Issue Date
June 23, 2004
Audit Case Number
2004-CH-1006
TO: Thomas S. Marshall, Director of Public Housing Hub, 5DPH
Margarita Maisonet, Director of Departmental Enforcement Center, CV
FROM: Heath Wolfe, Regional Inspector General for Audit, 5AGA
SUBJECT: Housing Authority of the City of Evansville
Housing Assistance Payment Savings Refunding Agreements
Evansville, Indiana
INTRODUCTION
We completed an audit of the Housing Authority of the City of Evansville’s Housing
Assistance Payment Savings Refunding Agreements. The audit was conducted based upon
an anonymous complaint to our Hotline. The complaint alleged that the Housing Authority’s
former Executive Director who left the Authority in November 2003: (1) abused his
authority; (2) improperly used Federal funds; and (3) had a conflict of interest as Executive
Director of two corporations. Our audit objectives were to determine whether the
complaint’s allegations were substantiated and whether HUD’s requirements for the
Agreements were followed.
The audit identified that the complaint’s allegations were generally substantiated with regard
to the improper use of Federal funds and HUD’s requirements for the Agreements were not
followed. Specifically, the Authority: (1) did not have adequate controls over HUD funds
when it drew down $796,858 in Housing Assistance Payment Savings funds that did not
fulfill the Agreements’ requirements; (2) lacked adequate documentation to support that
$768,517 in Savings funds benefited very low- income persons and families; and (3)
disbursed $28,341 for ineligible expenses. The allegations regarding the former Executive
Director’s abuse of authority and conflict of interest were not substantiated. Our report
contains five recommendations to address the issues identified in this report.
In conducting the audit, we reviewed the Housing Authority’s policies and procedures for the
period January 2002 to December 2003. We also reviewed and evaluated the Authority’s
management controls over the Housing Assistance Payment Savings Refunding Agreements
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between HUD and the Authority. In addition, we reviewed: the Authority’s records; HUD’s
records; bank statements; cancelled checks; Office of Management and Budget Circular A-87;
24 CFR Part 24; and the Stewart B. McKinney Act of 1988 as amended by the Hous ing and
Community Development Act of 1992. We reviewed 100 percent of the $796,858 in Housing
Assistance Payment Savings funds received by the Authority to determine whether the funds
were used appropriately.
We interviewed: the Housing Authority’s employees and HUD’s staff; the Chairman of the
Board of Commissioners for the Authority; the Executive Director of Washington Court
Redevelopment Corporation, a non-profit corporation established by the Authority; a former
Interim Executive Director of the Authority; and the former Executive Director of the
Authority who left the Authority in November 2003. Our audit covered the period January
2002 to December 2003. This period was adjusted as necessary. We performed our on-site
audit work in February 2004. We conducted the audit in accordance with Generally
Accepted Government Auditing Standards.
We presented our draft audit report to the Authority’s Interim Executive Director and HUD’s
staff during the audit. We held an exit conference with the Authority’s Interim Executive
Director on May 19, 2004. HUD’s Coordinator of the Indianapolis Field Office of Public
Housing Program Center proposed a management decision dated June 21, 2004 regarding the
Recommendations included in this report. Appropriate entrie s to HUD’s Audit Resolution
and Controlled Actions Tracking System will be made based upon HUD’s management
decision.
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 have them contact Ronald Farrell, Assistant
Regional Inspector General, at (614) 469-5737 extension 8279 or me at (312) 353-7832.
SUMMARY
The Housing Authority of the City of Evansville disregarded the Housing Assistance Payment
Savings Refunding Agreements between HUD and the Authority. Specifically, the Authority:
• Drew down $796,858 in Housing Assistance Payment Savings funds that did not fulfill
the Agreements’ requirements;
• Lacked adequate documentation to support that $768,517 in Savings funds benefited
very low-income persons and families; and
• Disbursed $28,341 for ineligible expenses.
