believed it has and continues to take reasonable
                                                   steps towards correcting the deficiencies. The Authority
                                                   offered specific steps it would take to implement the
                                                   recommendations.




OIG Evaluation of                                  We are encouraged by the Authority's response. However,
                                                   in some instances, the current administration could have
Comments
                                                   corrected some of the conditions noted in the finding, for
                                                   example, establishing and implementing policies and
                                                   procedures regarding disbursements and maintaining
                                                   adequate files.




31
     The ineligible payments equal $31,982. The Authority should repay the $31,982 in accordance with Recommendation 2E.
32
     Although 10 percent represented a small portion of the total of the disbursements, please note that the Authority used
     $300,000 to obtain three $100,000 certificates of deposit. Therefore, of the remaining $39,035, the Authority did not have
     documentation to support 93 percent of payments.


2002-FW-1002                                                 Page 22
                                                                       Finding 2


Recommendations   We recommend the Director of the Troubled Agency
                  Recovery Center require the Authority to:

                  2A.    Support the $147,879 in vendor disbursements or
                         repay its program from non-federal funds.

                  2B.    Repay the $4,011 in ineligible vendor disbursements
                         from non-federal funds.

                  2C.    Support the $15,382 of payments to employees or
                         repay its program from non-federal funds.

                  2D.    Repay the $4,433 in ineligible employee
                         disbursements from non-federal funds.

                  2E.    Repay the $31,982 in other ineligible disbursements
                         from non-federal funds.

                  2F.    Support the $36,390 in payments to itself or repay its
                         program from non-federal funds.

                  2G.    Seek reimbursement, where appropriate, from
                         employees for funds misused.

                  2H.    Establish and implement the necessary procedures
                         and files to ensure the efficient, effective, and
                         economical use of Authority funds. This includes
                         among other things, file detailing purchases,
                         maintaining inventories, reconciling its certificates of
                         deposits and bank accounts, vendor logs, and
                         employee disbursements.




                        Page 23                                    2002-FW-1002
Finding 2




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2002-FW-1002       Page 24
                                                                                                                       Finding 3


             The Authority Did Not Deposit
         Tenant Receipts Totaling at Least $48,201
Failing to maintain documentation of tenant receipts, the Authority could not account for
$48,201 in tenant receipts. The Authority did not have adequate policies and procedures in
place to account for tenant collections and deposits. As a result, the Authority did not
account for $48,201 in tenant receipts. In addition, the Authority failed to maintain
adequate records to account for rent, laundry, vending, city court fee, and previous balance
collections and deposits. The Authority had an inadequate accounting system. Inadequate
policies, procedures, and records increased the Authority’s susceptibility to fraud, waste,
and abuse. HUD should require the Authority to adopt and implement the necessary
procedures to safeguard cash collections. Further, the Authority should reconcile the
balances of its tenant accounts and make necessary adjustments to the individual accounts.



                                                   A review of 29 daily tenant collections33 disclosed the
     The Authority did not                         Authority did not deposit or properly account for 41 percent
     timely and accurately                         of tenant collections.34 For instance, on November 3, 2000,
     deposit tenant collections.                   the Authority collected a total of $27,563 from tenants.
                                                   However, bank records show the Authority deposited only
                                                   $20,358 on November 6, 2000. Authority personnel failed
                                                   to deposit the additional $7,205 on this date. Further
                                                   inspection of the bank records showed the Authority
                                                   deposited $7,105 on November 13, 2000, 10 days later.
                                                   Yet, the Authority could not show if deposits were related.
                                                   Furthermore, if the deposits were related, the Authority
                                                   could not provide justification for not depositing the funds
                                                   for 10 days or what happened to the other $100.

                                                   In an egregious example on February 1, 2001, the Authority
                                                   collected $16,848 in rent collections. Bank records showed
                                                   a $16,719 deposit made on February 15, 2001, two weeks
                                                   later. Again, the Authority could not show whether these
                                                   deposits were related as well. Furthermore, if the deposits
                                                   were related, the Authority could not provide justification
                                                   for not depositing the funds for 14 days or what happened
                                                   to the other $129.


