AUDIT REPORT
Delta Housing Authority
Delta, Colorado
Low-Rent Housing and Section 8 Housing
Assistance Payments Programs
2003-DE-1002
October 07, 2002
OFFICE OF AUDIT, ROCKY MOUNTAIN
DENVER, COLORADO
Issue Date
October 07, 2002
Audit Report Number
2003-DE-1002
TO: Linda Camblin, Director, Office of Public Housing, 8APH
FROM: Robert Gwin, Regional Inspector General for Audit, 8AGA
SUBJECT: Delta Housing Authority
Delta, Colorado
Low-Rent Housing and Section 8 Housing Assistance Payments Programs
We have completed an audit of the Delta Housing Authority in Delta, Colorado. The audit resulted
from a request by the Office of Investigations that we review allegations it received from citizen
complaints. Our overall audit objective was to determine whether complainants’ allegations against the
Delta Housing Authority were valid and to determine whether Housing Authority funds were used in
accordance with applicable HUD policies and procedures.
Our report contains three findings with recommendations requiring action by your office. The three
findings address the improper use of HUD funds; circumvention of the procurement policy; and the
abuse of admission and occupancy procedures, and related administrative activities.
In accordance with HUD Handbook 2000.06 REV-3, within 60 days please provide us, for each
recommendation without a management decision, 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.
Should you or your staff have any questions, please contact me at (303) 672-5452.
Management Memorandum
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2003-DE-1002 Page ii
Executive Summary
We performed an audit of the Delta Housing Authority to determine whether complainants’ allegations
about the Delta Housing Authority’s operations were valid and to determine whether Housing Authority
funds were used in accordance with applicable HUD policies and procedures. Specifically, we
reviewed procurement activities, selection of applicants from the waiting lists, Section 8 voucher
payments for tenants previously residing in Authority-owned units after moving-out, allocation of costs
to the Housing Authority’s housing programs and activities, and maintenance activities.
We found that the Housing Authority had deviated from its own policies and procedures in some areas
and was not conforming to HUD requirements in carrying out its HUD funded housing programs. As a
result, HUD funds were used to pay ineligible expenses; procurement policies were circumvented to
provide contracts to favored contractors; admission policies were ignored to facilitate favoritism on the
public housing waiting lists; excess Section 8 voucher payments and administration fees were collected
for Authority-owned housing units; and unrecorded tenant fees and deposits were used for unallowable
activities.
The Housing Authority used funds intended for HUD programs
Costs Improperly Allocated to pay both direct and indirect costs allocable to other
to HUD Programs programs administered by the Housing Authority. Also,
maintenance salaries are unsupported because there is no
system to track the actual time spent on each program.
For direct costs, we identified that the Housing Authority had
charged $101,233 to the HUD funded program for direct costs
of its independent housing program. Authority management
apprised us that the Housing Authority borrowed HUD funds to
pay ineligible direct costs of the Authority’s independent
housing program until such time as monies could be obtained
from a mortgage on one of its independent program’s
properties. Subsequent to our site work, the Housing Authority
repaid the borrowed funds to the HUD funded housing program
account.
For indirect costs, the Housing Authority charged its
independent housing program for indirect costs in fiscal year
2000. However, the Authority ceased charging any indirect
costs to its independent housing program in December 2000.
Therefore, the Housing Authority began funding indirect costs
applicable to its independent housing with HUD funded
program monies.
Page iii 2003-DE-1002
Executive Summary
The Housing Authority was unaware that its cost allocation plan
was deficient or that maintenance employees needed to track
their actual time. Consequently, HUD funds were used for non-
HUD project activities and as such, these monies were not
available for administration of the public housing and Section 8
voucher programs.
We identified deficiencies with four of the five procurement
Procurement Policy Needs actions we reviewed. The Housing Authority simply did not
to Be Followed to Ensure follow procurement policies for the most part and circumvented
Services Are Obtained at a the requirements to procure services from favored contractors.
Fair and Reasonable Price Although, the Housing Authority provided documents to show
that competitive bids were obtained we found the documents
questionable in two cases. Consequently, the Housing
Authority may not have obtained services for a fair and
reasonable price.
Contrary to HUD requirements, the Housing Authority has not
Compliance with been properly and correctly implementing its tenant occupancy
Occupancy and and related administrative activities. More specifically, we
Administrative noted: (1) favoritism when selecting applicants off the waiting
Requirements Needs to Be list; (2) excess Section 8 voucher payments and administrative
Improved fees for Authority-owned units; (3) lack of independent agency
to provide tenant counseling, rent reasonableness and Housing
Quality Standards inspections for Authority-owned units with
Section 8 assistance; and (4) non-recording of tenant fees and
deposits. These deficiencies occurred because the Housing
Authority either circumvented the requirements or was
unfamiliar with the requirements. Consequently, (1) applicants
are not fairly selected for assistance; (2) the Housing Authority
received excess funds it was not entitled when it continued to
receive assistance for a vacant PHA-owned unit and received
excess Section 8 voucher administrative fees; (3) tenants of
PHA-owned units who receive Section 8 assistance may not
benefit from a third party agency overseeing the Authority,
which is both the administrator of the Section 8 assistance and
landlord; and (4) unrecorded funds can be used for unallowable
costs without the knowledge of outside parties.
We recommend that HUD require the Housing Authority to
Recommendations devise a plan to ensure all costs are properly allocated to the
appropriate cost objectives. Also, action needs to be taken by
the Housing Authority to ensure that its Procurement Policy is
2003-DE-1002 Page iv
Executive Summary
properly implemented and documented. Furthermore, the
Housing Authority needs to implement proper management
controls over its tenant admission and occupancy procedures
and related administrative activities. To do so will help the
Housing Authority to ensure that its HUD funded housing
programs are being properly and correctly carried out in
conformity with HUD requirements.
We provided the Authority with a copy of the draft report for
Auditee Comments comment on August 22, 2002. We received the Authority’s
written comments on September 13, 2002. The comments
were considered and the report was modified as appropriate.
We included the written comments in Appendix B of the report,
except for the exhibits provided with the written comments due
to the lengthiness of the response. The exhibits were provided
to HUD by separate cover.
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Executive Summary
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2003-DE-1002 Page vi
Table of Contents
Management Memorandum i
Executive Summary iii
Introduction 1
Findings
1. Costs Improperly Allocated to HUD Programs 3
2. Procurement Requirements Need to Be Followed to Ensure Services
Are Obtained at a Fair and Reasonable Price 11
3. Compliance with Occupancy Requirements Needs to Be Improved 21
Management Controls 31
Follow Up On Prior Audits 35
Appendices
A. Schedule of Questioned Costs 37
B. Audit Comments 39
C. Distribution 51
Page vii 2003-DE-1002
Table of Contents
Abbreviations:
CFR Code of Federal Regulation
CIAP Comprehensive Improvement Assistance Program
FmHA Farmers Home Administration
HUD Department of Housing and Urban Development
OIG Office of Inspector General
OMB Office of Management and Budget
PHA Public Housing Authority
2003-DE-1002 Page viii
Introduction
The Delta Housing Authority located in Delta, Colorado is governed by a five member Board of
Commissioners. The Board members are appointed by the City Council and serve five-year terms.
