AUDIT REPORT
HOUSING AUTHORITY OF THE
CITY OF NORTHPORT
NORTHPORT, ALABAMA
2004-AT-1009
MAY 20, 2004
OFFICE OF AUDIT, REGION 4
ATLANTA, GEORGIA
Issue Date
May 20, 2004
Audit Case Number
2004-AT-1009
TO: R. Edmond Sprayberry, Director, Office of Public Housing, 4CPH
FROM: James D. McKay
Regional Inspector General for Audit, 4AGA
SUBJECT: Housing Authority of the City of Northport
Northport, Alabama
We have completed a review of the Housing Authority of the City of Northport’s (Authority)
administration of housing development activities with its related entities, Northport Housing
Limited (NHL) and Northport Housing Limited II (NHII). The review focused on the
Authority’s development of Hampton Point and Grand View Apartments, private housing
developments. We performed the review as part of our audit of the Department of Housing and
Urban Development’s (HUD) oversight of Public Housing Agency (PHA) development
activities with related non-profit entities. Our primary objective was to determine whether the
Authority diverted or pledged resources subject to an Annual Contributions Contract (ACC) or
other agreement or regulation to the benefit of other entities without specific HUD approval.
Our report includes two findings.
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 or Sonya D. Lucas, Assistant
Regional Inspector General for Audit at (404) 331-3369.
Management Memorandum
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2004-AT-1009 Page ii
Executive Summary
We have completed a review of the Housing Authority of the City of Northport’s administration of
housing development activities with its related entities, NHL and NHII. The review focused on the
Authority’s development of Hampton Point and Grand View Apartments, private housing
developments. We performed the review as part of our audit of HUD’s oversight of PHA
development activities with related non-profit entities. Our primary objective was to determine
whether the Authority diverted or pledged resources subject to an ACC or other agreement or
regulation to the benefit of other entities without specific HUD approval.
Our assessment showed that the Authority improperly advanced public housing funds for a non-
Federal development, and inappropriately guaranteed performance for its tax credit properties.
The Authority violated its ACC by advancing $434,735 of
The Authority violated public housing funds for a non-Federal development.
HUD program Subsequent repayments of $375,000 left $59,735 due to the
requirements Authority. However, HUD should recapture $78,334 of the
$375,000 repayments. Additionally, the Authority did not
allocate costs, including salaries and rental space,
attributable to non-profit activities. The Authority
advances were for up-front funding for a private
development, until tax credits were received. The
Executive Director (ED) said he advanced the funds based
on verbal approval from prior HUD management. Further,
Authority management instructed staff to perform certain
tasks for its tax credit properties, without full knowledge of
HUD rules for such activities. As a result, $434,735 of
ineligible advances reduced funds for its Low Rent
Housing and Capital Fund Programs. Also, tax credit
development costs were understated because the Authority
did not charge any direct or indirect costs to its
development activities.
In violation of its ACC, the Authority inappropriately
guaranteed performance for both of its tax credit properties.
The Authority's ED signed guaranty agreements and loan
obligations, without HUD approval. The ED also signed
other documents that included inappropriate guarantees by
the Authority as a guarantor or key principal. These
actions occurred because the ED stated the tax credit
attorneys and building consultant had assured him that the
guarantees did not physically encumber the Authority.
Additionally, the ED acknowledged that he did not read
each document, but totally relied on legal counsel because
of the massive paperwork involved. Further, the ED
Page iii 2004-AT-1009
Executive Summary
violated the ACC's conflict of interest provision by
functioning as the Authority's ED while serving as
President of both General Partnerships. The ED stated he
was not aware he had violated any requirements,
particularly since HUD had approved a conflict of interest
waiver for the Section 8 Program. These actions could
result in the Authority assuming liabilities for non-Federal
activities and conflicts of interest, which could unjustly
enrich private developments at the Authority's expense.