33
     The total non-representative selection included 31 items. The Authority did not have bank records to provide evidence of
     deposits for two collections selected.
34
     In no instances did the date of collection and date of deposit match. To limit its exposure, the Authority should make deposits
     prior to the bank closing.

                                                          Page 25                                                 2002-FW-1002
Finding 3


                                   In two instances, the Authority deposited more than it
                                   collected for a day. First, on October 1, 1998, the Authority
                                   collected $14,055 and deposited $16,832 on October 2,
                                   1998. The Authority could not provide an explanation for
                                   $2,777 overage. Second, on December 4, 2000, the
                                   Authority collected $16,989. Bank records show the
                                   Authority deposited $25,510 on December 5, 2000. Again,
                                   the Authority could not account for the $8,521 overage.

                                   The following table shows the 12 instances where the
                                   Authority did not timely and accurately deposit rent
                                   collections.

                           Date of      Amount       Date of     Amount     Shortage    Overage
                          Collection   Collected     Deposit    Deposited
                           10/01/98    $ 14,055      10/02/98   $ 16,832                $ 2,777
                           10/02/00      23,828      10/03/00     23,608        (220)
                           11/02/00        5,880     11/03/00      5,281        (599)
                           11/03/00      27,563      11/06/00     20,358      (7,205)
                           12/01/00      32,053      12/04/00     24,298      (7,755)
                           12/04/00      16,989      12/05/00     25,510                  8,521
                           12/05/00        9,415     12/06/00      8,637        (778)
                           02/01/01      16,848      02/15/01     16,719        (129)
                           02/02/01      21,077      02/05/01     16,317      (4,760)
                           03/01/01      18,891      03/02/01     12,866      (6,025)
                           03/02/01      24,719      03/05/01     17,633      (7,086)
                           03/05/01      17,729      03/06/01      6,895     (10,834)
                          TOTALS       $229,047                 $194,954    ($45,391)   $11,298

                                   According to HUD Handbook 7510.1, the responsibility for
 HUD required the
                                   safeguarding and accounting for cash rests primarily with
 Authority to safeguard
                                   the Executive Director. The Authority should have and
 cash collections.
                                   follow written policies and procedures for management
                                   control. HUD further required the Authority to maintain
                                   complete and accurate records of all financial management
                                   functions. Specifically, HUD Handbook states: “Posting
                                   must be made at least monthly to ledger accounts. All
                                   records and files must be stored appropriately and all
                                   supporting documentation must be maintained in a safe and
                                   accessible location.”

                                   The Authority did not maintain a cash receipt ledger;
                                   consequently, preventing a comparison of collections to the
                                   cash receipt ledger. In addition, the Authority could not
                                   provide bank statements before October 1998. Therefore, a


2002-FW-1002                               Page 26
                                                                                   Finding 3


                                comparison of rent collections to deposits before October
                                1998 could not be made.

                                The Executive Director recalled an instance when an
 The Authority has a            Authority employee did not deposit rent collections
 history of poor controls       immediately after the close of business. Instead, the
 over rental receipts.          employee kept the cash receipts in her purse until
                                confronted by Authority officials.

                                In a similar review conducted by Legier & Materne, CPA,
                                they also concluded the Authority did not deposit tenant
                                collections in a timely manner. In their report, Legier &
                                Materne stated during the period of November 1999 to
                                February 2001, the Authority failed to timely deposit
                                $345,126 in tenant collections.

                                The Authority failed to establish and enforce an adequate
Inadequate collection           written policy and procedure for safeguarding the tenant
procedures.                     collections. The Authority’s policy on collection procedure
                                held the Authority personnel responsible for any shortages
                                that occurred. However, it appears the Authority did little
                                to implement this such as reconciling individual cash
                                drawers to deposits, limiting access of the cash drawers to
                                one employee, or investigating shortages. Basically
                                nullifying the previous statement, the policy continued:
                                “…overages would be placed in an overage fund in the safe
                                for future use.” The future use appeared to be shortages.
                                The policy also did not require employees to reconcile the
                                schedule of collections with the bank statements to ensure
                                all collections were deposited. As a result, the Authority
                                neither accounted for tenant collections nor ensured that the
                                cash receipts were protected from loss, misuse, or theft.