The Board establishes policies and takes official action as required by Federal and State law. An
Executive Director manages the small Housing Authority, which employs two office support and three
maintenance staff. The books and records are maintained at 511 East Tenth Street, Delta, CO 81416.
The Housing Authority’s fiscal year is from January 1 through December 31. The Housing Authority
operates seventy-five public housing units and administers over 210 HUD Section 8 Housing Assistance
Program vouchers. In addition to HUD programs, the Housing Authority operates a ten-unit Farmers
Home Administration (FmHA) insured elderly development, twenty-five Authority-owned units and a
transitional housing unit that is leased to a local non-profit organization.
Our audit objectives were to review the allegations about the
Audit Objectives Authority’s operations and to determine whether Housing
Authority funds were used in accordance with applicable HUD
policies and procedures.
To determine whether the allegations had merit, we reviewed
Audit Scope and various aspects of the Housing Authority’s operations and
Methodology primarily included:
• Procurement activities;
• Selection of applicants from the waiting lists;
• Section 8 voucher payments for tenants previously residing
in Authority-owned units after moving-out;
• Allocation of costs to the Housing Authority’s housing
programs and activities; and
• Maintenance activities.
We focused our review on allegations in areas within our
jurisdiction involving HUD funded housing program activities.
To determine whether PHA funds were used in accordance
with applicable HUD policies and procedures we reviewed:
• Management controls;
• All disbursements from the general fund for the audit period;
• The indirect cost allocation plan; and
• The support for maintenance salaries.
Page 1 2003-DE-1002
Introduction
In performing our review of the Housing Authority’s
management controls, we conducted a non-representative
testing of transactions to evaluate the Housing Authority’s
control structure. In connection with specific complaints, we
tested sufficient transactions to perform an assessment of the
validity of the complainants’ concerns. In those cases where
the concerns were substantiated, we expanded our transactions
testing to identify the nature and extent of the deficiency.
An OIG Appraiser was used to evaluate the cost
reasonableness and installation quality of the removal and
installation of kitchen cabinets, countertops, faucets, drain
pipes, supply pipes and stops in forty HUD funded housing
project dwelling units.
The audit covered the period from January 1, 2000 to
December 31, 2001. We extended the review, where
appropriate, to include other periods. The audit fieldwork was
conducted between March 2002 and May 2002.
We conducted the audit in accordance with generally accepted
Generally Accepted
government auditing standards.
Government Auditing
Standards
2003-DE-1002 Page 2
Finding 1
Costs Improperly Allocated to HUD Programs
The Delta Housing Authority used HUD funds to pay ineligible expenses of $101,233 that it expended
on its independent housing program. Also, the cost allocation plan used by the Authority is deficient and
does not fully distribute indirect costs to the various programs the Authority administers. Furthermore,
maintenance salaries are unsupported because there is no system to track the actual time spent on each
program. The Housing Authority borrowed HUD funds to pay ineligible direct costs of the independent
program and ceased charging indirect costs to the independent program. Also, the Authority
management was unaware that the indirect cost allocation plan was deficient or that maintenance
employees needed to track their actual time. Consequently, HUD funds are not available for
administration of the public housing and Section 8 voucher programs. We recommend that HUD
require the Housing Authority to reimburse ineligible costs to the appropriate HUD accounts and to
devise an equitable cost allocation plan to ensure all costs are properly allocated to the appropriate cost
objectives.
Title 24, Code of Federal Regulation (CFR), Section 85.22(b)
Costs Must be Necessary, requires grantees to comply with the Office of Management and
Reasonable and Adequately Budget (OMB) Circular A-87. This Circular establishes
Documented principles and standards for determining costs for Federal
awards carried out through grants, cost reimbursement
contracts, and other agreements with State and local
governments.
The Housing Authority administers three non-HUD funded
Non-HUD Programs programs. First, the Authority has initiated its own independent
housing program to purchase single-family properties to provide
low-income housing. The Authority currently has 25 occupied
units with two more under construction. Second, the Authority
administers a ten-unit Farmers Home Administration (FmHA)
insured elderly development. Finally, the Authority owns a
transitional housing unit that is leased to a local non-profit
organization.
We found that HUD funds are used to pay both direct and
indirect costs allocable to these other programs. Also,
maintenance salaries are unsupported because there is no
system to track the actual time spent on each program.
Direct costs are those that can be identified specifically with a
Ineligible Costs particular final cost objective, as defined by Circular A-87. To
Page 3 2003-DE-1002
Finding 1
allocate the direct costs to the benefiting program, the Housing
Authority codes the account number on the invoices and enters
the payables into the accounting system.
The Housing Authority expended $101,233 for ineligible costs
applicable to the Housing Authority’s independent housing
program. This amount is shown in the following chart by fiscal
year.
Paid by Percentage
Total Paid by Independent Paid by
Year Amount HUD Program HUD
2000 39,870 19,668 20,202 49%
2001 80,552 73,360 7,192 91%
2002 12,729 8,205 4,524 64%
Total 133,151 101,233 31,918 76%
We identified total direct costs of $133,151 incurred by the
independent housing program, for the period January 1, 2000
to March 31, 2002. HUD funds were used to pay 76% of
these costs during the period. We identified independent
housing program costs by reviewing supporting invoices to
determine whether expenses were properly coded in the
accounting system and reimbursed with funds from the
independent program. The accounting system showed that
90% of the ineligible costs were allocated to the
Comprehensive Improvement Assistance Program (CIAP) and
Capital Fund Grants, and the rest were allocated to operating
funds.
The Housing Authority management told us that the Housing
Authority was borrowing the money from HUD until the
Authority could get a mortgage on one of the properties of the
independent program to repay the monies. The use of HUD
program monies to fund non-HUD housing projects is contrary
to the terms of the Annual Contributions Contract.
The total direct costs of the independent program, identified
System Needed to Allocate above, are incomplete because there was insufficient
Costs of Supplies and documentation to identify all costs associated with the program.
Materials For example, when reviewing the work order repair forms we
noted instances where appliances, water heaters and a furnace
2003-DE-1002 Page 4
Finding 1
were replaced. However the cost of these items were not
charged to the independent housing program or readily
identifiable.
We observed instances when the maintenance staff purchased
materials at the time of a repair and the invoice was
subsequently charged to the correct program. However, if a
maintenance staff used materials or supplies out of inventory for
its independent housing program, then the costs were not
always charged to the independent housing program. During
our review the Housing Authority was unable to provide us with
a current inventory report because a physical inventory had not
been taken in several years. The Housing Authority needs to
perform a physical inventory and should consider keeping a
perpetual inventory where materials and supplies are shown as
expenditures when consumed. Then these expenditures can be
allocated to the proper cost objective or program as materials
and supplies are used.
