AUDIT REPORT HOUSING PROGRAM ADMINISTRATION AND OPERATIONS OF THE NAMPA HOUSING AUTHORITY NAMPA, IDAHO 2002-SE-1001 JANUARY 10, 2002 OFFICE OF AUDIT, NORTHWEST/ALASKA SEATTLE, WASHINGTON Issue Date January 10, 2002 Audit Case Number 2002-SE-1001 MEMORANDUM FOR: Elizabeth J. Santone, Program Center Coordinator HUD’s Portland Office of Public Housing, 0EPH (ORIGINAL SIGNED) FROM: Frank E. Baca, District Inspector General for Audit, 0AGA SUBJECT: Final report of housing program administration and operations of the Nampa Housing Authority, Nampa, Idaho At your request, we performed an audit of the Nampa Housing Authority’s housing program administration and operations in which we addressed certain allegations of mismanagement, misuse and abuse. The audit resulted in six findings, discussed in this report. Within 60 days, please give us, for each recommendation in this report, a status report on: (1) the corrective actions taken; (2) the proposed corrective action and the date to be completed; or (3) why action(s) is considered unnecessary. Also, please furnish us with copies of any correspondence or directives issued because of the audit. Should you or your staff have any questions, please call me at (206) 220-5360. (This page intentionally left blank) 2002-SE-1001 ii Executive Summary At your request, we performed an audit of the Nampa Housing Authority’s (Authority) housing program administration and operations in which we addressed certain allegations of mismanagement, misuse and abuse. Our objectives were to determine whether the: · Board of Commissioners: o properly monitored the Executive Director’s performance and activities, and o adequately oversaw the Authority's operations. · Executive Director: o accounted for his time, attendance and activities in accordance with program requirements, o adequately supported his mileage and travel claims, and o complied with program requirements when he sold personal items to the Authority; · Authority had reasonable controls over its rental receipts and security deposits; and · Board members appointed after May 1998 were properly selected. Our audit results raised significant concerns about all these issues except the last. Overall, we found that the Board did not adequately carry out its responsibilities to oversee the administration and operations of the Authority. The Board did not provide adequate monitoring, or adopt policies and procedures that are adequate or consistent with program requirements. More specifically: Performance evaluations and salary reasonableness. The Authority does not have specific procedures for evaluating employee performance and determining the reasonableness of staff salaries. As a result, the Board substantially increased the Executive Director's salary without properly evaluating his performance or the reasonableness of the increases. Accounting for employees' time. The Board advised the Executive Director not to track his time, resulting in HUD grants paying for work on non-HUD activities. Also, the Authority charged employee salaries to HUD grants based on budget estimates rather than actual activities. Review of travel requests and claims. The Board did not always ensure that the Executive Director's travel was approved and claims were proper. Therefore, the Authority does not know if travel costs were necessary and reasonable. Compliance with procurement requirements. The Board did not exercise reasonable controls when it allowed the Executive Director to sell items to the Authority, resulting in conflicts of interest and questionable purchases. Safeguarding cash. The Board did not ensure the Authority had controls to safeguard tenant rent and security deposits, resulting in misappropriated funds. In addition, the Board did not take action to recover the misappropriated funds. iii 2002-SE-1001 Executive Summary We are recommending that HUD, (1) determine, in conjunction with the appropriate City of Nampa officials, the proper administrative actions against the Board and the Executive Director, (2) implement the necessary policies and controls to ensure the Authority is run efficiently, has proper Board oversight, and complies with HUD requirements, and (3) require the Authority to reimburse or provide support for questionable costs. We provided the Board with a draft report at our exit conference on November 14, 2001 and discussed the findings with the current Board of Commissioners and the former Board Chairman. The Board responded with written comments to the draft report on December 7, 2001, generally disagreeing with our findings but agreeing there is need for improvement. The Findings section of this report summarizes and evaluates the Board’s comments. A copy of the Board’s full response is included in Appendix B. 2002-SE-1001 iv Table of Contents Management Memorandum i Executive Summary iii Introduction 1 Findings 1. The Board was not Actively Involved and Diligent in its Monitoring of Authority Operations 5 2. The Authority Needs to Evaluate Employee Performance and Ensure Salaries are Reasonable 9 3. The Authority Needs to Establish a Proper Payroll Distribution System 15 4. The Authority Charged HUD Funds for Unsupported Travel and Local Mileage Costs 21 5. Procurement Requirements Not Followed 25 6. The Authority Needs to Improve Management Controls to Safeguard Cash from Loss or Misuse 29 Management Controls 33 Appendices A. Schedule of Questioned Costs 35 B. Auditee Comments 37 C. Distribution 41 v 2002-SE-1001 Table of Contents Abbreviations ACC Annual Contributions Contract Authority Nampa Housing Authority CFR Code of Federal Regulations CIAP Comprehensive Improvement Assistance Program HUD Housing and Urban Development MCC Mortgage Credit Certificate NHFC Nampa Housing Finance Corporation OIG Office of Inspector General OMB Office of Management and Budget PHA Public Housing Agency 2002-SE-1001 vi Introduction Background In 1939, the Nampa Housing Authority in Nampa, Idaho was created for the purpose of providing decent, safe and sanitary living conditions for persons of low income. A five-member Board of Commissioners headed by Mr. Ray Wahlert, the Board Chairman, oversees the Authority. An Executive Director runs the Authority's day-to-day operations. The Authority currently manages 142 federally assisted low-income housing units. Per its Annual Contributions Contract (ACC) with the U.S. Department of Housing and Urban Development (HUD), the Authority agreed to at all times, operate each project solely for the purpose of providing decent, safe, and sanitary housing for eligible families in a manner that promotes serviceability, economy, efficiency, and stability of the projects. Over the last four fiscal years, HUD granted the Authority more than $1 million in Operating Subsidy, Comprehensive Improvement Assistance Program, and Capital Fund Program grants: Fiscal Years Program Grants 1998 1999 2000 2001 Totals Operating Subsidy $68,852 $ 77,907 $ 62,810 $ 78,973 $ 288,542 Comprehensive Improvement Assistance Program (CIAP) 290,042 290,042 Capital Fund Program (Modernization) 303,127 309,038 612,165 Totals $68,852 $367,949 $365,937 $388,011 $1,190,749 At your request for assistance, we performed an audit of the Objectives, Scope and Authority’s housing program administration and operations Methodology to address allegations of mismanagement, misuse and abuse. Our audit objectives, based on the allegations, were to determine whether the: · Board of Commissioners: o properly monitored the Executive Director’s performance and activities, and o adequately oversaw the Authority’s operations. 