We recommend you require the Authority to: (1) obtain
Recommendations repayment from NHL of the $59,735 balance owed from
the $434,735 advanced; (2) ensure that no further
advances/expenditures of HUD funds are made on behalf
of non-HUD entities, without prior HUD approval;
(3) recapture $78,334 of the repayment; (4) ensure
reasonable allocations of salaries and other costs, such as
use of office space and equipment, and reimburse the
Authority any ineligible costs attributable to any non-HUD
entity; (5) pursue terminating inequitable guarantees;
(6) obtain HUD’s approval prior to any future encumbrance
of Authority assets; and, (7) establish adequate controls to
monitor the Authority’s interactions with its non-profit and
limited partnerships and ensure transactions comply with
the ACC, particularly as it relates to conflict of interest
situations.
Auditee comments We presented our results to the Authority and HUD
officials during our review. We provided a copy of the
draft report to the Authority and HUD’s Alabama State
Office on April 6, 2004, for their comments. We discussed
the report with the officials at the exit conference on April
15, 2004. The Authority provided written comments to our
draft on April 15, 2004. The Authority’s comments are
summarized in the findings and included in their entirety as
Appendix B.
2004-AT-1009 Page iv
Table of Contents
Management Memorandum i
Executive Summary iii
Introduction 1
Findings
1. The Authority Improperly Advanced Funds 3
2. The Authority Inappropriately Guaranteed Performance 9
Management Controls 15
Follow Up On Prior Audits 17
Appendices
A. Schedule of Questioned Costs and Funds Put to Better Use 19
B. Auditee Comments 21
Page v 2004-AT-1009
Table of Contents
Abbreviations
ACC Annual Contributions Contract
ED Executive Director
HUD U.S. Department of Housing and Urban Development
NHL Northport Housing Limited
NHII Northport Housing Limited II
PHA Public Housing Authority
WAAHC West Alabama Affordable Housing Corporation
2004-AT-1009 Page vi
Introduction
The Housing Authority of the City of Northport was organized pursuant to the Housing Act of 1937
and the laws of the State of Alabama. Its primary objective is to provide low-income housing to the
citizens of Northport, Alabama and surrounding areas in compliance with its ACC with HUD.
A five-member Board of Commissioners governed the Authority with members appointed by the
Mayor of the City of Northport. The Board is responsible for signing contracts, hiring personnel,
setting income limits, and approving budgets. Jim Handley is the Board Chairman and
Milo Pearson is the Executive Director.
The Authority’s major program activities included administering 330 Conventional units, 393
Rental Voucher units, 28 Section 8 Moderate Rehabilitation units, and 25 Section 8 Rental
Certificate units. HUD’s Alabama State Office in Birmingham, Alabama, Office of Public
Housing is responsible for overseeing the Authority.
On July 2, 1996, the Authority created West Alabama Affordable Housing Corporation
(WAAHC), a non-profit organization, to provide safe, decent, sanitary, and affordable housing,
to very low to moderate-income groups. From the WAAHC, the Authority created two limited
partnerships, NHL and NHII, to purchase and develop 60 and 72-unit properties known as
Hampton Point and Grand View Apartments, respectively. The new units would be financed
with private loans and capital contributions from John Hancock, invested limited partner, for tax
credits. To date, Hampton Point is completed and fully occupied, with Grand View to be
completed by Summer 2004.
The Authority’s financial records are maintained primarily at its office located at
3500 West Circle #39, Northport, Alabama.
Our primary objective was to determine whether the
Audit Objectives Authority diverted or pledged resources subject to an ACC
or other agreement or regulation to the benefit of other
entities without specific HUD approval.
To accomplish the objective, we reviewed applicable HUD
Audit Scope and requirements and regulations, the Authority’s ACC
Methodology (executed October 27, 1995), and other requirements. We
interviewed the Alabama State Office of Public Housing
Program officials, and Authority management and staff.
We reviewed various documents including: financial
statements, general ledgers, bank statements, minutes from
Board meetings, check vouchers, and invoices. We also
reviewed NHL and NHII records, including applicable
incorporation and partnership documents, bank statements,
Page 1 2004-AT-1009
Introduction
and Board minutes. In addition, we obtained an
understanding of the Authority’s accounting system as it
related to our review objective.