Indirect Costs Not Properly Circular A-87 defines indirect costs as those costs ”(a) incurred
Allocated for a common or joint purpose benefiting more than one cost
objective and (b) not readily assignable to the cost objectives
specifically benefited, without effort disproportionate to the
results achieved”. Also, the Circular requires grantees to
develop and carry out a plan to support the allocation of any
joint (indirect) costs that benefit more than one program.
Formal accounting records that prove propriety of the charges
must support all costs included in the plan.
The cost allocation plan used by the Authority is deficient and
does not fully distribute indirect costs to the various housing
programs it administers. The Housing Authority management
asserted to us that the following cost allocation breakdown was
used when coding invoices in 2001.
Cost Objective Percentage
Public Housing 31%
Section 8 Voucher 58%
FmHA-insured Project 7%
Independent Program 4%
Page 5 2003-DE-1002
Finding 1
We estimate that non-salary indirect costs were over $50,000
in 2001. The Housing Authority only used its allocation plan on
almost $3,800 of these costs. There were primarily two non-
salary expenses that the allocation plan was used, the telephone
bill and postage. For these bills, the actual allocation
breakdown differed from the Housing Authority’s assertions.
The FmHA-insured project was charged 5%, the independent
program was not charged at all and the remaining 5% was
charged to the CIAP grant. Only a small percentage of non-
employee indirect costs were allocated. Although the Housing
Authority attempted to allocate indirect costs, the Authority did
not always know what constituted an indirect cost.
Administrative salaries and benefits, which are also indirect
costs, totaled about $185,200 in 2001. Similarly, the actual
breakdown differed from the Housing Authority’s assertions, as
follows.
Cost Objective Percentage
Public Housing 33%
Section 8 Voucher 62%
FmHA-insured Project 5%
Overall, HUD is paying 95% of the indirect costs and the
False Assertion by the FmHA-insured project is paying 5%. The Housing Authority’s
Housing Authority independent and transitional house programs paid almost none
of the indirect costs in 2001. Indirect costs were charged to the
independent program in fiscal year 2000. However, the
Housing Authority ceased charging indirect costs to the
program in December 2000. Housing Management asserted to
us that the Authority was charging the independent program 4%
of the indirect costs. The assertion that the independent
program paid indirect costs was correct until the Authority
ceased charging the independent program for indirect costs in
December 2000.
The cost allocation plan used by the Authority is deficient and
does not fully distribute indirect costs to the various programs it
administers. The Housing Authority needs to review and
update its cost allocation plan and ensure that it equitably
distributes indirect costs to all of the cost objectives
administered by the Housing Authority.
2003-DE-1002 Page 6
Finding 1
OMB Circular A-87, Attachment A, Sections 11(h)(4) and (5)
Maintenance Salaries Are stipulate that:
Unsupported
“Where employees work on multiple activities or cost
objectives, a distribution of their salaries or wages will
be supported by personnel activity reports or equivalent
documentation. Personnel activity reports or
equivalent documentation must: (1) reflect an after-the-
fact distribution of the actual activity of each employee,
(2) be prepared at least monthly and (3) be signed by
the employee. Budget estimates or other distribution
percentages determined before the services are
performed do not qualify as support.”
The Housing Authority has three maintenance employees. The
maintenance employees did not maintain activity reports or time
sheets showing the actual activity of the employee.
Furthermore, the Housing Authority did not document how
many hours the maintenance employees worked. We observed
that the Authority had a time clock but the maintenance
employees only punched the clock in the morning and not when
they left at the end of the day.
Maintenance salaries and benefits totaled about $117,300 in
2001. These costs are unsupported because the maintenance
employees did not track where they spent their time. During the
period, the Housing Authority allocated 96% of the
maintenance salary costs to HUD and 4% to the FmHA-
insured development. The Authority did not allocate any
maintenance costs to its Authority-owned units although the
maintenance workers turned over twelve units and completed
almost 100 work orders.
The Housing Authority was not aware that the maintenance
employees needed to document their actual activity in order to
allocate maintenance costs to the benefiting cost objective. The
Housing Authority needs to implement a system to document
the maintenance employees’ actual activity and allocate the
costs to the appropriate cost objective.
The Housing Authority used funds intended for HUD programs
Summary to pay both direct and indirect costs allocable to other
Page 7 2003-DE-1002
Finding 1
programs administered by the Housing Authority. Also,
maintenance salaries are unsupported because there is no
system to track the actual time spent on each program. The
Housing Authority borrowed HUD funds to pay ineligible direct
costs of the independent housing program until such time as
monies from a mortgage could be obtained. In addition, the
Authority ceased charging indirect costs to its independent
housing program. Furthermore, the Housing Authority was
unaware that the indirect cost allocation plan was deficient or
that maintenance employees needed to track their actual time.
Consequently, HUD funds are not available for administration
of the public housing and Section 8 voucher programs. We
recommend that HUD require the Housing Authority to
reimburse ineligible costs to the appropriate HUD account and
to devise a plan to ensure all costs are properly allocated to the
appropriate cost objectives.
Auditee Comments The Delta Housing Authority has already repaid ineligible costs
of $101,233 per our draft recommendation and is taking steps
to address the deficiencies cited in the finding. HUD confirmed
that the funds were repaid to the general fund during a recent
site visit. Therefore, we will exclude this recommendation from
the finding.
The Authority addressed the cause of the finding in its response.
The Authority stated that it was unaware of the limitations for
using HUD funds and believed that it could use the funds for
any housing related expenditures provided that such funds were
reimbursed to the appropriate accounting category at the
appropriate time.
The Authority plans on performing a random motion study to
properly allocate indirect and direct costs.
The Authority did not recall telling us that it was charging its
independent housing program 4% of the indirect costs. The
Authority responded that in 2001 the Authority charged the
independent housing program 8% for indirect costs.
2003-DE-1002 Page 8
Finding 1
OIG Evaluation of We disagree with the Authority’s comment that it was unaware
Auditee Comments it was using HUD funds for ineligible purposes. Based on
management’s comments and actions during the course of our
audit, it was apparent to us that management was aware that it
used these funds inappropriately.
A random motion study is not a valid method for allocating
indirect or direct costs. The Authority needs to follow the cost
allocation requirements cited in OMB Circular A-87 and the
guidance provided by HUD.
Although, management could not recall advising us that it
charged the independent program 4%, this assertion was
provided to us in writing. The Authority did not provide us with
any evidence to support that it charged the independent
program 8% in 2001. Our review of the Authority’s records
showed that in 2001 there were no payments from the
independent program to the general fund for indirect costs,
except for one insignificant transaction.
Recommendations We recommend that the Office of Public Housing:
1A. Require the Authority to devise a plan to ensure all
costs are properly allocated to and paid by the
appropriate cost objective by:
1. Requiring that a physical inventory is done and the
Housing Authority charges materials and supplies
from inventory to the benefiting program.