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BACKGROUND
Avondale Housing Incorporated, an instrumentality of the Housing Authority, was
established in 1980 and disbanded in 2000. Avondale Housing Incorporated issued
Mortgage Revenue Bonds, Series 1980 and 1982, for the development of Avondale
Apartments Phase I and II. In 1993 and 1994, Avondale Housing Incorporated refunded the
bonds with Mortgage Revenue Bonds, series 1993A, 1993C, 1993D, and 1994A. The
issuance of the refunding bonds at a reduced interest rate permitted HUD to recapture
Housing Assistance Payments used to subsidize Avondale Apartments. Fifty percent plus
interest from the Housing Assistance Payments savings were made available to Avondale
Housing Incorporated and the Housing Authority. The savings were governed by two
Refunding Agreements, executed in March and April 1996, between HUD, the Authority,
and Avondale Housing Incorporated. The Agreements are valid for 10 years from the date of
the first drawdown of funds. The approximate savings totaled $1,715,924 and the
Authority’s portion was approximately $857,962. In 1996, the former Executive Director of
the Authority, who left in January 2001, requested and received $181,265 in Housing
Assistance Payments funds. In 2002, the Authority’s former Executive Director, who left in
November 2003, drew down $615,593 in Housing Assistance Payment funds. As of May 5,
2004, there was $61,515 of remaining Savings funds.
The Refunding Agreements are controlled by the following Acts: the Stewart B. McKinney
Homeless Assistance Amendments Act of 1988, as amended by the Housing and Community
Development Act of 1992; Section 8(b)(2) of the United States Housing Act of 1937 (as in
effect on September 30, 1983); and the HUD Appropriations Act of 1994 (House of
Representatives Bill 2491). The McKinney Act requires that the Payment funds can only be
used to provide decent, safe, and sanitary housing affordable to very low- income persons and
families.
The Housing Authority was established under the laws of the State of Indiana. A seven
member Board of Commissioners governs the Authority. Since November 2003, the
Authority has been without a permanent Executive Director. The Authority’s books and
records are located at 500 Court Street, Evansville, Indiana.
FINDING
The Authority Lacked Adequate Controls Over HUD Funds
The Housing Authority of the City of Evansville did not have adequate controls over funds
received from its Housing Assistance Payment Savings Refunding Agreements with HUD. The
Authority drew down $796,858 in Housing Assistance Payment Savings funds that failed to
fulfill the Agreements’ requirements. The Authority lacked documentation to support $768,517
benefited very low-income persons and families, and disbursed another $28,341 for ineligible
expenses. We provided the Authority’s current Interim Executive Director and HUD’s staff a
schedule of the inappropriate expenses. The Housing Authority lacked effective procedures and
controls to assure that Housing Assistance Payment Savings funds were used appropriately.
Additionally, the former Executive Directors, who left the Authority in January 2001 and
November 2003, circumvented the Authority’s Board of Commissioners and its management
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controls. As a result, Housing Assistance Payment Savings funds were not used efficiently and
effectively, and available funding for very low- income persons and families was reduced. Also,
HUD and the Authority lack assurance that available Savings funds were used in accordance
with the Stewart B. McKinney Homeless Assistance Act of 1988 and the Agreements.
Federal Requirements
The March and April 1996 Refunding Agreements, between HUD and the Housing
Authority, require the Authority to: comply with the Stewart B. McKinney Act of 1988;
agree that all Housing Assistance Payment Savings funds must be used in the City of
Evansville to provide decent, safe, and sanitary housing affordable to very low- income
persons and families; not use Savings funds to pay administrative costs except for required
reviews and reports; ensure funds received under the Agreements may only be used to pay
development costs of dwelling units and facilities for persons and families of very low-
income; require owners of rental housing units assisted with Housing Assistance Payment
Savings funds to limit the occupancy of such units to persons and families of very low-
income for a period of 10 years; only request payments for reimbursement of funds expended
or expected to be expended within six months; include a certification on subsequent
requisitions that funds previously requisitioned were expended; provide within 90 days of the
end of the fiscal year annual certifications to HUD; cause to be prepared triennially, a report
from an independent consulting firm; and to submit annually, or direct the owners of the
project to submit to HUD, financial statements and physical inspection reports.
The Stewart B. McKinney Act of 1988, as amended by the Housing and Community
Development Act of 1992 (Public Law 102-550), Section 1012 requires that Housing Assistance
Payment Savings funds may only be used for providing decent, safe, and sanitary housing
affordable to very low- income persons and families.
Office of Management and Budget Circular A-87, Attachment A, paragraph C(1)(j) requires
that all costs be adequately documented.