We performed our on-site review from November 17, 2003
through February 12, 2004, and covered the period
July 1, 1999 to June 30, 2003. We extended the period as
necessary. We performed our review in accordance with
generally accepted government auditing standards.
2004-AT-1009 Page 2
Finding 1
The Authority Improperly Advanced Funds
The Authority violated its ACC by advancing $434,735 of public housing funds for a non-
Federal development. Subsequent repayments of $375,000 left $59,735 due to the Authority.
However, HUD should recapture $78,334 of the $375,000 repayments. Additionally, the
Authority did not allocate costs, including salaries and rental space, attributable to non-profit
activities. The Authority advances were for up-front funding for a private development, until tax
credits were received. The ED said he advanced the funds based on verbal approval from prior
HUD management. Further, Authority management instructed staff to perform certain tasks for
its tax credit properties, without full knowledge of HUD rules for such activities. As a result,
$434,735 of ineligible advances reduced funds for its Low Rent Housing and Capital Fund
programs. Also, tax credit development costs were understated because the Authority did not
charge any direct or indirect costs to its development activities.
Section 9, Depository Agreement and General Fund, of the
HUD requirements ACC states that the Authority may withdraw funds from
the General Fund only for: (1) payment of the costs of
development and operation of the projects under the ACC
with HUD; (2) purchase of investment securities as
approved by HUD; and (3) such other purposes as may be
specifically approved by HUD.
Public and Indian Housing Notice 2000-43, Section D (2),
states that eligible PHAs may expend Capital Fund
Program funds by reporting the funding amount on Budget
Line Item 1406 in the Annual Statement, Part I, and
drawing the funds down for operating expenses. Amounts
allocated by PHAs to Budget Line Item 1406 must only be
used for non-capital operating expenses.
The ACC, Section 2, Definitions, defines operating
expenses as all costs incurred by the PHA for
administration, maintenance, and other costs and charges
that are necessary for the operation of its HUD project(s).
Operating expenses shall not include any cost incurred as
part of the development or modernization costs, or payment
of principal and interest of bonds and notes. Section 11 (D)
states the PHA shall not incur any operating expenditures
except pursuant to an approved budget.
Page 3 2004-AT-1009
Finding 1
The Office of Management and Budget Circular A-87
establishes principles and standards for determining costs
for Federal awards carried out through grants, cost
reimbursement contracts, and other agreements with State
and local governments and federally-recognized Indian
tribal governments. Costs must be allocable to the Federal
award. A cost is allocable to a particular cost objective if
the goods or services involved are chargeable or assignable
to such cost objective in accordance with relative benefits
received.
The Authority improperly advanced $434,735 of public
The Authority improperly
housing program funds for non-Federal activities. Of this
advanced $434,735
amount, $277,179 was from its operating subsidy and
$157,556 from its Capital Fund program. The advances
covered expenses incurred for the non-profit activities,
including application fees, until tax credits were received.
The Authority received repayments totaling $375,000,
therefore $59,735 remains due to the Authority.
The ED stated that the public housing funds were advanced
based on verbal approval from HUD’s Alabama State Office
prior Director of Public Housing. The ED stated that their
Section 8 Administrative and Public Housing reserves were
consistently significant, which was the basis for the verbal
approval. Further, the ED stated that the Authority was
verbally informed that:
funds could be advanced from various HUD programs,
including operating subsidy and Capital Funds, with an
executed note that such funds would be repaid.
the Section 8 Administrative reserve funds could be
advanced without repayment, since the Authority
earned these fees from administering the Section 8
Program.
In a May 8, 2003, letter, HUD granted the Authority
approval to advance Section 8 Administrative reserve funds
for other housing development activities, relating to NHII.
However, the $434,735 was advanced from February 2002
to May 2002 for NHL. Further, the funds advanced to
NHL were from other HUD program funds and not its
Section 8 Administrative reserves.