1 2002-SE-1001 Introduction · Executive Director: o accounted for his time, attendance and activities in accordance with program requirements, o adequately supported his mileage and travel claims, and o complied with program requirements when he sold personal items to the Authority; · Authority had reasonable controls over its rental receipts and security deposits; and · Board members appointed after May 1998 were properly selected. To achieve the audit objectives, we performed audit procedures that included: · Reviewing applicable federal criteria, including regulations, contracts, Office of Management and Budget Circulars, and HUD directives and guidelines. · Interviewing Portland Office of Public Housing staff to obtain information on the Authority’s administration and operation of HUD programs. · Interviewing Board members (former and current) and reviewing Board minutes and other relevant records to understand the Board's responsibility for monitoring the administration and operation of the Authority. · Reviewing Idaho Code on Housing Authorities and Cooperation Law, the Authority by-laws, and related documentation to obtain an understanding of the requirements for qualifying, selecting and appointing nominees for Board seat appointments. · Reviewing the Authority by-laws to determine Board procedures for conducting its business and exercising its powers over the administration and operations of the Authority. 2002-SE-1001 2 Introduction · Interviewing former and current Authority staff to obtain an understanding of the Authority’s practices for (1) timekeeping, (2) evaluating employee performance, (3) determining salary increases, (4) processing travel claims, (5) procuring items, (6) processing and adjusting tenant payments, and (7) accounting for costs charged to HUD grants. · Examining grant files and related documents to determine the Authority’s allocations of the Executive Director’s salaries for fiscal years 1998 through 2001. · Reviewing the Authority’s policies and related documentation to determine whether the: o Executive Director accounted for his time, attendance and activities in accordance with program requirements; adequately supported his mileage and travel claims; and followed program requirements when he sold items to the Authority. o Authority had reasonable controls over its rental receipts and security deposits. · Reviewing support for expenditures the Authority charged HUD grants for the Executive Director’s salaries, for procuring items from the Executive Director, and for travel and local mileage costs the Executive Director claimed. The audit generally covered the period from May 1, 1998 through May 7, 2001. We extended the audit period as appropriate during our review. We performed audit fieldwork at the Authority’s office in Nampa, Idaho from May to June 2001. We conducted the audit in accordance with generally accepted government auditing standards. 3 2002-SE-1001 (This page intentionally left blank) 2002-SE-1001 4 Finding 1 The Board was not Actively Involved and Diligent in its Monitoring of Authority Operations Because the Board did not adequately carry out its responsibilities over the Authority’s administration and operations, Authority activities were not administered in accordance with program requirements, HUD grants were charged for questionable costs, and Authority funds were misappropriated. The Board is charged with Public Housing Agency (PHA) Commissioners delegate ensuring Authority responsibility and authority to the Executive Director to act integrity and compliance on their behalf. HUD expects PHA Commissioners to with HUD requirements establish high ethical standards for the PHA staff, act as positive role models, and ensure the establishment of sound PHA internal controls and that Authority operations are conducted legally, with integrity and in compliance with federal and local laws. HUD’s Program Integrity Bulletin issued in November 1990 states the roles and responsibilities of the PHA Commissioners. Specifically, the Commissioners are to: · Establish and approve by-laws, resolutions, and policies and procedures for internal and external monitoring controls and for detecting and preventing program fraud, waste, mismanagement and abuse. · Review and monitor budgets and other documents to ensure expenditures are in compliance with federal and local laws, and other requirements. · Ensure that the PHA is acting legally and with integrity in its daily operations. · Understand their responsibilities and roles in relation to the Executive Director. · Provide clear and concise policy guidelines to the Executive Director. · Perform their ultimate responsibility to (a) make policy decisions for determining how programs are administered, (b) obtain funds from various resources, and (c) protect funds needed to keep the PHA operating. 5 2002-SE-1001 Finding 1 · Be responsible for the actions and decisions made by the Executive Director and the other PHA staff. The Board did not adequately carry out all its The Board did not responsibilities over the administration and operations adequately perform all its of the Authority. Specifically, it did not: responsibilities over the administration and operations of the Authority · Adequately evaluate and monitor the Executive Director’s performance, or maintain adequate documentation to support the reasonableness of his salary increases (see Finding 2). · Adhere to HUD requirements for payroll accountability when it advised the Executive Director not to keep track of his time (see Finding 3). · Properly review the Executive Director’s travel costs to ensure they were eligible, necessary, reasonable, and supported (see Finding 4). · Exercise reasonable controls when the Executive Director sold items to the Authority (see Finding 5). · Ensure that the Authority had adequate controls to protect HUD funds, or take action to recover misappropriated funds (see Finding 6). Because the Board did not perform adequate oversight over the Executive Director’s activities and Authority operations, Authority activities were not always administered in accordance with program requirements, HUD grants were charged for questionable costs, and Authority funds were misappropriated. It should be noted that the Executive Director nominated three of the Board members, who subsequently were approved by the Mayor of Nampa with the concurrence of the City Council. Auditee comments Addressing the report as a whole, the Board wanted to ensure that the record reflects and recognizes the considerable improvements by Nampa Housing Authority from 1998 to the present, including emerging from bankruptcy to financial soundness, and going from a near- failing performance rating to a high performer. The Authority has progressed because of the Executive Director and his staff's mutually agreed upon commitment to 2002-SE-1001 6 Finding 1 excellence. "We recognize that our Executive Director is weak in crossing the t's and dotting the i's. He has so been informed by the Board and he is very aware of the need to improve in this area." The Board did properly carry out its responsibilities relative to oversight