 The Authority failed to        Lax management and inadequate policies and procedures
 account for city court fees,   allowed the Authority to collect city court fees and previous
 previous balance fees,         balances with no record of the collection of the funds from
 laundry collections, and       January 1998 to March 2001. The Authority has since
 vending collections.           implemented new policies.

                                The Authority charged city court fees to tenants when the
                                Authority filed eviction notices with the City Court of
                                Houma. Charges for the city court fees ranged from $10 to
                                $70 per eviction notice. In addition, tenants were charged
                                late fees, current month’s rent, and next month’s rent.
                                Previous balances were charges to former tenants due to

                                    Page 27                                     2002-FW-1002
Finding 3


                                                  unpaid rent, utilities, city court fees, maintenance, and other
                                                  charges related to the tenant’s previous residency at the
                                                  Authority. The tenant was required to pay any previous
                                                  balances before the Authority allowed the tenant to move
                                                  back into a unit.

                                                  The Authority had a tenant accounts receivable report that
                                                  listed former tenants owing money to the Authority. As of
                                                  October 2001, this report showed 55 former tenants owing
                                                  the Authority $17,562. However, this report did not
                                                  include an additional 404 former tenants owing $144,130.35
                                                  The Authority did not appropriately account for these 404
                                                  former tenants. Based upon a review of the accounting
                                                  system records, the Authority recorded the balances owed
                                                  by these former tenants in the note section of the tenants’
                                                  history file. In addition, the account activity records, where
                                                  the balance should have been recorded, for these former
                                                  tenants reflected a zero balance. As a result, neither the
                                                  amount in the note section nor the tenant’s name appeared
                                                  on the tenant accounts receivable report. As a result, the
                                                  amount owed by former tenants was misrepresented.
                                                  Furthermore, it was possible to delete the note without a
                                                  trace of the amount owed and/or collected. Consequently,
                                                  the amount owed and/or collected was easily susceptible to
                                                  fraud, waste, and abuse.

                                                  Since 1997, the Authority knew of problems with city court
                                                  fees and the need for policies to account for the fees.36
                                                  However, the former Executive Director and the Board
                                                  failed to correct the problems. The Authority must
                                                  establish and enforce policies and procedures to ensure it
                                                  safeguards assets such as cash receipts from unauthorized
                                                  access. In addition, the Authority must implement clearly
                                                  defined staff responsibilities and job accountability.
                                                  Furthermore, the Authority needs to train employees in
                                                  properly collecting, recording, and depositing receipts.

                                                  A review and comparison of laundry collection records
     The Authority did not                        from January 2000 to March 2001 disclosed the Authority
     deposit $2,810 of laundry                    did not deposit at least $2,810 in laundry collections.
     collections.                                 Furthermore, it could not account for $5,368 in vending

35
     The Authority’s financial statements only reflected $2,444 of write-offs of accounts receivables from January 1998 to June
     2001. Thus, it appears staff may have written off other accounts receivables without the Board of Commissioners’ approval.
36
     The City Court of Houma informed the Authority it owed $37,000 for fees not paid from June 1990 through October 1995. A
     former employee was prosecuted for theft of the funds.

2002-FW-1002                                                Page 28
                                                                        Finding 3


                    deposits. The Authority did not maintain adequate
                    financial records to support its collections of laundry and
                    vending funds. The Authority was responsible for
                    maintaining financial records that provided supporting
                    documentation for transactions.

                    The Authority provided token/quarter operated washing
                    machines and dryers and vending machines for tenant use.
                    The Authority did not maintain records of laundry
                    collections prior to October 1999. In addition, the
                    Authority did not maintain records of the vending
                    commission remittances before March 2001. Based upon
                    the available records, it appears the Authority collected
                    $73,886 in laundry collections, but only $71,076 was
                    deposited in the account.

                    According to bank records, the Authority deposited
                    $10,447 in its vending account from January 1998 to June
                    2001. In comparison, the Authority’s records only account
                    for $5,079, a difference of $5,368.

                    The Authority must properly account for all receipts and
                    scrutinize differences between collections and deposits.