2004-AT-1009 Page 4
Finding 1
HUD officials stated they would not have approved a
request to pay tax credit project costs, since it was not
covered under the ACC. Without approval, the Authority
should have either obtained funds from other sources or
advanced funds from its Section 8 Administrative reserves,
as approved by HUD. As a result, the Authority
improperly advanced $434,735 from its Low Rent Housing
and Capital Fund Programs.
Although the Authority received repayments of $375,000,
HUD should recapture
HUD should recapture $78,334 of the funds. The $78,334
$78,334
was originally advances from Budget Line Item 1406,
Operations, of the Authority’s fiscal year 2000 Capital
Fund programs. Subsequently, HUD recaptured 2000
fiscal year funding due to the Authority not obligating
Capital Funds within the required two-year period.
HUD officials stated that funds passed through Budget
Line Item 1406 lose their identity and can be utilized for
any operation expenses relating to HUD programs.
However, the Authority redirected these funds to its related
entity without HUD’s approval. HUD’s Acting Director of
Public Housing, at that time, stated they would not have
approved a request to advance Capital Funds to Hampton
Point (non-Federal project) since it was not covered under
the ACC or noted as an eligible expense. Therefore, since
HUD recaptured the Capital Funds, which should have
included the budgeted $78,334, this amount should also be
recaptured.
According to the ED, the Authority did not allocate costs,
The Authority did not including salaries, to the non-profit or other related entities.
properly allocate costs However, the ED and Authority's staff performed work for
the entities. Further, non-profit operations were conducted
from the Authority's office. The ED did not fully
understand HUD rules regarding work performed for the
non-profit had to be allocated to that activity. Certain staff
members performed work on behalf of the tax credit
properties, as instructed by ED. HUD provided
correspondence that confirmed cost allocation was needed
for its tax credit activities.
Page 5 2004-AT-1009
Finding 1
In addition, the Supplemental Management Agreements, as
noted in its Limited Partnership Agreements, required the
Authority to materially participate in management
responsibilities, which included utilizing Authority staff
resources for non-subsidized activities up to 500 hours. As
a result, the tax credit development costs were understated
because the Authority did not charge any direct or indirect
costs to its development activity.
Auditee Comments Excerpts from the Authority’s written comments on our
draft finding follow. The complete text is included as
Appendix B.
"$434,735 of public housing funds were advanced to the
nonprofit for the develop [sic] Hampton Point and Grand
View Apartments until tax credits were
received....Unfortunately, costs associated with the non-
profit activities were not allocated. $375,000 has been
repaid by the non-profit to the Authority, leaving $59,735
due.
"We respectfully disagree concerning the finding that
$157,556 is due to be repaid to HUD. CFP 2001 was not
recaptured by HUD, therefore, the $79,222.00 in account
1406 was not subject to recapture and should not have to be
repaid. However, HUD did recapture CFP 2000 because
we failed to obligate on time. HUD only recaptured the
funds in CFP 2000 that were not obligated.
“The $78,334.00 in account 1406 was not recaptured
because it was obligated and drawn down on time.
Therefore, it should not have to be repaid.
"As it is our goal to maintain a solid and cohesive
relationship with the Department, this Authority will
comply with all recommendations of the Office of
Inspector General…”
OIG Evaluation of We agree that HUD did not recapture the 2001 Capital
Funds. Therefore, we adjusted the finding and reduced the
Auditee Comments recommended amount to be recaptured to $78,344.
2004-AT-1009 Page 6
Finding 1
However, the Authority's proposal that the $78,334 should
not be repaid is incorrect. The use of the funds violated its
Capital fund grant agreement. Capital funds budgeted in
line item 1406 must be used for operating expenses for
HUD programs rather than advancing the funds to cover
nonprofit expenses. Although the funds were expended
prior to recapture, its usage was noncompliant with those
expenses noted as eligible HUD operating expenses.
Therefore, HUD should recapture the $78,334 as
recommended.
We believe the Authority's actions will strengthen controls
over expenditures and cost allocations. However, HUD
should ensure reimbursement of ineligible costs is pursued
from NHL and Authority.