of the operation and administration of the Authority; however, it recognized the need to improve. The Board will conduct site commissioner training for the Board, and has ordered written training materials. The Executive Director nominated three members (four if the resident representative is considered) of the current Board to the Mayor of Nampa, but the Mayor approved the appointment in public City Council meetings with the unanimous concurrence of the City Council for each nomination. The Board will do a better job of documenting the process in the future. Much of the Authority's improvement resulted from OIG evaluation of Auditee corrective actions taken after an OIG audit of the comments Authority's Indian Creek Child Care Center (report no. 98-SE-202-1002, dated June 3, 1998). Based on the findings discussed in this report, we disagree with the Board’s contention that it properly carried out its responsibilities relative to the operation and administration of the Authority. Further, we are concerned that the Board may not take the audit findings seriously, since it appears to believe that the issues reported are a matter of not "crossing t's," and "dotting i's." Regarding nomination and selection of Board nominees, the Executive Director nominated three Board members without documenting his nomination or selection process. The Authority however, maintained adequate documentation showing that it followed the Board-adopted resolution pertaining to the nomination and selection of a resident nominee. Recommendations: We recommend that you: 1A. Determine, in conjunction with City of Nampa officials, the proper administrative actions to take against the Board and the Executive Director. 7 2002-SE-1001 Finding 1 1B. Require the Authority to develop and implement policies and procedures that will make the Board accountable for the Executive Director’s actions and ensure that the Authority operates in full compliance with HUD program requirements. 2002-SE-1001 8 Finding 2 The Authority Needs to Evaluate Employee Performance and Ensure Salaries are Reasonable The Board substantially increased the Executive Director’s salary without properly evaluating his performance or the reasonableness of the increases. This was because the Authority does not have specific procedures for evaluating employee performance and determining the reasonableness of staff salaries, and therefore has no assurance that its employees perform satisfactorily and are paid reasonable salaries. The Annual Contributions Contract, federal regulations, Requirements for and various HUD Directives discuss the role and evaluating performance responsibilities of Public Housing Agency Commissioners, and determining if salaries emphasizing leadership, policy development and are reasonable monitoring functions. The Commissioners are ultimately responsible for Housing Authority operations, including monitoring the Executive Director and evaluating his performance. The Commissioners are also required to review and monitor budgets and other financial documents to ensure that expenditures (such as salaries paid to the Executive Director) meet federal as well as the Housing Authority’s own requirements. Per its Annual Contributions Contract with HUD, the Authority agreed to follow Office of Management and Budget Circular A-87 (Cost Principles for State, Local and Indian Tribal Governments), which explains how to determine the reasonableness of salaries charged to federal awards. Specifically, Attachment B, paragraph 11b of the Circular states that compensation is considered reasonable to the extent that it is consistent with that paid for similar work in other activities of the governmental unit. In cases where the kinds of employees required for federal awards are not found in the other activities of the governmental unit, compensation will be considered reasonable to the extent that it is comparable to that paid for similar work in the labor market in which the employing government competes for the kind of employees involved. Compensation surveys providing data representative of the labor market involved will be an acceptable basis for evaluating reasonableness. The Authority's Personnel Policy requires that all actions affecting employees shall be based solely on merit, ability, and justice. It also requires that all employees shall receive annual performance ratings and that such ratings shall be noted in employees’ service records and considered in 9 2002-SE-1001 Finding 2 effecting personnel actions. An employee who does not perform satisfactorily or who substantially violates regulations shall be subject to dismissal without notice. It further requires the Board to establish a Compensation Plan showing the system for making periodic employee within- range salary increases. From May 1999 to October 2000 the Board granted The Board increased the $15,000 in salary increases to the Executive Director Executive Director’s without adequately evaluating his performance: salary without adequately evaluating and monitoring Executive Director's salary his performance As of: Salary 09/01/98 $35,000 05/01/99 $40,000 05/01/00 $45,000 10/01/00 $50,000 The Board could not provide any documentation to show that it was annually evaluating the Executive Director’s performance. The evaluation of the Executive Director’s performance appears to be a subjective process using unspecified criteria done by a few Board members, rather than a formal process using performance standards in which the entire Board participates. We interviewed all Board members to obtain their perspective on the Executive Director’s most recent annual performance period. The Chairman of the Board stated he evaluates the Executive Director's performance during Board meetings, and that the Board meets the Executive Director twice a week and rates him on rent collections, occupancy, and condition of housing units. Another Board member stated he used his own experience and observations to monitor the Executive Director’s performance. Specifically, he said he had looked at the reports the Executive Director prepared on housing improvements and the Authority’s HUD ratings. Also, when he drives by the Authority, he observes that the Executive Director’s car is usually parked there. 