24 CFR Part 24.110 permits HUD to take administrative sanctions against employees or
recipients under HUD assistance agreements that violate HUD’s requirements. The sanctions
include debarment, suspension, or limited denial of participation that are authorized by 24
CFR Parts 24.300, 24.400, or 24.700, respectively. HUD may impose administrative
sanctions based upon the following conditions:
• Failure to honor contractual obligations or to proceed in accordance with contract
specifications or HUD regulations (limited denial of participation);
• Deficiencies in ongoing construction projects (limited denial of participation);
• Violation of any law, regulation, or procedure relating to the application for financial
assistance, insurance or guarantee, or to the performance of obligations incurred
pursuant to a grant of financial assistance or pursuant to a conditional or final
commitment to insure or guarantee (limited denial of participation);
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• Violation of the terms of a public agreement or transaction so serious as to affect the
integrity of an agency program such as a history of failure to perform or unsatisfactory
performance of one or more public agreements or transactions (debarment);
• Any other cause so serious or compelling in nature that it affects the present
responsibility of a person (debarment); or
• Material violation of a statutory or regulatory provision or program requirements
applicable to a public agreement or transaction including applications for grants,
financial assistance, insurance or guarantees, or to the performance of requirements
under a grant, assistance award, or conditional or final commitment to insure or
guarantee (debarment).
The Authority Disregarded The Refunding Agreements
The Housing Authority disregarded its Refunding Agreements with HUD. From the time the
Agreements were signed in April 1996 until March 2004, the Authority has not: filed the
required annual certification or triennial audit reports; segregated funds; used Housing
Assistance Payment Savings funds within the stipulated time frames; used Savings funds for
authorized administration costs; required owners of rental housing units to limit the occupancy
of units to very low-income persons and families; and maintained sufficient documentation to
support that funds were used for very low- income persons and families. The Authority lacked
adequate procedures and controls to ensure Housing Assistance Payment Savings funds were
used appropriately. As a result, HUD and the Authority lack assurance that Savings funds were
used in accordance with the Stewart B. McKinney Homeless Assistance Act of 1988 and the
Agreements.
The Authority’s Former Executive Director Circumvented Management Controls
The Housing Authority’s former Executive Director, who left the Authority in November 2003,
circumvented the Authority’s management controls. Without the Authority’s Board of
Commissioners’ approval or knowledge, the former Director transferred: $615,593 of Housing
Assistance Payment Savings funds into a Washington Court Redevelopment Corporation bank
account and subsequently transferred $400,000 of the funds into Washington Court
Redevelopment Corporation’s general fund account. He also transferred the funds to
Washington Court without a written agreement stipulating how the funds were to be used or the
controls to ensure compliance with the Refunding Agreements. Additionally, the former
Director inappropriately transferred $179,699 from Washington Court Redevelopment
Corporation to the Authority without approval from the Corporation’s Board or the Housing
Authority’s Board. As a result, Housing Assistance Payment Savings funds were not used
efficiently and effectively, and available funding for very low-income persons and families
was reduced.
AUDITEE COMMENTS
[Excerpts paraphrased from the Housing Authority of the City of Evansville’s comments on
our draft audit report follow. Appendix B, pages 12 to 16, contains the complete text of the
Authority’s comments for this finding.]
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The Authority agrees that it did not have adequate controls over funds received from its
Housing Assistance Payment Savings Refunding Agreements with HUD and lacked
procedures to ensure the Housing Assistance Payment Savings funds were used
appropriately. The Authority admits that it may lack adequate documentation to show that
$768,517 in Savings funds was used to benefit very low- income persons and $28,341 was
disbursed for ineligible expenses.
The Authority concurs that its former Executive Directors did not specifically adhe re to the
requirements set forth in the Refunding Agreements. The Authority denies that its personnel
carried out such disregard of the requirements with deliberate intent.
The Housing Authority concurs with the portion of the finding that its former Executive
Director, who left the Authority in November 2003, circumvented the Authority’s
management controls and its Board of Commissioners’ authority.
The Authority will ensure its Board, current management staff, and all incoming
management staff receives training regarding Federal program requirements, including
requirements under the Refunding Agreements. The Authority’s Board of Commissioners is
receiving training regarding their role and responsibilities in monitoring the Authority’s
procedures and operations.
The Authority has been actively involved in litigation to account for and/or recover $400,000
in Housing Assistance Savings funds transferred to Washington Court Redevelopment
Corporation. At this time, an order by HUD requiring repayment of funds by the Authority
could severely jeopardize and impair the services and programs that serve the low and very
low- income residents of the Evansville community.
OIG EVALUATION OF AUDITEE COMMENTS
The Housing Authority generally concurs with the findings. The Authority does not agree
with the repayment of the questioned costs. However, it is imperative that these funds be
repaid. Repayment will ensure that the Housing Assistance Savings funds are used for their
original purpose, services and programs to benefit very low- income families and persons of
the Evansville community. The actions planned and by the Authority, if fully implemented,
should improve its adherence to the Refunding Agreements.