2. Requiring the Housing Authority’s cost allocation
plan equitably distributes indirect costs to all of the
cost objectives administered by the Housing
Authority.
3. Requiring the Housing Authority to implement a
system that adequately and equitably documents the
maintenance employees’ actual activity and
allocates the costs to the appropriate cost
objective.
Page 9 2003-DE-1002
Finding 1
1B. Monitor the Housing Authority to ensure that actual
costs are paid in accordance with the approved cost
allocation plan.
2003-DE-1002 Page 10
Finding 2
Procurement Policy Needs to Be Followed to
Ensure Services Are Obtained at a Fair and
Reasonable Price
The Housing Authority has not carried out its procurements in accordance with HUD requirements and
has circumvented its Procurement Policy. As a result, the Housing Authority may not have procured its
goods and services at a fair and reasonable cost. Our review showed that competitive bid
documentation was questionable for two of the five Housing Authority procurements we reviewed. In
one case, we determined that the Authority paid $54,850 above the reasonable cost for shoddy kitchen
renovation work. Action needs to be taken by the Housing Authority to ensure that its Procurement
Policy is properly implemented and documented.
Title 24, Code of Federal Regulation (CFR), Section 85.36(c)
Full and Open Competition requires all procurement transactions to be conducted in a
Required manner providing full and open competition. Housing authorites
must seek, through the use of their policies and procedures, to
maximize competition and minimize opportunities for favortism
and collusion.
The Delta Housing Authority’s procurement policy states that all
purchases and contracts over $25,000 require formal bids.
Sealed bidding is the appropriate procurement method for
construction contracts and supplies above the small purchase
limitations. This procurement method requires written
specifications that describe the requirements clearly, accurately
and completely. The solicitation of bids needs to be advertised.
The Authority holds a public bid opening and bases the award
of the contract on the lowest responsive bid.
The Housing Authority’s procurement policy also states that all
purchases and contracts between $500 and $25,000 require
competitive negotiation. Competitive negotiation means that the
Authority shall invite offers orally, by telephone or in writing
from at least three suppliers or contractors.
We received an allegation that the Housing Authority had
Procurement Process circumvented its procurement policy and improperly
Circumvented documented its records to show compliance. To determine the
Page 11 2003-DE-1002
Finding 2
validity of the allegation, we selected for review two
procurements requiring formal bids and three requiring
competitive negotiation, for the period January 1, 2000 to
December 31, 2001. We found that the allegation had merit,
and identified definciencies with four of the five procurement
actions.
Authority Continued to Use Over the last few years the Authority has done major
the Same Contractor After renovation on its public housing stock. Most of the work was
the 1998 CIAP Work Was funded with the 1998 Comprehensive Improvement Assistance
Completed Program (CIAP) grant. Due to the size of the award, the
Housing Authority used a private consultant to administer the
bidding process and the contract. The private consultant’s
recommendation of an independent contractor was followed by
the Authority. The Housing Authority has continued to use the
same independent contractor on subsequent jobs without the
benefit of full and open competition.
The Housing Authority used the independent contractor to
renovate kitchens and bathrooms, and to do miscellaneous
work, in public housing. Also, the contractor has built several
single-family units for the Authority’s independent housing
program.
The Housing Authority paid the independent contractor
Questionable Bids for $129,458 in 2001 to remove and replace kitchen cabinets,
Procurement of Kitchen countertops, faucets, pipes and stops in forty public housing
Renovation units. Housing Authority management asserted to us that the
Authority bid out the job and awarded the contract to the
lowest bidder.
We reviewed the procurement documents and found that the
Housing Authority did not follow the formal bidding process.
The Housing Authority did not have written specifications that
described the requirements clearly, accurately and completely;
and did not advertise the solicitation of bids. The Authority had
three proposals from contractors. The independent
contractor’s bid of $121,638 was the lowest.
We tried unsuccessfully to contact the other two construction
companies that bid on the job. The first contractor’s proposal
showed that the contractor’s address was in Grand Junction,
Colorado but the telephone number provided was a local
2003-DE-1002 Page 12
Finding 2
number in Delta, Colorado. However, the telephone number
belonged to an unrelated citizen who never heard of the
construction company.
We found that the telephone number on the second contractor’s
proposal was also a private residence. Therefore, the validity
of the two proposals is questionable and indicates the Housing
Authority circumvented its procurement policy by not obtaining
the required three bids for the construction work.
An OIG Appraiser inspected the kitchen renovations to
Contractor Over-Billed determine whether the cost paid for the work was reasonable.
Authority When inspecting the units it became obvious that the
independent contractor double-billed the Housing Authority for
three units. Thirty-nine of the forty family units had the kitchen
cabinets replaced. The contractor billed the Authority for forty-
two kitchen renovations. One unit did not need new cabinets
because they had already been replaced recently by the
Housing Authority.
Further review showed the contrator only acquired forty kitchen
cabinets. Thirty-nine were installed into Housing Authority units
while the last kitchen cabinet set had never been picked up from
the lumber store.
After our fieldwork was completed, the independent contractor
researched the matter and informed us that there were mistakes
in the billings. The contractor informed us that he would
reimburse the Authority $7,894 for the over-billing.
The OIG Appraiser valued the cost of the kitchen renovation
Contractor Paid Over work at $74,606 using the prevailing Davis Bacon wage rates.
$54,850 Above Reasonable The Housing Authority paid the contractor $129,458. Thus,
Cost for Shoddy the Housing Authority paid the contractor over $54,850 above
Workmanship the reasonable cost for the renovation work. In addition, the
OIG appraiser said the work was shoddy. Specifically, the
appraiser noted:
1. The gap between the countertop's backsplash and the wall
was spacious and filled with an excessive amount of
caulking.
2. There was an incident where a wall cabinet located by a
window separated from the wall.
Page 13 2003-DE-1002
Finding 2
3. There were variations in the installation of the drainpipes,
supply pipes and P traps. It's questionable whether these
parts were replaced in all of the units.
The contractor was unlicensed, however, the State and local
governments do not require contractors in the jurisdiction of
Delta, Colorado to be licensed. Furthermore, the City of Delta
does not require building permits or final inspections for the
scope of work performed. Only the Housing Authority was
responsible for inspecting the kitchen renovation work.
There was an incident where one of the kitchen cabinets next to
a window separated from the wall injuring a child. During the
appraiser’s inspections we noted that the fasteners for the
cabinet were angled to hit the wall studs. We noted damage of
the pressboard cabinet backing when the fasteners were driven
in too far causing the wood to crack and break.
In March 2001 the Housing Authority paid an individual
handyman $2,079 to secure and rescrew the kitchen and
bathroom cabinets of the seventy-five public housing units, after
the kitchen cabinet fell. The Authority’s staff should have
performed the inspections and held the independent contractor
responsible for correcting any deficiencies. Therefore, the
$2,079 payment is questionable.