2002-SE-1001 10 Finding 2 The other three Board members said they did not evaluate or rate the Executive Director's yearly performance. Two of the three said the Board, as a whole does not evaluate the Executive Director's performance. Some of the Board members told us that they believed the Executive Director’s performance warranted the salary increase because he had solved several operational issues and improved the Authority’s financial situation. However, the Board did not document this as part of a performance evaluation. Further, at least one Board member was aware of the Executive Director’s questionable activities, which are discussed in this report. To be reasonable, salaries must be comparable to that paid The Board did not maintain for similar work in other activities of the governmental adequate documentation to unit or in the labor market in which the employing support the reasonableness government competes for the kind of employees involved. of the Executive Director’s Compensation surveys providing data representative of salary the labor market involved will be an acceptable basis for evaluating reasonableness. The Board could not provide evidence that it obtained any salary comparables prior to granting salary increases to the Executive Director. When determining the amount of the Executive Director’s salary increases, the Board Chairman said he visited the internet sites of some of Idaho’s Housing Authorities such as Twin Falls, Pocatello, and Boise to obtain information on Executive Directors’ salaries. He said he looked at these Authorities’ job listings for Executive Director’s positions, which showed salary ranges. However, the Chairman did not have documentation to support this. No performance ratings or Based on the initial results, we expanded the scope to basis for salaries for other include other Authority employees. At the time of our Authority employees audit the Authority had nine employees excluding the Executive Director. We found that, as was the case with the Executive Director, the other Authority employees did not receive annual performance evaluations, and the Executive Director did not document the basis for their merit increases or bonuses. Therefore, neither HUD nor the Authority have assurance that these employees were performing satisfactorily or that their salaries were reasonable. The Authority Accountant stated that the employees received salary increases based on the approved 11 2002-SE-1001 Finding 2 Operating Budgets, although no formal annual performance evaluations were performed or documented. The Authority does not The Board has not evaluated the performance of the have specific procedures Executive Director or his staff because it did not develop a for evaluating employee process and procedures for implementing its Personnel performance or Policy on employee yearly performance. Also, the determining the Authority has not established or developed procedures for reasonableness of salary implementing an employee compensation plan that should increases show the system for making their periodic salary increases, and determining the reasonableness of their compensations. The Board conducted a review in 2000 to determine the Auditee comments adequacy of the Executive Director’s salary and benefits. It considered the salary and benefits of other Executive Directors in Idaho and the history of salaries and benefits paid to previous Authority Executive Directors. Also, it reviewed the results of a survey conducted in March 2000 and considered the accomplishments and improvements of the agency over the previous year and the professional certifications the Executive Director had obtained. The results of the salary and benefit surveys were available at the Authority. As a result, the Board determined that the Executive Director warranted the salary increases. The Board however recognizes the need to better document the process and will do so in the future. The Board just adopted a new Authority Personnel Policies and Employee Handbook, and conducted a formal performance evaluation of the Executive Director in November 2001. In October 2001, each full-time employee received an annual written evaluation from his/her supervisor and a review of the employee job descriptions was performed. The Board further states that each year, the Executive Director and staff have developed and published annual goals for the Authority. The Board's response is not entirely consistent with the OIG evaluation of Auditee information provided OIG staff during the audit. comments The Board minutes from May 20, 1999 to February 21, 2001 did not indicate that the Board ever discussed its determination of the Executive Director’s salary increases or the evaluation of his performance. Further, not all Board members were aware of how the Executive Director was 2002-SE-1001 12 Finding 2 granted salary increases. Two of the five Board members (the two that had not been nominated by the Executive Director) told us that they did not participate in the determination of the Executive Director’s salary increases. One of these two Board members said that the three Board members that were nominated by the Executive Director decided to grant salary increases to the Executive Director without using salary comparables. The other Board member told us she does not know how the Authority determines employees’ salary increases. The Board's response stated the salary surveys were available in Authority files. However, when asked during the audit, neither the Board Chairman nor the Authority could not provide OIG staff with any documents showing that salary comparables were actually performed. The Board Chairman specifically told us that he did not save or keep copies of job listings showing the salaries of other Executive Directors. Recommendations: We recommend that HUD require the Authority to: 2A. Develop and implement policies and procedures for objectively evaluating the performance of the Executive Director and other Authority employees, and for determining reasonableness of their salaries and salary increases. 2B. Re-assess the salaries of the Executive Director and other Authority employees based on salary comparability and performance, and reimburse the appropriate HUD grants any excess from non-grant funds. We also recommend you: 2C. Monitor the Authority to ensure compliance with requirements regarding employee compensation. 13 2002-SE-1001 (This page intentionally left blank) 2002-SE-1001 14 Finding 3 The Authority Needs to Establish a Proper Payroll Distribution System The Authority does not know how much time the Executive Director spent on HUD-related activities because the Executive Director did not adequately document his time spent on different programs, including some non-HUD activities. Also, the Authority charged his and other salaries to HUD grants based on budget estimates rather than actual time spent on activities. Consequently, the Authority used HUD funds to pay for non-HUD activities, and might have mischarged other salary costs. Section 5 of the Annual Contributions Contract between HUD requirements for the Authority and HUD requires the Housing Authority to time recording and payroll operate its projects in compliance with federal requirements distribution such as HUD regulations located at 24 CFR 85 and applicable Office of Management and Budget (OMB) Circulars. Federal regulations at 24 CFR 85.20(b)(6) requires that accounting records (i.e., payroll records) must be supported by source documentation such as time and attendance records. Also, 24 CFR Part 85.22(b) requires state and local governments to use OMB Circular A-87 when allocating costs to federal awards. OMB Circular A-87, Attachment B, paragraph 11.h.