Recommendations We recommend that the Director of the Office of Public
Housing:
1A. Require the Authority to obtain repayment from NHL
for the $59,735 balance owed from the $434,735
advanced.
1B. Ensure that no further advances/expenditures of HUD
funds are made on behalf of non-HUD entities,
without prior HUD approval.
1C. Recapture $78,334 of the repayment of Capital
Funds (this amount is included in the $434,735
advance).
1D. Require the Authority to allocate the salaries and
other costs, such as use of office space and
equipment, attributable to any non-HUD entity and
reimburse the Authority all ineligible costs.
Page 7 2004-AT-1009
Finding 1
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2004-AT-1009 Page 8
Finding 2
The Authority Inappropriately Guaranteed
Performance
In violation of its ACC, the Authority inappropriately guaranteed performance for both of its tax
credit properties. The Authority's ED signed guaranty agreements and loan obligations, without
HUD approval. The ED also signed other documents that included inappropriate guarantees by
the Authority as a guarantor or key principal. These actions occurred because the ED stated the
tax credit attorneys and building consultant had assured him that the guarantees did not
physically encumber the Authority. Additionally, the ED acknowledged that he did not read
each document, but totally relied on legal counsel because of the massive paperwork involved.
Further, the ED violated the ACC's conflict of interest provision by functioning as the
Authority's ED while serving as President of both General Partnerships. The ED stated he was
not aware he had violated any requirements, particularly since HUD had approved a conflict of
interest waiver for the Section 8 Program. These actions could result in the Authority assuming
liabilities for non-Federal activities and conflicts of interest, which could unjustly enrich private
developments at the Authority's expense.
Part A, Section 7 of the ACC, Covenant Against
HUD requirements Disposition and Encumbrances, states in part, with the
exception of entering into dwelling leases with eligible
families for dwelling units in the projects covered by this
ACC, and normal uses associated with the operation of the
project(s), the housing authority shall not in any way
encumber any such project, or portion thereof, without the
prior approval of HUD. In addition, the housing authority
shall not pledge, as collateral for a loan, the assets of any
project covered under this ACC.
Part A, Section 19 of the ACC, Conflict of Interest,
prohibits the Authority from entering into any contract or
arrangement in connection with any project under the ACC
in which any Authority employee who formulates policy or
who influences decisions with respect to the project(s), has
an interest, direct and indirect, during his tenure or for one
year thereafter.
The Authority created WAAHC as a non-profit corporation
Background to provide safe, decent, sanitary, affordable housing to very
low, low, and moderate-income residents and to prevent the
spread of slum conditions. To fulfill this purpose, the non-
profit was to raise necessary funding to finance housing
Page 9 2004-AT-1009
Finding 2
construction and/or redevelopment, and could own,
manage, or operate housing on its own behalf or on behalf
of others whose housing promoted the corporation's
purposes. The Authority created two limited partnerships,
NHL and NHII, through the non-profit. The partnerships
purchased and developed properties known as Hampton
Point Apartments and Grand View Apartments,
respectively. For-profit entities Port Development
Corporation (WAAHC's subsidiary) and Northport
Affordable Housing Corporation (Authority's subsidiary)
were the eventual Co-General Partners for both limited
partnerships. The Authority's Executive Director served as
the President of both General Partnerships. The Developer
was WDM L.L.C. and Bob Morrow Construction Company
was the Builder for both properties.
The Authority signed as a guarantor for the Guaranty
Guaranty Agreements
Agreements dated May 21, 2002, for NHL and
May 15, 2003, for NHII. Each Agreement was part of the
respective Partnership Agreement between the Co-General
Partners and applicable John Hancock companies, as
limited partner(s). Section H of each Agreement's Recitals
Section states, in part, the Guarantors expect to receive
substantial economic benefits as a result of the construction
and development of the property and the admission of the
Limited Partners to the Partnership. Section H further
states that:
The guarantors hereby unconditionally and irrevocably
jointly and severally guarantee to the Limited Partners,
to the extent not paid or performed by the General
Partner, the Developer, or the Builder, as the case may
be, the punctual payment when due, and at all times
thereafter, of each and every obligation of the General
Partner to make any payment or advance any funds
under the terms and conditions of the Partnership
Agreement. The guarantee also required the Authority
to cover the General Partner’s obligation to advance
operating deficit loans and other funds pursuant to the
Partnership Agreement.