Auditee Comments    The Authority concurred with the recommendations. The
                    Authority stated it will work with HUD’s Troubled Agency
                    Recovery Center to account for all funds and establish
                    necessary policies and procedures to ensure assets are
                    safeguarded. In addition, the Authority has terminated all
                    employees responsible for missing funds and is pursuing
                    legal actions against those parties identified as responsible
                    for the missing funds.




OIG Evaluation of   We are encouraged by the Authority's response and its
Comments            willingness to work with the HUD's Trouble Agency
                    Recovery Center. However, the Authority did not provide
                    any documentation to support its statements.




                        Page 29                                     2002-FW-1002
Finding 3


 Recommendations   We recommend the Director of the Troubled Agency
                   Recovery Center require the Authority to:

                   3A.   Account for the $48,201 or repay the amount to
                         HUD.

                   3B.   Establish and enforce policies and procedures to
                         ensure it safeguards assets such as cash receipts from
                         unauthorized access including reconciling daily
                         collections with deposits, clearly defined staff
                         responsibilities, and making timely deposits.

                   3C.   Adequately train employees regarding receipts
                         according to Authority policies as well as federal and
                         state laws and regulations. Also, it needs to ensure it
                         has the financial expertise needed to handle the day-
                         to-day accounting functions at the Authority.

                   3D.   Consider outsourcing laundry operations or properly
                         accounting for the funds.

                   3E.   Pursue legal and administrative actions against those
                         parties responsible for the missing funds.

                   We are also recommending the Director of the Troubled
                   Agency Recovery Center:

                   3F.   Take administrative actions against those individuals
                         responsible for the missing funds.




2002-FW-1002              Page 30
                                                                                                      Finding 4


      Authority Employees Abused Their Positions
By providing themselves and acquaintances preferential treatment and reduced rents,
Authority employees abused their positions. They misapplied HUD requirements and an
Authority Resolution to obtain housing at a reduced rate. As a result, Authority employees
and acquaintances underpaid rent by $9,446 from January 1998 through June 2001.
Furthermore, the employees violated the rights of other Authority applicants by giving
themselves and acquaintances preferential treatment.

HUD allowed Authority employees "special consideration” in the form of rent reduction if
they are expected to perform services at any time. HUD requirements37 stated Authority
employees "…are entitled to special consideration since they may be expected to perform
services at any time." In 1982, the Authority’s Board passed Resolution 136 based upon
HUD’s special consideration clause. It appears the resolution applied to maintenance
workers, who may be “expected to perform services at any time.” The resolution properly
allowed maintenance employees living and working in Senator Circle a reduced monthly
rental rate of $65.



                                                  Two years after she began her employment at the Authority,
     The site manager received
                                                  a site manager moved her family into a unit.38 The site
     $2,345 in reduced rental
                                                  manager processed the rental application, assessed the
     rates.
                                                  rental rate at $65 per month, and moved herself to the top
                                                  of the waiting list. According to the rent calculations, the
                                                  site manager should have paid $400 for rent. The site
                                                  manager took advantage of her position to misinterpret the
                                                  Board Resolution by only paying $65. From November
                                                  2000 until May 2001, the site manager underpaid rent by
                                                  $335 per month or a total of $2,345.

                                                  Further, in 2000, the same site manager processed a rent
     The site manager gave                        reduction for her sister.39 The tenant relation worker
     sister a reduced rate.                       received a $75 rent reduction.40 In addition to reducing her
                                                  sister’s rent, the site manager also moved her sister up on
                                                  the waiting list. The Authority could not justify the site
                                                  manager’s actions. Because of the site manager’s
                                                  inappropriate actions, her sister received a total of $2,283 in
                                                  reduced rent.


37
     HUD Handbook 7465.1.
38
     September 2000.
39
     Employed by the Authority as a tenant relation worker.
40
     Her monthly rent decreased from $213 to $138.