(4) states that for employees working on multiple activities, a distribution of their salaries or wages will be supported by personnel activity reports or equivalent documentation prepared at least monthly and signed by the employee. The documents must show the total activity for which the employee is compensated, coincide with one or more pay periods, and reflect an after-the-fact distribution of the actual activity for the employee. Budget estimates or other distribution percentages before services are performed cannot be used as a basis for allocating costs to federal awards. Also, the Circular states that to be allowable under federal awards, costs must be necessary and reasonable for the proper and efficient performance and administration of federal awards. Executive Director’s salary The Authority received grants directly from HUD including allocated to different HUD Operating Subsidy and Modernization1 grants. Also, the programs Authority’s Nampa Housing Finance Corporation (NHFC) 1 Formerly called Comprehensive Improvement Assistance Program or CIAP, and now referred to as Capital Fund. 15 2002-SE-1001 Finding 3 receives fees out of a Section 8 grant that HUD awarded to a property management firm. The Board approved the Authority’s Operating Budgets for fiscal years 1998 through 2001 showing the estimated allocations of the Executive Director’s salaries to different HUD programs: Executive Director's Salary Allocations Fiscal Year Budgeted Operating Section 8 Ending Salary Subsidy Program Modernization 9/30/98 $35,000 75% 25% 0% 9/30/99 $35,000 75% 25% 0% 9/30/00 $40,000 75% 25% 0% 9/30/01 $45,000 55% 15% 25% Note: The percentages for fiscal year ending 9/30/01 do not total 100 percent because the approved budget allocated 5 percent of the Executive Director’s salary to a program that the Authority did not receive funds for. HUD will probably move the 5 percent to the Operating Subsidy category. The Executive Director worked on HUD and non-HUD The Executive Director programs but did not adequately document his time spent did not adequately on each program. Although the Operating Budgets showed document his time spent the allocations of his yearly salaries to different HUD on different programs programs, the Executive Director’s time records or equivalent documents did not show actual allocations of his time for each of the programs. None of the 19 timesheets that the Executive Director prepared from May 1, 1998 to February 15, 1999 showed the actual hours spent for each HUD and non-HUD program or activity. The timesheets only showed the number of hours the Executive Director worked each day. After February 15, 1999, he stopped completing timesheets. According to the Executive Director, the only documents he maintains of his activities are the daily schedules in his electronic Palm Pilot; however, as discussed below these schedules were inadequate. The Executive Director said the Board advised him not to document how he spends his time. The Board Chairman said he advised the Executive Director not to keep track of his time because it is a waste of time. He also stated that the Executive Director does not need to maintain timesheets because he is an exempt employee. The Authority’s Payroll and Disbursement Policies and Procedures requires non-exempt (hourly-paid) employees to document their time. This requirement does not include 2002-SE-1001 16 Finding 3 exempt employees and is inconsistent with HUD requirements that all employees' time must be supported. All of the Executive Director's salary was charged to HUD HUD paid the Executive grants even though he and other Authority employees Director’s salary although stated part of his time was related to non-HUD activities. he spent part of his time However, because the Executive Director did not on non-HUD activities adequately document how he spent his time, we could not determine the amount of his salary that related to non-HUD activities. From May 1, 1998 to April 30, 2001, the Authority charged HUD funds with Executive Director salaries totaling $122,254. The Executive Director said he spends about 75 to 80 percent of his time at the Authority office, and makes up his time spent on a non-HUD program by working late, on weekends, or at home. He said the only documents he maintains are the daily schedules in his electronic Palm Pilot. The schedules however, were incomplete and did not provide sufficient detail to account for his time. The Palm Pilot daily schedules listed HUD-related activities such as attending staff and Board meetings, and non-HUD-related activities such as attending meetings at the American Legion, Job Corps Council, Kiwanis, and taking his personal vehicle in for service. Also, we could not determine based on the schedules whether the Executive Director actually performed the activities recorded in his Palm Pilot. We interviewed the other Authority administrative employees and every one of them estimated that the Executive Director has spent 50 percent or less of his workday at the Authority office since he was hired. Also, some of the employees said they observed the Executive Director perform personal business during Authority hours. For example, one Authority employee stated that the Executive Director has taken days off to look after his rental properties and has made non-business trips during business hours, such as taking his car in for maintenance. Another Authority employee said the Executive Director spent time during Authority’s business hours on the non- HUD Mortgage Credit Certificate (MCC) program. Under the MCC program, the Executive Director's administrative activities included implementing all aspects of the program, to include but not limited to, filing a request for allocation of available private activity bond authority, and executing 17 2002-SE-1001 Finding 3 and delivering certificates. The Authority staff stated that the Executive Director spent three to four hours per week with its MCC program contractor after the implementation of the program, and about two full weeks prior to the date the program was implemented. According to a Board resolution, the $125 fee per Mortgage Credit Certificate from homebuyers should cover the costs associated with the Executive Director’s MCC program activities. However, more than a year after the program was implemented the Authority had issued only two Mortgage Credit Certificates, and no Authority funds were charged against the MCC program. The Authority charged HUD funds for salaries based on The Authority charges the HUD-approved Operating Budgets rather than on actual salaries based on budgeted time spent on activities as required by HUD. This practice amounts applies to all Authority employees, not only the Executive Director. Although the other Authority employees only worked on HUD programs, it is important to allocate time to the different HUD programs not only for management control purposes, but because HUD awards funds for specific purposes and may place limits or restrictions on charges to different activities, such as administrative costs. Salary costs are not Because (1) the Executive Director did not keep track of adequately supported or his time spent on HUD and non-HUD activities, and related to HUD activities (2) the Authority charges salaries of Authority employees based on budget estimates, an indeterminable amount of the Executive Director's salary charges were for non-HUD activities, and HUD has no assurance employee salaries charged to HUD grants were related to the funded activities. Auditee comments The Board states that the Executive Director is an exempt employee and as such was not required to keep track of his time. However, beginning in April 2001, the Board instructed the Executive Director to do so. This requirement is also stipulated in the Authority’s new Personnel Policies and Employee Handbook. The Board also states that all employees will keep track of their time by program/funding source. OIG evaluation of Auditee The Board's actions should help resolve the issues reported in the finding. The Board should be aware that neither comments federal regulations nor OMB Circular A-87 exclude exempt employees from the requirement to maintain supporting payroll records. 