The guarantors additionally hereby unconditionally and
irrevocably jointly and severally guarantee to the
Limited Partners, the due and punctual performance of
all obligations of the General Partner, the Developer,
and the Builder pursuant to the terms of the Partnership
2004-AT-1009 Page 10
Finding 2
Agreement, the Development Agreement, and the
Construction Contract, including, without limitation,
the Developer’s and the Builder’s obligations to cause
the completion of the construction of the Property.
The Guarantors agree to: (i) assume all responsibility
for the completion of the construction of the Property
and, at the Guarantors’ own cost and expense, to cause
the construction of the Property to be fully completed in
accordance with the Construction Documents, the
Partnership Agreement and the Development
Agreement, (ii) pay all bills in connection with the
construction of the Property, and (iii) indemnify and
hold harmless the Limited Partners from any and all
Adverse Consequences that the Limited Partners may
suffer by reason of any such non-compliance by the
General Partner, the Developer, or the Builder.
Other document The Authority also was a guarantor/key principal for five
guarantees other documents regarding NHL, and as one of three
guarantors for the First Amended and Restated Limited
Partnership Agreement, dated May 15, 2003, for NHII, as
follows:
Loan Commitment Letter from Regions Bank, dated
September 17, 2001, included the Authority as one of
two guarantors for a $5,657,700 loan commitment.
First Amended and Restated Limited Partnership
Agreement, dated May 21, 2002, showed the Authority
as one of three guarantors.
Permanent Loan Commitment Letter, dated
April 1, 2002, showed the Authority as one of two key
principals. The key principals were jointly and
severally liable for the outstanding indebtedness,
including without limitation principal, interest, and
other amounts due and owed from the Borrower (NHL)
under the proposed Mortgage Loan.
Construction and Term Loan Agreement, dated
May 22, 2002, showed the Authority as one of four
guarantors.
Page 11 2004-AT-1009
Finding 2
Regions Bank Promissory Note, dated May 22, 2002,
included the Authority as one of five guarantors for a
$1,623,500 Note.
The Guaranty states, in part, that the Authority absolutely
and unconditionally guarantees and promises to pay to
Regions Bank or its order, the indebtedness of NHL. The
guarantor's liability is unlimited and the obligations of the
guarantor are continuing. The indebtedness guaranteed by
this Guaranty, includes any and all of the Borrower's
(NHL) indebtedness to Lender and is used in the most
comprehensive sense and means and includes any and all of
the Borrower's liabilities, obligations, and debts to the
Lender, now existing or hereinafter incurred or created.
The Guaranty was executed at the Borrower's request, not
the Lender's.
The ED stated he had been assured by the tax credit
attorneys and building consultant that the guarantees did
not physically encumber the Authority. Additionally, the
ED acknowledged that he had not read each document, but
totally relied on legal counsel because of the massive
paperwork involved.
We did not locate any written HUD approval for these
actions. As a result, these actions could result in the
Authority assuming liabilities for non-Federal activities
that enrich private developments at the Authority’s
expense.
Conflict of interest The ED violated the ACC conflict of interest restrictions by
serving in dual capacities for both the Authority and the
two limited partnerships. The signing of the Guaranty
Agreements as a guarantor or key principal placed
Authority assets at risk to the benefit of the limited
partner(s). When signing the documents, the Authority's
ED was also the President of both limited partnerships.
The ED stated he was not aware he had violated any
requirements, particularly since HUD had approved a
conflict of interest waiver for the Section 8 Program.
However, the Section 8 waiver did not apply to the other
HUD programs.