In fiscal year 2000 the Housing Authority paid the independent
Procurement Policy Not contractor $83,493 to replace bathroom cabinets, sinks,
Followed for Another Job faucets, toilets, medicine cabinets, plumbing and florescent lights
Awarded to Independent in all seventy-five public housing units. The job was paid with
Contractor 1999 CIAP grant monies and funds left over from the 2000
Capital Fund grant. The Housing Authority did not solicit
sealed bids for this job. Housing Authority management told us
bids were not solicited for this job because it was part of the
procurement activities awarded under the 1998 CIAP grant.
However, the bathroom renovations were not included in the
scope of work under the original contract and should have been
procured by sealed bidding.
The OIG Appraiser made a preliminary inspection of several
bathroom renovations. However, we did not perform a
detailed review because the total renovation cost appeared to
be reasonable.
2003-DE-1002 Page 14
Finding 2
We also reviewed three procurements with two contractors and
Questionable Bids for a service provider that required competitive negotiation. In
Procurement of Handyman 2001 the Housing Authority paid a handyman $45,897 for
Services miscellaneous jobs. This was almost as much as the combined
wages of two of the Authority’s maintenance employees. The
Housing Authority provided us with two bid sheets to show that
the procurement of handyman services complied with policies.
We believe that these procurement documents are also
questionable.
The first bid sheet shows that the Housing Authority sought bids
from three handymen in May 2001. The bid sheet showed that
two of the handymen contacted were not interested in doing
work for the Authority and the work was awarded to a
handyman used exclusively by the Authority. We contacted the
two handymen who were not interested in the work. One
handyman said that he used to do handyman work for another
apartment complex but has been out of the business for about
three years; he was sure that he had not been contacted by the
Authority in at least three years. The other handyman also told
us that he did not remember being contacted by the Authority
last year.
A second bid sheet showed that in June 2001 the Housing
Authority received bids for fence installation at an independent
program property. There were quotes from the same
handyman, the independent construction contractor previously
discussed, and a fence installation contractor. The bid of
$5,436 was awarded to the handyman.
The bid sheet showed a quote of $9,000 per job from the fence
installation contractor. We contacted the contractor and we
were informed that the Housing Authority never requested a
quote. The contractor keeps a log book of all calls and
documents all quotes. The contractor researched the log book
and found no calls from the Authority. The contractor also
informed us that they would never give a general quote like the
one described on the bid sheet. Furthermore, the contractor
drove by the property with the new fence and said that the price
paid for the work was excessive.
Page 15 2003-DE-1002
Finding 2
The Housing Authority has been providing various jobs to the
Questionable Payments to handyman in which the payments are questionable. We
Handyman identified $3,079 in questionable payments to the handyman. In
June 2000 the Housing Authority paid the handyman $1,000.
The only support for the payment was a handwritten piece of
paper showing that the payment was for consulting fees. As
previously discussed, the Authority paid the handyman $2,079
to inspect cabinets.
Procuring the services of a handyman appears to be
unnecessary since the services provided by the handyman could
have been performed by the Housing Authority’s staff, resulting
in a savings to project costs. The Housing Authority employs
three full-time maintenance staff to maintain only 111 units. In
addition, the Authority contracts with a groundskeeper and an
individual who cleans and paints vacant units. The Authority
could have used its staff to do the work assigned to the
handyman.
The Housing Authority did not obtain any bids for painting and
Procurement Policies Not cleaning services. The painting contractor received $4,825 for
Followed for Painting & services provided in 2001. The Housing Authority stated that
Cleaning Services we misinterpreted the policy and that purchases under $25,000
did not require competitive bids. However, upon further
examination the procurement policy clearly stated that
purchases and contracts from $500 to $25,000 require
competitive negotiation.
The Housing Authority has recently revised its procurement
policy. However, at the time of our review, the Board of
Directors had not reviewed or approved the updated policy.
We identified deficiencies with all procurement actions we
Summary reviewed, except one. The Housing Authority simply did not
follow procurement policies for the most part and circumvented
the requirements to procure services from favored contractors.
Although, the Housing Authority provided documents to show
that competitive bids were obtained we found the documents
questionable in two cases. Consequently, the Authority may
not have obtained services for a fair and reasonable price.
2003-DE-1002 Page 16
Finding 2
Auditee Comments The Authority generally agreed that there were deficiencies with
the procurement process and is taking steps to correct the
problem. However, the Authority believes that management
obtained valid bids for the kitchen cabinet renovation and the
handyman jobs.
The Authority also disagreed with our valuation of the kitchen
renovation work and provided two additional bids to support
the costs paid.
The Authority responded that the contractor did not perform
garbage disposal removal. Also, the Authority states that
installation of drainpipes, etc. is a result of constant maintenance
and modification since 1974 and does not believe that it can be
attributed to the work of the contractor.
The Authority believed that bathroom renovation work fell
within the 1998 CIAP grant and provided an attachment in
Exhibit D as verification.
The Authority took exception to the questionable payments to
the handyman from three transactions.
The Authority asserted that it solicited bids from six insurance
companies but only received a bid from two.
OIG Evaluation of The Authority maintains that the bids for the kitchen renovation
Auditee Comments and the handyman work are valid. We find these bids
questionable because we had allegations that there were
problems with these bids and we could not verify that the bid
documentation was legitimate. We could not verify the bid
documentation because the contact information was either
invalid or the parties denied giving quotes to the Authority.
Our cost estimate of the kitchen cabinet renovation is based on
the quantity and quality of materials actually installed by the
contractor. The kitchen cabinets and countertops are similar to
the actual purchase price from cabinet supply store and the
calculation of the labor wage for each trade was based on
hourly Davis Bacon Prevailing Wages in 2000 for the Delta
Page 17 2003-DE-1002
Finding 2
area. Additional adjustments of 33% are included in the labor
hour calculation to reflect the increase in labor hours due to the
degree of difficulty for the renovation. The contractor's 20%
overhead and profit calculation was also included in the cost
estimation.
The Authority provided two bids it solicited after the conclusion
of our audit. However, due to the lack of specifications the
OIG appraiser cannot evaluate these bids without the cost
breakdowns of the: 1) the quantity, quality and the type of the
materials; and 2) labor wages for each trade and labor hours
needed to complete the renovation. Also, the scope of work in
the proposals did not include the removal and replacement of
the drainpipes, supply pipes and stops.
It was our understanding that the garbage disposal removal was
done by the maintenance staff. This is a separate issue and
reference to it will be removed from the body of the finding.
We questioned the quality of the pipes and stops because the
contractor’s proposal showed that it was going to remove and
replace the drainpipes, supply pipes and stops. The cost of
which was included in our cost estimate. However, based on
your response it appears that the contractor did not replace all
of the pipes and stops.