2002-SE-1001 18 Finding 3 Recommendations: We recommend that HUD require the Authority to: 3A. Determine the amount of Executive Director salary costs charged to HUD funds for non- HUD activities from May 1, 1998 to the present, and reimburse the appropriate HUD grants from non-grant funds. 3B. Establish a payroll distribution system that will ensure correct allocation of employees’ actual time spent on grant activities, and HUD grants are charged only for eligible and adequately supported salary costs. 19 2002-SE-1001 (This page intentionally left blank) 2002-SE-1001 20 Finding 4 The Authority Charged HUD Funds for Unsupported Travel and Local Mileage Costs The Executive Director did not always submit to the Board travel requests, claim forms, or adequate supporting documents for his local mileage claims. Therefore, HUD funds might have been charged for ineligible or unreasonable travel and mileage costs. Proper oversight by the Board should have prevented this from happening. HUD and the Authority The Authority is required under federal regulations at require that travel costs be 24 CFR 85.22(b) to follow cost principles for allowable supported costs as provided by OMB Circular A-87. Specifically: · To be allowable, costs must be adequately documented. · A cost is reasonable if 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. · In determining the reasonableness of a given cost, consideration shall be given to whether the individuals concerned, acted with prudence in the circumstances considering their responsibilities to the governmental unit, its employees, the public at large, and the Federal Government. The Authority Policies and Procedures require employees to submit travel requests that include the purpose, period, and estimated travel costs. During travel, employees must record and sign all travel expenses. When claiming reimbursement, employees must submit to the Executive Director (or a Board member if the Executive Director) receipts and other supporting documents along with the expense claim forms. The Executive Director or Board member must review and approve travel expenses prior to reimbursement. The Authority reimbursed the Executive Director $6,931 The Executive Director did for travel costs, including $5,068 for training-related travel not always submit travel and $1,863 for local mileage expenses using HUD funds. requests, claim forms, or supporting documents The Executive Director traveled nine times to attend training classes conducted between May 1998 and March 2001. He did not prepare and submit the required travel requests for Board approval for this travel. Further, 21 2002-SE-1001 Finding 4 the Executive Director did not always obtain Board approval when claiming reimbursement for training or local travel costs. Of the 33 expense claim forms (24 for local mileage and 9 for training-related travel) that the Executive Director submitted, he approved 8, and a Board member approved 5. There was no approval for the other 20. In addition, the Executive Director did not maintain adequate documentation to support the local mileage claims; specifically, he did not indicate the purpose for using his vehicle locally, nor specify whether the mileage related to HUD or non-HUD activities. As a result, we could not determine if the travel was necessary, reasonable, or for eligible HUD activities. The Board did not perform its oversight responsibility in Improved Board oversight that it did not properly review the Executive Director's needed travel costs to ensure they were necessary, reasonable, and supported. The Board non-concurs that any travel and local mileage Auditee comments costs were for anything other than official PHA business. For each local mileage reimbursement, the Executive Director certified that each claim was for official business. Each training course was for the benefit of the Authority, and every mile claimed was for official business. For each reimbursement, the claim form or expense report was attached to the check, and a Board member signed the check. The Executive Director did not approve his own claims. However, the Authority must improve administratively. The Board agrees that Board members failed to sign claim forms; however, it believes that after reviewing the claims, signing the checks represented approval for payment. To improve this process, the Authority has already established a policy that no one can sign a check issued to him/herself and the Board will ensure all claims and expense reports are signed by a Commissioner. OIG evaluation of Auditee Although the Executive Director certified that the mileage comments costs were for official Authority business, the mileage reports and claim forms did not show whether the mileage costs were for HUD-related activities. Our review results indicated that the Executive Director performed both HUD and non-HUD activities. 2002-SE-1001 22 Finding 4 The Board's response states the Executive Director did not approve his own claims. However, the audit found that the Executive Director signed 8 of 33 of his own claim forms from May 1998 to March 2001. The Board believes that after reviewing the claims, signing the checks represented Board’s approval. This implies that a Board member reviewed the claim forms submitted by the Executive Director. However, the claim forms did not always evidence review by a Board member. Recommendations: We recommend that HUD: 4A. Require the Authority to determine the eligible, necessary, and reasonable amount of the Executive Director's travel costs and reimburse the appropriate HUD grants any excess over this amount from non-grant funds. 4B. Ensure the Authority follows HUD travel requirements and its travel costs are eligible, necessary, reasonable, and adequately supported. 23 2002-SE-1001 (This page intentionally left blank) 2002-SE-1001 24 Finding 5 Procurement Requirements Not Followed The Executive Director did not comply with procurement standards and violated conflict of interest requirements when he inappropriately sold items to the Authority. This resulted in the Authority charging HUD grants $1,361 in ineligible procurement costs. The Board Chairman could have prevented this by ensuring procurements complied with federal requirements prior to signing checks issued to the Executive Director. HUD procurement and Housing authorities must follow federal procurement conflict of interest standards cited in Title 24 of the Code of Federal requirements Regulations (24 CFR 85.36). These standards provide a set of basic principles that each housing authority must adhere to when making purchases and establishing a procurement policy. Among other things the procurement standards require grantees to: · Review proposed procurements to avoid purchase of unnecessary or duplicative items (paragraph (b)(4)). · Maintain records sufficient to detail the significant history of a procurement, including the rationale for the method of procurement and the basis for the contract price (paragraph (b)(9)). · Provide for full and open competition for all procurement transactions (paragraph (c)(1)). · Perform a cost or price analysis in connection with every procurement transaction (paragraph (f)(1)). In addition, grantees must adhere to the procurement requirement that no employee, officer, or agent of the grantee shall participate in selection, or in the award or administration of a contract supported by federal funds if conflict of interest, real or apparent, would be involved. The Executive Director The Executive Director did not adhere to procurement inappropriately sold items standards when he inappropriately sold four items to the to the Authority Authority. Specifically, the Executive Director violated conflict of interest provision, initiated a false purchase order, arbitrarily set purchase prices, and did not obtain proper authorization for the purchases, or always determine if the items were necessary. 