                                                         Page 31                                   2002-FW-1002
Finding 4


                                   The site manager allowed non-maintenance employees to
 Authority staff reduce rent       reside at the Authority at reduced rates without the approval
 of other employees.               of the Board. In June 1999, the Authority’s clerk typist
                                   received a reduction in rent from $140 to $65 per month. A
                                   review of the clerk typist’s tenant files showed the clerk
                                   typist received a reduction in rate because she resided at the
                                   Authority. The file contained the following annotation:
                                   “HA special rent employee required to live in.” This note
                                   appeared in the tenant files of maintenance employees only.
                                   No information in the file supported that the clerk typist
                                   worked in maintenance or that she was “expected to
                                   perform services at any time.” According to rent
                                   calculations, the clerk typist should have paid $140 per
                                   month until June 2000; after which her rent should have
                                   increased to $273 because of a salary increase. The
                                   employee received a total reduction in rent of $1,940.

                                   Finally, Authority files showed a tenant relation worker
                                   inappropriately modified the application of a
                                   tenant/employee in order to reduce the tenant’s rental
                                   payments. Authority files show that in July 2000, the
                                   tenant’s income fell from $7,150 to $4,290 and
                                   correspondingly, the rent fell from $143 to $71. The files
                                   offered no explanation or support for the decrease in
                                   income. In September 2000, the Authority hired the tenant
                                   as a tenant relation worker. Her salary increased to $14,331
                                   per year; however, her rent remained the same. According
                                   to the Authority rental calculations, the rent should have
                                   been $322 per month. Because the Authority failed to
                                   acknowledge the increase in salary, the employee received a
                                   benefit of $2,224 in reduced rent.


                                    RENT UNDERPAID BY TENANTS/EMPLOYEES
                                                       Rent Paid
                              Position    Employment      By       Accurate Decrease
                               Title          Date    Employees     Rent     In Rent
                         Site Manager       01/16/98          $65       $400   $2,345
                         Tenant Relations   06/01/98          138        400    2,283
                         Tenant Relations   09/11/00            71       322    2,224
                         Clerk Typist       07/01/98            65       140    1,940
                         Laborer             04/15/99                50          268        654
                                                           TOTAL                         $9,446



2002-FW-1002                               Page 32
                                                                              Finding 4


                          The Authority did not follow any guidelines for admission.
The Authority did not     However, HUD Handbook 7465.1 required the Authority to
follow proper admission   adopt admission policies that are consistent and fair. The
procedures.               Authority should have conducted the admission process in a
                          manner in which all persons interested in admission to
                          public housing are treated fairly and consistently.

                          Contrary to HUD requirements, a site manager manipulated
                          the occupancy process by putting herself above others on
                          the waiting list. The site manager’s application date was
                          October 2, 2000. The site manager and her family moved
                          into a unit on September 29, 2000. Furthermore, the site
                          manager reported her brother-in-law’s nephew as a
                          dependent on the occupancy application to qualify for a
                          two-bedroom unit. The nephew allegedly resided in
                          Chicago, Illinois. The Authority could not offer any
                          justification for the apparent abuse.

                          The same site manager also changed her sister’s, a tenant
                          relation worker, position on the Senator Circle waiting list,
                          allowing the tenant relation worker to move in ahead of
                          other people on the waiting list. It did not appear the
                          Authority followed any guidelines for tenant admissions.
                          In order to ensure all applicants are treated fairly, the
                          Authority must adopt and follow admission policies
                          consistent with laws and regulations.



Auditee Comments          The Authority agreed to implement the recommendations.
                          The Authority stated it had terminated the employment of
                          those employees involved.



OIG Evaluation of         We appreciate the Authority’s response and look forward to
Comments                  the implementation of the recommendations.



Recommendations           We recommend the Director of the Troubled Agency
                          Recovery Center require the Authority to:

                          4A.    Repay HUD $9,446 for underpayment of rent by
                                 tenant/employees.

                                Page 33                                   2002-FW-1002
Finding 4



               4B.   Issue IRS forms 1099 to the employees to reflect
                     unearned income.

               4C.   Implement written policies regarding admission, rent,
                     and reexamination. The Authority should also
                     implement clearly defined guidelines regarding
                     "special consideration" rent.

               Further, we recommend the Director of the Troubled
               Agency Recovery Center:

               4D.   Take administrative actions against those individuals
                     involved.