Exhibit D of the Authority’s response shows a draft budget,
which includes bathroom renovations with the word delete next
to the amount. This line item was dropped from the final
budget. Regardless of whether the line item was included or
not, the bathroom renovation work was not included in any of
the request for proposals associated with the 1998 CIAP grant
and procurement policies were not followed when procuring the
services.
We agreed with the Authority that the transaction for lead
based paint training is an eligible expense and will remove it
from the amount cited in the finding. The other two transactions
however are questionable because the Authority lacked
adequate documentation to specifically show what services
were actually performed. As a result, we could not determine
whether these expenses were reasonable or necessary.
2003-DE-1002 Page 18
Finding 2
We agreed with the Authority’s response that it solicited bids
for insurance from at least three vendors and removed this
deficiency from the finding.
Recommendations We recommend that the Office of Public Housing:
2A. Require the Housing Authority to take necessary steps
to ensure that its Procurement Policy is being properly
implemented and documented.
2B. Once the action in recommendation 2A is implemented,
ascertain that the Housing Authority’s procurement
policy is being properly implemented and documented
and is in conformity with HUD requirements.
Page 19 2003-DE-1002
Finding 2
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2003-DE-1002 Page 20
Finding 3
Compliance with Occupancy and Administrative
Requirements Needs to Be Improved
Contrary to HUD requirements, the Housing Authority has not been properly and correctly
implementing its tenant occupancy and related administrative activities. More specifically, we noted: (1)
favoritism when selecting applicants off the waiting list; (2) excess Section 8 voucher payments and
administrative fees for Authority-owned units; (3) lack of independent agency to provide tenant rent
negotiations, rent reasonableness and Housing Quality Standards inspections for Authority-owned units
with Section 8 assistance; and (4) non-recording of tenant fees and deposits. These deficiencies
occurred because the Housing Authority either circumvented the requirements or was unfamiliar with the
requirements. Consequently: (1) applicants are not fairly selected for assistance; (2) the Authority
received excess funds it was not entitled when it continued to receive assistance for a vacant PHA-
owned unit and received excess Section 8 voucher administrative fees; (3) tenants of PHA-owned units
who receive Section 8 assistance may not be adequately protected from the Authority, which is both the
administrator of the Section 8 assistance and landlord; and (4) unrecorded funds can be used for
unallowable costs without the knowledge of outside parties.
These deficiencies point out the need for the Housing Authority to implement proper management
controls over its tenant admission and occupancy procedures and related administrative activities. To
do so will help the Housing Authority to ensure that its HUD funded housing programs are being
properly and correctly carried out in conformity with HUD requirements.
Under HUD requirements, the Housing Authority is obligated to
Housing Authority to Follow comply with certain regulations and procedures relating to its
Specific HUD Requirements tenant selection and occupancy activities. More specifically, the
Housing Authority is to select tenants in a prescribed order from
its tenant application waiting list. This is to be done to ensure
that applicants are uniformly and consistently selected for any
vacant Housing Authority dwelling unit. Under the Section 8
program, the Authority is to receive specific amounts for any
vacated units; and to collect a specified amount as
administrative fee for the administration of the Section 8 housing
program. Furthermore, the Housing Authority is to utilize an
independent agency to provide tenant rent negotiations, rent
reasonableness and Housing Quality Standards inspections for
those Authority-owned residents who are receiving Section 8
housing assistance. Monies received from the operation of its
housing programs are to be properly receipted and recorded on
Page 21 2003-DE-1002
Finding 3
the Authority’s official books of account and used for allowable
program costs.
However, we noted that the Housing Authority had not
established the proper management controls over its tenant
selection and related occupancy and management procedures.
Primarily, we found: (1) favoritism when selecting applicants off
the waiting list; (2) excess Section 8 voucher payments and
administrative fees for Authority-owned units; (3) lack of
independent agency to provide tenant rent negotiations, rent
reasonableness and Housing Quality Standards inspections for
Authority-owned units; and (4) non-recording of tenant fees
and deposits.
Title 24, Code of Federal Regulation (CFR), Section
Authority Is Required to
960.206(e)(1) and (2) pertains to public housing units and
Select Applicants Who
requires the Housing Authority to select applicants off the
Applied First for Public
waiting list by the date and time of application. The method for
Housing or Vouchers
selecting applicants must leave a clear audit trail. Title 24,
CFR, Section 982.204 (a) pertains to Section 8 vouchers and
requires the housing authority to select participants from the
waiting list in accordance with the Housing Authority’s
admission policies.
The Housing Authority’s admission policy states that applicants
shall be selected in order of date and time of the initial
application with consideration given to the regulations governing
income targeting as well as any adopted local preferences. The
Housing Authority told us that it has not adopted any local
preferences.
We received information that the Housing Authority was not
Favoritism In Selecting following its admission policy. To evaluate this, we reviewed
Public Housing Tenants the records relating to 27 public housing units that were filled in
2001. We compared the date of the move-ins with the public
housing waiting lists. We found that the information provided to
us had merit. We identified five applicants who were not
selected from the waiting list in order of the documented date
and time of initial application. One applicant received public
housing although their name was not on the waiting list and four
received preferential treatment when other applicants higher on
the waiting list were skipped. For example, in July 2001
2003-DE-1002 Page 22
Finding 3
nineteen applicants were skipped when awarding a 2-bedroom
family unit.
In addition to applicants receiving preferential treatment, we
found that the Housing Authority crossed 24 applicant’s names
off the public housing waiting list and transferred them to the
Section 8 voucher waiting list without sufficient written
justification. Many applicants are in desperate need for housing
so they sign up for both the public housing and Section 8
voucher waiting lists. Twenty applicants were crossed-off the
public housing wait list without justification but remained eligible
for the Section 8 wait list. Six applicants were removed from
the public housing wait list and immediately given Section 8
vouchers, four of which were not on the Section 8 wait list, one
skipped 78 applicants on the voucher wait list and the other
skipped 49. Nineteen of the 24 applicants crossed off the
public housing waiting list subsequently received a Section 8
voucher.
We also reviewed the Section 8 voucher waiting list. The
Favoritism In Selecting Housing Authority administers over 210 Section 8 vouchers.
Section 8 Voucher Tenants There were approximately 60 new Section 8 vouchers issued in
2001. Generally the Housing Authority followed the order on
the waiting list. However, fourteen applicants received
preferential treatment on the voucher waiting list. As previously
discussed, six public housing wait list applicants received
preferential treatment on the voucher wait list. We also
identified seven tenants of the Authority’s independent housing
program who received preferential treatment on the Section 8
waiting list. Furthermore, one voucher recipient was not on any
of the waiting lists.
The Housing Authority filled 13 independent program units
Tenants of Authority’s between January 2001 and February 2002, eleven of which
Independent Program also received Section 8 vouchers. As previously mentioned,
Received Preferential seven tenants of Authority-owned units received preferential
Treatment treatment on the voucher waiting list. One of the tenants was
not on the waiting list. Between 7 and 75 applicants were
skipped to house six of the tenants. The Housing Authority
holds mortgages on the independent program properties. It
appears that the Housing Authority is ensuring a steady stream
of cash flow to its independent housing program by giving
tenants Section 8 vouchers.