25 2002-SE-1001 Finding 5 Computer Monitor The Executive Director sold a used 17-inch computer monitor to the Authority for $325. The Executive Director had personally bought the monitor the year before. He instructed the Authority Accounting Assistant to prepare a false purchase order. He set the purchase price because he said he did not have the receipt showing how much he actually paid for the item. Further, although the purchase order showed the name of the individual who the Executive Director claimed he bought the monitor from, the individual, now an Authority employee, stated that he did not sell a computer monitor to the Executive Director. The Executive Director stated, and the Authority Accountant confirmed, that he sold the monitor to the Authority to replace the Accountant’s non- functioning monitor. Digital Camera The Executive Director sold a used digital camera plus peripheral to the Authority for $535.43. He set the price for the digital camera because he said he could not find the receipt showing the actual purchase price. There was neither a purchase order prepared nor any indication that the Executive Director performed a need assessment when he sold the camera. The Executive Director said he sold an easy-to-use and less expensive digital camera to the Authority so they could easily access and print pictures without having to get a roll of film developed. The Executive Director and Accountant stated that the camera is rarely used. Vacuum Cleaner and Carpet Shampooer Without going through the Authority's procurement process, the Executive Director purchased these items then sold them to the Authority. On the day he purchased it, the Executive Director sold the vacuum cleaner to the Authority for $271.77, which was equal to the original purchase price. The Authority Accountant told us that the Authority needed to replace an old vacuum cleaner. Four days after purchasing it, the Executive Director sold 2002-SE-1001 26 Finding 5 the carpet shampooer to the Authority for $229, which was less than the total purchase price by $12.49. Apparently the shampooer had been used when sold to the Authority. The Authority did not perform any need assessment prior to procuring the item. The Executive Director told us that the carpet shampooer was used to clean an Authority rental unit. The Board Chairman cosigned checks for these items The Board Chairman did without questioning the purchases, even though there were not exercise reasonable no purchase orders and the Executive Director was selling controls the items to the Authority. As such, the Board Chairman did not exercise reasonable controls prior to cosigning these checks. The Executive Director violated procurement standards The sales violated when he falsified a purchase order, arbitrarily set purchase procurement and conflict prices, and failed to obtain competitive quotes. of interest requirements Additionally, the Executive Director had conflicts of interest when he sold the items to the Authority because, as an employee, he had a real financial interest in the transactions. Auditee comments The Board took corrective action to ensure that the Executive Director avoids conflicts of interest for future purchases, by giving him a letter of admonishment and placing him on probation for one year. However, the Board believes the Executive Director had no intention to defraud, and was acting in the best interest of the agency. Neither the camera, vacuum cleaner, nor carpet shampooer were purchased for the Executive Director’s own use. These items were purchased in accordance with Authority procurement policies. The Executive Director paid for the equipment using his own funds because the Authority did not have a corporate credit card. The vacuum cleaner and carpet shampooer were needed items that were sold unused to the Authority. The Authority is in the process of procuring a corporate credit card for such use. The Board states it believes the Executive Director had no OIG evaluation of Auditee intention to defraud and was acting in the best interest of comments the agency. We disagree. The Executive Director instructed the Authority Accounting Assistant to prepare a false purchase order, and set the price for the computer monitor and digital camera because he didn't have receipts 27 2002-SE-1001 Finding 5 showing the actual purchase price. In our opinion, this demonstrates intent to defraud and an official who is not acting in the best interests of the Authority. If, as the Board's response states, these items were purchased in accordance with Authority procurement policies, then the policies need to be revised to comply with federal procurement regulations. The Board states the Executive Director used his own funds to purchase the items because the Authority did not have a corporate credit card. This is not a valid reason: the purchases could have been paid for by check, or by using an Authority imprest fund. In our opinion, the Board response appears to trivialize and gloss over the serious issues raised in the finding. Recommendations: We recommend that HUD require the: 5A. Authority to provide evidence that the items purchased were necessary and the amounts paid for the items were reasonable, and reimburse from non-grant funds, the appropriate HUD grants, any of the $1,361 that was unnecessary or unreasonable. 5B. Board to ensure that Authority procurement procedures and the procurement transactions it approves comply with federal requirements, including conflict of interest requirements. 2002-SE-1001 28 Finding 6 The Authority Needs to Improve Management Controls to Safeguard Cash from Loss or Misuse Because the Authority did not establish or maintain reasonable procedures to control and safeguard cash payments, $2,510 in tenants’ cash payments for rents and security deposits is missing. Also, the Authority did not take meaningful action to recover the missing funds. The evidence suggests the funds were misappropriated. HUD requires Housing Federal regulations at 24 CFR 85.20, Financial Authorities to safeguard Management Systems, states in paragraph (b)(3) assets through sound that grantees must maintain effective control and management practices accountability for grant cash. Office of Management and Budget Circular A-87, Attachment A, paragraph A (2)(a)(1) states housing authorities are responsible for the efficient and effective administration of federal awards through the application of sound management practices. The Authority did not have controls to adequately Control weaknesses result safeguard tenants’ cash payments for rent and security in misappropriated funds deposits. This lack of controls increased the risk that those funds could be lost or misused without detection, and resulted in the misappropriation of at least $2,510 of Authority funds. Specifically, we found that: · The Authority had no written policies or procedures for receiving and receipting cash payments for tenant rent and security deposits. Consequently, any employee was able to receive cash payments from tenants and give out receipts. · The Authority did not use numbered receipts as a control to ensure all cash payments were controlled and deposited. Unnumbered receipts and cash collections were stored in a lockbox, which was usually unlocked during Authority operating hours. The cash box and the Authority’s copies of the receipts were accessible to all employees. · All employees knew each other’s computer passwords. There could be no accountability for the amount of money in the cashbox or the accuracy of the information in the Authority’s computer information systems. 