2002-FW-1002          Page 34
Management Controls
In planning and performing our audit, we obtained an understanding of the management
controls that were relevant to our audit. Management is responsible for establishing
effective management controls. Management controls, in the broadest sense, include the
plan of organization, methods, and procedures adopted by management to ensure that its
goals are met. Management controls include the processes for planning, organizing,
directing, and controlling program operations. They include the systems for measuring,
reporting, and monitoring program performance.



                                 We determined the following management controls were
 Relevant Management             relevant to our audit objectives:
 Controls
                                 ·   Adequacy of and adherence to written policies and
                                     procedures regarding cash management and
                                     procurement.
                                 ·   Selection, award, and performance of contracts.
                                 ·   Eligibility and adequacy of records maintained for
                                     disbursements to employees and vendors in accordance
                                     with laws and regulations.
                                 ·   Adequacy of records maintained for tenant collections
                                     and deposits.

                                 A significant weakness exists if management controls do
 Significant Weaknesses          not give 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 are obtained, maintained, and fairly disclosed
                                 in reports. Based on our review, we believe the following
                                 items are significant weaknesses, in that the Authority
                                 lacked administrative controls to ensure:

                                 1) The contracts were properly procured in accordance
                                    with regulations (Finding 1).
                                 2) The contracts expend funds that are eligible, necessary,
                                    and supported (Finding 1).
                                 3) Cash collections and disbursements were protected
                                    from waste, fraud, and mismanagement (Finding 2).
                                 4) Cash collections and disbursements were used
                                    consistent with the Authority’s mission (Finding 3).
                                 5) Records were maintained which adequately identify the
                                    source and application of funds provided for HUD-
                                    assisted activities (Findings 1, 2, 3, and 4).


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Management Controls




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2002-FW-1002              Page 36
Follow Up On Prior Audits
Office of Inspector General Audit Reports

This is the first audit by the Office of Inspector General of the Authority.

Independent Accountant Financial Audit Reports

Bergeron & Lanaux

Bergeron & Lanaux, CPAs, issued the most recent Independent Auditor’s report for the Authority
for the year ending September 30, 2000. The audit contained 23 financial statement findings and
12 federal award findings and questioned costs.

The report disclaimed an opinion on the general purpose financial statements and expressed an
adverse opinion on compliance for its major federal award programs because of substantial
noncompliance with the requirements of its major programs.

In addition, it reported instances of reportable conditions and material weaknesses in internal
controls of the financial statements, in accordance with Governmental Auditing Standards, and
over major programs, in accordance with OMB Circular A-133. Also, the report also disclosed
instances of noncompliance material to the financial statement during the audit.

The audit showed the Authority had a net operating loss of $1,208,141. Further, questioned costs
totaled $13,481 for cash disbursements under the Operating Subsidy and $22,898 for
expenditures under the Comprehensive Grant Program.




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Follow Up on Prior Audits




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2002-FW-1002                    Page 38
                                                                                                                  Appendix A

Schedule of Questioned Costs
                                                                      Type of Questioned Costs
          Issue                                                      Ineligible 1/  Unsupported 2/


1A Improper contract payments                                         $207,156

2A Vendor disbursements                                                                        $147,879

2B Ineligible vendor disbursements                                         4,011

2C Payments to employees                                                                          15,382

2D Ineligible employee disbursements                                       4,433

2E Other ineligible disbursements                                        31,982

2F Payments to Authority                                                                          36,390

3A Tenant receipts                                                                                48,201

4A Underpayment of rent by tenant/employees                                9,446

          TOTALS                                                      $257,028                 $247,852




1
  Ineligible costs are costs charged to a HUD-financed or 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 questioned by the auditor because the 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 of Departmental policies and procedures.




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Appendix A




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2002-FW-1002       Page 40
                             Appendix B

Auditee Comments




                   Page 41   2002-FW-1002
Appendix B




2002-FW-1002   Page 42
          Appendix B




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Appendix B




2002-FW-1002   Page 44
          Appendix B




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Appendix B




2002-FW-1002   Page 46
                                                                                 Appendix C

Distribution
Houma-Terrebonne Housing Authority
Houma, Louisiana

Parish President
Houma, Louisiana

Louisiana Legislative Auditor
Baton Rouge, Louisiana

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 47                                 2002-FW-1002