Page 23 2003-DE-1002
Finding 3
The Housing Authority used favoritism when selecting
applicants from the waiting list. This occurred because the
Housing Authority circumvented the waiting list requirements.
The Housing Authority needs to implement adequate
procedures to ensure its tenant selection and admission
requirements are followed, thereby, giving each tenant applicant
due process when Housing Authority dwelling units become
available.
We received an allegation that Section 8 voucher funds are paid
Allegation of Improper to the Housing Authority for vacant units of the Authority’s
Section 8 Voucher independent housing program. Information was provided that
Payments anytime a tenant with a Section 8 voucher vacated or was
evicted from a scattered site property, the Housing Authority
would continue to pay itself the subsidy until the unit was filled.
Typically this would not be more than two months.
We identified 12 tenants who moved out of Authority-owned
Excess Section 8 Voucher houses in 2001, ten of which had Section 8 vouchers. To
Payments determine the validity of the allegation, we selected five of these
cases for review. We found that the allegation had merit. In
one out of the five cases, the Housing Authority received a
Section 8 voucher payment it was not entitled. A tenant moved
out on June 30, 2001 and the Authority continued to process a
Section 8 voucher payment for the month of July 2001. The
excess payments totaled $219. The excess unauthorized
payment provided monies with which the Housing Authority
could meet its mortgage payment on the dwelling unit.
Per 24 CFR Part 982.352 the housing authority will not earn a
Additional Voucher preliminary administrative fee for authority-owned units, whose
Requirements for PHA- tenants are receiving Section 8 voucher assistance, and will
owned Units collect a reduced administrative fee for the unit. In addition, the
following conditions are to be met:
1. The authority must inform the family both orally and in
writing that the family has the right to select any eligible unit
available for lease and an authority-owned unit is freely
selected by the family, without pressure or steering;
2. That the unit is not ineligible; and
3. The housing authority must obtain the services of an
independent entity to perform the following functions: rent
2003-DE-1002 Page 24
Finding 3
reasonableness; assist the family to negotiate the rent to
owner and Housing Quality Standards inspections.
HUD must approve the independent agency that is selected.
The Housing Authority was receiving the full Section 8
Excess Section 8 administrative fee for vouchers belonging to tenants of its PHA-
Administrative Fees owned units. In order to estimate the average monthly excess
fees we reviewed the fees calculated in a current month. There
were 17 Section 8 voucher recipients living in Authority-owned
units in April 2002. For this month, we found that the Authority
charged Section 8 administrative fees of $60.28 for each of the
17 vouchers. The Housing Authority should have charged a
reduced fee of $25.08 per voucher. As a result, the Authority
calculated excess fees of $598 for these units in April 2002.
The Housing Authority also needs to obtain the services of an
Services of Independent independent entity: to perform rent reasonableness, assist the
Agency Needed family to negotiate the rent to the owner and to perform
Housing Quality Standards inspections. Housing Authority
management apprised us they were aware they were only
entitled to a reduced administrative fee but was not aware of the
other requirements. HUD needs to have the Housing Authority
research the excess Section 8 payments for administrative fees,
for an appropriate period of time, to determine how much the
Authority owes HUD. Also, HUD needs to approve an
independent agency selected by the Authority for overseeing the
Housing Authority’s independent owned units subsidized with
Section 8 vouchers.
While reviewing the Housing Authority’s internal controls we
Unrecorded Tenant Fees
identified over $700 of unrecorded funds. We performed a
cash count on April 4, 2002 and found a cash surplus of $250.
We also identified a bank account in the name of the Housing
Authority, called the employee benefit account, with $459 that
was also not recorded in the Authority’s accounting system.
Housing Authority staff told us that late fees were collected
from tenants and used to fund a Christmas party and buy gifts
for the staff. The fees are generally kept in cash in an envelope
with petty cash funds or deposited into the employee benefit
account. The use of such funds to pay for staff parties and gifts
Page 25 2003-DE-1002
Finding 3
is an unallowable activity under OMB Circular A-87,
Attachment B, Section 18. This section states:
“Costs of entertainment, including amusement,
diversion, and social activities and any costs directly
associated with such costs are unallowable.“
The Housing Authority told us that late fees are never recorded
in the Authority’s accounting system. The process followed by
the Authority was to give the tenant a handwritten receipt for
the late fee payment if the tenant asked for one, but a copy was
not kept. The only place the fees may be documented is on the
tenant ledger cards. We verified this by scanning the tenant
ledger cards and identifying a tenant who paid late fees in
January and May 2001 totaling $60. The late fees were not
recorded in the Authority’s official accounting system.
We also noted an envelope in the cash drawer called “hose
fund”. The Housing Authority allows tenants to borrow a
garden hose to water their lawns if they leave a $5 deposit. The
unrecorded cash most likely consists of the late fees and hose
deposits.
The Housing Authority needs to establish procedures that late
fees and any other monies received such as hose deposits are
promptly receipted and deposited into the Authority’s bank
accounts. In addition, the collections need to be properly
recorded in the Authority’s books of accounts. By failing to do
so, the Authority significantly reduces its controls over such fees
and collections and is unable to ensure that such funds are used
for allowable housing program activities.
These deficiencies point out the need for the Housing Authority
Adequate Management to implement proper management controls over its tenant
Controls are Needed admission and occupancy procedures by: fairly selecting
applicants for assistance, properly assessing Section 8
administrative fees over its independent housing program;
acquiring an independent agency to oversee tenant rent
negotiations, rent reasonableness and Housing Quality
Standards inspections; and ensuring to receipt and record all
miscellaneous fees and collections on its books of accounts. To
do so will help the Housing Authority to ensure that its HUD
2003-DE-1002 Page 26
Finding 3
funded housing programs are being properly and correctly
carried out in conformity with HUD requirements.
Auditee Comments The Authority generally disagreed with the finding.
The Authority did not recall advising us that it had not adopted
local preferences, asserting that it adopted local preferences for
selecting applicants from the waiting lists in 1999.
The Authority provided explanations for the selection of
applicants that we cited were not fairly selected for assistance.
The Authority disagreed with our example where five applicants
were skipped when awarding a 3-bedroom unit.
The Authority also disagreed with the amount of the excess
Section 8 payments received for a vacant unit.
The Authority responded that the number of residents in PHA-
owned units who received Section 8 assistance in April 2002
was 17 rather than 18. Also, the Authority disagreed with the
overcharge for excess Section 8 Administrative fees stating that
the overcharge was about $110.