29 2002-SE-1001 Finding 6 · Adjustments to tenant rents were not reviewed and approved prior to inputting the correct tenant rents to the tenants’ ledger. In addition, adjustments were not reviewed for propriety or adequacy of supporting documents. The Executive Director did not thoroughly review the interim reexaminations that changed the amount of a tenant’s rent. Our review of reviewed and approved changes to tenant rental payments noted many instances where several months elapsed between the effective date of the rent change and the signature of the Executive Director. In addition, there were discrepancies in the documents themselves. Authority officials told us steps have been taken to improve its management controls over cash receipts and approving changes to tenant rent payments; however, we have not reviewed those controls. The Authority did not take remedial actions after The Authority did not take determining tenant cash payments were missing and an meaningful action to employee had taken the money. It neither used the fidelity recover the missing funds bond insurance to recover the missing cash, nor did it file an official police report. The Executive Director said the Authority has not filed a claim to date because of the relatively small loss amount. He also said he told the Board of the missing tenant cash payments and that the Board agreed with him not to file a police report. The Board concurs with the finding. On March 8, 2001, Auditee comments the Executive Director issued an Internal Policy on Accounts Receivable to correct the weakness. At the time the HUD-OIG initiated its review, the Authority staff had not completed its review of all accounts. Once that was done, the Authority had no reason to believe that the HUD- OIG could document additional losses. The Board indicates that the Authority submitted a claim on October 18, 2001 and was paid in full on November 7, 2001. The Board also states that an informational report was filed with the Nampa Police Department on March 20, 2001. The Authority's actions should help resolve the issues OIG evaluation of Auditee reported in this finding. comments 2002-SE-1001 30 Finding 6 Recommendations: We recommend that HUD: 6A. Require the Authority to develop and implement controls to safeguard cash against loss and misuse, including procedures for: a. receiving and receipting tenant rents, b. restricting access to cash, and using numbered receipts, c. maintaining secure computer passwords, and d. reviewing and approving rent adjustments. 6B. Confirm that the Authority recovered the $2,510 in missing funds, or else require the Authority to repay the missing funds from non-grant funds. 6C. Ensure that the Authority takes or has taken appropriate action to hold the responsible individual accountable. 31 2002-SE-1001 (This page intentionally left blank) 2002-SE-1001 32 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 controls relevant to our audit objectives: · Program Operations – Policies and procedures that management has implemented to reasonably ensure that a program meets its objectives. · Compliance with Laws and Regulations – Policies and procedures that management has implemented to reasonably ensure that resource use is consistent with laws and regulations. · Safeguarding Resources – Policies and procedures that management has implemented to reasonably ensure that resources are safeguarded against waste, loss, and misuse. We assessed all of the relevant controls identified above. Scope of work It is a significant weakness if management controls do not provide reasonable assurance that the process for planning, organizing, directing, and controlling program operations, will meet an organization’s objectives. We identified the following significant weaknesses in the Significant weaknesses Authority's management controls: · The Authority Board did not adequately monitor the actions and decisions made by the Executive Director, or the Authority operations (Findings 1-6). · The Authority did not have adequate controls to safeguard cash from loss or misuse (Finding 6). 33 2002-SE-1001 (This page intentionally left blank) 2002-SE-1001 34 Appendix A Schedule of Questioned Costs Recommendation Number Unsupported 5A $1,361 6B 2,510 Total $3,871 Unsupported amounts are not clearly eligible or ineligible, but warrant being contested for various reasons, such as lack of satisfactory documentation to support eligibility. 35 2002-SE-1001 (This page intentionally left blank) 2002-SE-1001 36 Appendix B 37 2002-SE-1001 Appendix B 2002-SE-1001 38 Appendix B 39 2002-SE-1001 Appendix B 2002-SE-1001 40 Appendix C Distribution Mayor of the City of Nampa Chairman of the Board, Nampa Housing Authority Director, Northwest/Alaska Office of Public Housing, 0PH Program Center Coordinator, HUD’s Portland Office of Public Housing, 0EPH Principal Staff Secretary’s Representative, 0AS Assistant Secretary for Public and Indian Housing, P Assistant General Counsel, 0AC Audit Liaison Officer – Western Districts (Ft. Worth), 6AF Departmental Audit Liaison Officer, PIH, PF Director, Audit Coordinator Division, Departmental Audit Liaison Officer, FMA Acquisitions Librarian, Library, AS Ranking Member, Committee on Governmental Affairs, 340 Dirksen Senate Office Building, United States Senate, Washington, DC 20510 Chairman, Committee on Government Affairs, 706 Hart Senate Office Building, United States Senate, Washington, DC 20510 Chairman, Committee on Government Reform, 2185 Rayburn Building, House of Representatives, Washington, DC 20515 Ranking Member, Committee on Government Reform, 2204 Rayburn Building, House of Representatives, Washington, DC 20515 House Committee on Financial Services, 2129 Rayburn H.O.B., Washington, DC 20515 Senior Advisor, Subcommittee on Criminal Justice, Drug Policy & Human Resources, B373 Rayburn House Office Building, Washington, DC 20515 Subcommittee on Oversight and Investigations, Room 212, O’Neil House Office Building, Washington, DC 20515 Chief Housing Branch, Office of Management and Budget, 725 17th Street, NW, Room 9226, New Executive Office Building, Washington, DC 20503 41 2002-SE-1001
Housing Program Administration and Operations of the Nampa Housing Authority, Nampa, Idaho
Published by the Department of Housing and Urban Development, Office of Inspector General on 2002-01-10.
Below is a raw (and likely hideous) rendition of the original report. (PDF)