RECOMMENDATIONS
We recommend that HUD’s Director of Pub lic Housing Hub, Cleveland Field Office, ensure
the Housing Authority of the City of Evansville:
A. Reimburses a control account $28,341 from non-Federal funds for the ineligible
expenses cited in this report.
B. Provides documentation to support that $768,517 of Housing Assistance Payment
Savings funds benefited very low-income persons and families. If the Authority cannot
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provide the necessary documentation, then the Authority should reimburse a control
account from non-Federal funds for the applicable amount.
C. Implements procedures and controls to ensure that Housing Assistance Payment Savings
funds are used appropriately. These procedures and controls should help ensure that
$61,515 in remaining Savings funds is used appropriately.
D. Executes a new Refunding Agreement(s) with HUD regarding the funds deposited to the
control account and the remaining Housing Assistance Payment Savings funds.
We also recommend that HUD’s Director of Departmental Enforcement Center:
E. Takes appropriate administrative action against the Housing Authority’s former
Executive Directors who left the Authority in January 2001 and November 2003,
respectively.
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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 to our audit objectives:
· Program Operations - Policies and procedures that management has implemented to
reasonably ensure that a program meets 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.
· Compliance with Laws and Regulations - Policies and procedures that management has
implemented to reasonably ensure that resource use is consistent with laws and regulations.
· Safeguarding Resources - Policies and procedures that management has implemented to
reasonably ensure that resources are safeguarded against waste, loss, and misuse.
We assessed all of the relevant controls identified above during our audit of the Housing
Authority for the City of Evansville’s Housing Assistance Payment Savings Refunding
Agreements.
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 upon our review, we believe the following items are significant weaknesses:
• Program Operations
The Authority’s Housing Assistance Payment Savings funds were not used in accordance with
the Refunding Agreements. Specifically, the Authority failed to: (1) maintain documentation to
support that $768,517 in Savings funds were used to benefit very low- income persons and
families; and (2) ensure that $28,341 was used for eligible expenses (see Finding).
• Compliance with Laws and Regulations
The Authority failed to follow the Stewart B. McKinney Act of 1988 regarding the use of
Housing Assistance Payment Savings funds (see Finding).
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• Safeguarding Resources
The Authority did not ensure $796,858 in Housing Assistance Payment Savings funds was
used to provide decent, safe, and sanitary housing affordable to very low- income persons and
families (see Finding).
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FOLLOW-UP ON PRIOR AUDITS
This is the first audit of the Housing Authority of the City of Evansville’s Housing Assistance
Payment Savings Refunding Agreements with HUD. The latest Independent Auditor’s Report
for the Authority covered the period ending December 31, 2002. The Report contained four
findings. None of the findings were related to the Refunding Agreements.
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Appendix A
SCHEDULE OF QUESTIONED COSTS AND RECOMMENDATION FOR FUNDS
TO BE PUT TO BETTER USE
Recommendation Type of Questioned Cost Funds To Be Put
Number Ineligible 1/ Unsupported 2/ To Better Use 3/
A $28,341
B $768,517
C $61,515
Totals $28,341 $768,517 $61,515
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/ Unsupported costs are costs charged to a HUD-financed or HUD-insured program or
activity and eligibility cannot be determined at the time of audit. The costs are not
supported by adequate documentation or there is a need for a legal or administrative
determination on the eligibility of the costs. Unsupported costs require a future
decision by HUD program officials. This decision, in addition to obtaining supporting
documentation, might involve a legal interpretation or clarification of Departmental
policies and procedures.
3/ Funds To Be Put To Better Use are quantifiable savings that are anticipated to occur if
an OIG recommendation is implemented, resulting in a reduced expenditure in
subsequent periods for the activity in question. Specifically, this includes an
implemented OIG recommendation that causes a non-HUD entity not to expend Federal
funds for a specific purpose. These funds could be reprogrammed by the entity and not
returned to HUD.
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Appendix B
AUDITEE COMMENTS
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Housing Authority of the City of Evansville, Indiana�s Housing Assistance Payment Savings Refunding Agreements, Evansville, Indiana
Published by the Department of Housing and Urban Development, Office of Inspector General on 2004-06-23.
Below is a raw (and likely hideous) rendition of the original report. (PDF)