OIG Evaluation of Our conclusions are based on the information provided to us by
Auditee Comments management and our review of the records. When we asked
management whether the Authority used any preferences we
were told that it didn't use local preferences. In Exhibit F of the
Authority’s response is a copy of the Board resolution whereby
local preferences were adopted on June 10, 2002. This
resolution occurred after our exit conference and would not
apply to the cases we reviewed. Furthermore, the records we
reviewed did not contain any documentation showing that a
local preference was requested by the tenant or was equitably
applied by the Authority. It appears that this policy was
adopted after the fact to justify the practice of favoritism we
observed.
Page 27 2003-DE-1002
Finding 3
The Authority did not provide any documentation to support its
justification for the selection of applicants that we cited received
favorable treatment.
We confirmed that an applicant on the three-bedroom waiting
list was awarded a four-bedroom unit and there were no other
applicants on the four-bedroom waiting list. We modified our
example and changed the body of the finding to exclude this
applicant.
The Authority stated that the excess Section 8 voucher
payments for the vacant unit was less than the amount cited in
the report. HUD confirmed that the Authority performed a
move-out inspection of the unit on June 30, 2001. Therefore
we amended the finding to show one month of excess payments
instead of two.
We confirmed that there were only 17 tenants residing in PHA-
owned units who received Section 8. The report will be
changed to reflect the correct number of vouchers and the
excess fees. Although the April 2002 voucher was not
submitted until after our audit we used it merely to provide an
example of the monthly overcharges that have been occurring
since the Authority began giving Section 8 vouchers to tenants
of PHA-owned units. We revised the paragraph to show this is
an estimate. The Authority did not provide a basis for their
calculation of the excess Section 8 Administrative fees when it
derived $110.80. We consulted with HUD and were advised
that our methodology for calculating the excess fees was
correct.
Recommendations We recommend the Office of Public Housing:
3A. Require the Housing Authority to establish a system to
ensure that applicants are fairly selected from waiting
lists that are maintained in order of date and time of
application and require the Authority to maintain
documentation to support the selection of applicants.
3B. Review Section 8 payments and Section 8
administrative fees paid for Authority-owned units, for
2003-DE-1002 Page 28
Finding 3
the last thirty-six month period of time, and recover
monies collected by the Authority that it was not
entitled.
3C. Approve an independent agency selected by the
Housing Authority to perform rent reasonableness and
Housing Quality Standards inspections, and assist
tenants to negotiate rent for Authority-owned units
whose tenants receive Section 8 assistance.
3D. Require the Housing Authority to record all tenant fees
and deposits in the accounting system and to deposit
any unused tenant fees and deposits into the
appropriate project account.
3E. Monitor the Housing Authority as appropriate to ensure
that the Authority complies with occupancy and
administrative requirements.
Page 29 2003-DE-1002
Finding 3
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Management Controls
In planning and performing our audit, we considered the management controls of the Delta Housing
Authority to determine our auditing procedures, not to provide assurance on the controls. Management
controls include the plan of organization, methods, and procedures adopted by management to ensure
that its goals are met. Management controls include the processes for planning, 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
• Program Operations – Policies and procedures that
management has implemented to reasonably ensure that a
program meet its objectives.
• Validity and Reliability of Data – Policies and procedures
that management has implemented to reasonably ensure that
valid and reliable data are obtained, maintained, and fairly
disclosed in reports.
• Safeguarding Resources – Policies and procedures that
management has implemented to reasonably ensure that
resources are safeguarded against waste, loss and misuse.
We assessed the relevant controls identified above.
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.
Based on our review, we believe the following items are
Significant Weaknesses significant weaknesses:
• Program Operations
Generally, the Housing Authority had adequate controls to
ensure that the Authority operated its public housing
according to program requirements. Even though, the
Authority had adequate policies and procedures, they were
Page 31 2003-DE-1002
Management Controls
sometimes subject to management override. For example,
management circumvented the waiting list requirements
resulting in favoritism when selecting applicants for
subsidized housing assistance.
• Validity and Reliability of Data
The Authority’s controls did not ensure that the data it
maintained was valid and reliable. The Housing Authority
needs to ensure that all direct costs are charged to the
correct program and indirect costs are identified and
allocated in accordance with an approved cost allocation
plan. The Authority also needs to track the actual amount
of time spent on each program by the maintenance staff to
support the salary costs. Furthermore, the Housing
Authority needs to perform an inventory count to verify the
quantities of recorded equipment and materials.
• Safeguarding Resources
The Housing Authority lacked adequate checks and
balances to safeguard its resources. Management’s
circumvention of polices and procedures resulted in waste,
loss and misuse. Management misused over $100,000 of
HUD funds when it used them to support its independent
housing program. In addition, due to an inadequate cost
allocation plan and the failure to charge the maintenance
staff’s actual time to each program, HUD funds are
subsidizing non-HUD programs.
Management circumvented procurement policies and
procedures to procure the services of select contractors
and individuals. In one case, the Authority paid a
contractor at least $54,000 above the reasonable cost. The
Authority also made questionable payments of $3,079 to a
handyman.
Management violated administrative requirements when it
authorized the payment of Section 8 subsidies for a vacant
Authority-owned unit. The Authority also charged HUD
excess administrative fees for Section 8 voucher payments
received for Authority-owned units. Finally, management
diverted tenant fees and deposits, keeping them off of the
2003-DE-1002 Page 32
Management Controls
Authority’s official books of account and by doing so, used
the monies for unauthorized program expenses.
These weaknesses are more fully described in the findings
section of this report.
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Management Controls
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Follow Up On Prior Audits
This is the first audit of the Delta Housing Authority by the Office of Inspector General.
Page 35 2003-DE-1002
Follow Up On Prior Audits
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Appendix A
Schedule of Questioned Costs
Finding Type of Questioned Cost
Number Ineligible 1/2/
1 $101,233
1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity that
the auditor believes are not allowable by law, contract or Federal, State or local policies or
regulations.
2/ Subsequent to our site work HUD confirmed that the Authority repaid questioned costs of
$101,233.
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Appendix A
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Appendix B
Auditee Comments
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix C
Distribution Outside of HUD
Chairman, Committee on Governmental Affairs, 340 Dirksen Senate Office Building,
United States, Senate, Washington, DC 20510
Ranking Member, Committee on Governmental 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
Subcommittee on Oversight and Investigations, Room 212 O’Neil House Office Building
Washington, DC 20515
Director, Housing and Community Development Issue Area, United States General Accounting
Office, 441 G Street NW, Room 2474, Washington DC 20548
Deputy Staff Director, Counsel, Subcommittee on Criminal Justice, Drug Policy & Human
Resources, B373 Rayburn House Office Building, Washington, DC 20515
Chief, Housing Branch, Office of Management & Budget, 725 17th Street, NW, Room 9226,
New Executive Office Building, Washington, DC 20503
Page 51 2003-DE-1002
Delta Housing Authority Delta, Colorado Low-Rent Housing and Section 8 Housing Assistance Payments
Published by the Department of Housing and Urban Development, Office of Inspector General on 2002-10-07.
Below is a raw (and likely hideous) rendition of the original report. (PDF)