2004-AT-1009 Page 12
Finding 2
Auditee Comments Excerpts from the Authority’s written comments on our
draft finding follow. The complete text is included as
Appendix B.
"Relative to item 2A however, the Authority requests
forgiveness of inappropriately guaranteed performances.
The present circumstances, relative to the completion of the
projects in question, make it extremely difficult, if not
impossible, to terminate the guarantees.
“Although we agree that mistakes have been made, we take
comfort in knowing that your findings are based on our
mistakes, and not fraudulent or deceitful conduct.
“This Authority, and its governing Board, is committed to
all necessary actions to correct those mistakes.
OIG Evaluation of The Authority presented a willingness to work with HUD
Auditee Comments to resolve the deficiencies, and ensure its non-profit
activities are properly monitored and adhere to HUD
regulations. However, the Authority must attempt to seek
removal of inequitable guarantees or demonstrate legal
actions if such arrangements are not removed. The
potential risk to Authority assets for assuming liability for
non-Federal activities could reduce needed resources for its
HUD programs and ultimately, its residents. If such
attempts are not achieved, HUD should require the
Authority to appropriately document its inability to
dissolve the guarantees and continually monitor the
projects.
Recommendations We recommend the Director of the Office of Public Housing:
2A. Require the Authority to pursue terminating
inequitable guarantees.
2B. Require the Authority to obtain HUD’s approval
prior to any future encumbrance of Authority assets.
Page 13 2004-AT-1009
Finding 2
2C. Require the Authority to establish adequate controls
to monitor Authority interactions with its non-profit
and related entities and ensure transactions comply
with the ACC, particularly as it relates to conflict of
interest situations.
2004-AT-1009 Page 14
Management 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 objective:
Controls
• 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.
To assess the relevant controls, we:
• Reviewed the laws and regulations governing the
program;
• Interviewed HUD officials and Authority staff;
• Reviewed general ledgers, bank statements, and Board
minutes;
• Reviewed available non-profit records, including
general ledgers, bank statements, and bank loan
documents; and
• Analyzed reports from the independent public
accountant.
A significant weakness exists if management controls do
not give reasonable assurance that resource use is
consistent with laws, regulations, and policies; that
resources are safeguarded against waste, loss, and misuse;
and that reliable data are obtained, maintained, and fairly
disclosed in reports.
Page 15 2004-AT-1009
Management Controls
Based on our review, we identified significant weaknesses in
the above management controls. See Findings 1 and 2.
2004-AT-1009 Page 16
Follow-Up On Prior Audits
This is the first Office of Inspector General audit of the Housing Authority of the City of
Northport.
LeCroy, Hunter, & Company, Certified Public Accountants, completed the most recent audit of
the Authority’s financial statements for the 12-month period ended June 30, 2002. The report
did not contain any findings. However, a Note to the financial statements indicated the
Authority advanced $430,000 to Northport Housing Limited, with $311,000 repaid. The balance
of $119,000 was an accounts receivable-miscellaneous to the Authority.
Page 17 2004-AT-1009
Follow-Up On Prior Audits
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2004-AT-1009 Page 18
Appendix A
Schedule of Questioned Costs
and Funds Put to Better Use
Recommendation Ineligible1 Funds Put to Better Use2
1A $434,735
1C ( 78,334) $78,334
Total $356,401 $78,334
1
Ineligible costs are not allowed by law, contract, HUD, or local agency policies, or regulations.
2
Funds Put to Better Use are costs that will not be expended in the future if our recommendations are
implemented. These funds include costs not incurred, and de-obligation of funds.
Page 19 2004-AT-1009
Appendix A
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2004-AT-1009 Page 20
Appendix B
Auditee Comments
Page 21 2004-AT-1009
Appendix B
2004-AT-1009 Page 22
Appendix B
Page 23 2004-AT-1009
Housing Authority of the City of Northport, Northport, Alabama
Published by the Department of Housing and Urban Development, Office of Inspector General on 2004-05-20.
Below is a raw (and likely hideous) rendition of the original report. (PDF)