AUDIT REPORT
THE CITY OF LITTLE ROCK
HOUSING AUTHORITY
PROCUREMENT AND ASSET CONTROL
LITTLE ROCK, ARKANSAS
2004-FW-1001
January 26, 2004
OFFICE OF AUDIT, REGION 6
FORT WORTH, TEXAS
Issue Date
January 26, 2004
Audit Case Number
2004-FW-1001
TO: Jesse Westover
Director, Public and Indian Housing, 6FPH
FROM: D. Michael Beard
Regional Inspector General for Audit, 6AGA
SUBJECT: The City of Little Rock Housing Authority
Procurement and Asset Control Audit
Little Rock, Arkansas
We performed an audit of the City of Little Rock Housing Authority (Authority). The purpose
of the audit was to determine whether the Authority maintained adequate controls over cash and
procurement. Specifically, we determined whether the Authority: (1) expended funds for
eligible activities; (2) accounted for collections and deposits; and (3) complied with federal and
Authority procurement requirements. We expanded the audit to include observations of units
and interviews with residents to determine the adequacy of the condition of the units.
The report contains three findings requiring follow up actions by your office. We will provide a
copy of this report to the Authority.
In accordance with HUD Handbook 2000.06 REV-3, within 60 days, please furnish this office,
for each recommendation in this report, a status on: (1) corrective action taken; (2) the proposed
corrective action and the date to be completed; or (3) why action is not considered necessary.
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 related to the audit.
Please call William W. Nixon, Assistant Regional Inspector General for Audit, at (817) 978-
9309 if you or your staff have any questions.
Management Memorandum
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2004-FW-1001 Page ii
Executive Summary
We performed an audit of the City of Little Rock Housing Authority (Authority). The
purpose of the audit was to determine whether the Authority maintained adequate controls
over cash and procurement. Specifically, we determined whether the Authority:
(1) Expended funds for eligible activities;
(2) Accounted for collections and deposits; and
(3) Complied with federal and Authority procurement requirements.
We expanded the audit to include observations of units and interviews with residents to
determine the adequacy of the condition of the units.
Generally, the Authority lacked sufficient controls and
Authority had inadequate management over its procurement process and assets. Of
controls over procurement 11 non-representatively selected contracts reviewed, the
and assets. Authority did not always adhere to procurement
requirements. This resulted in sole-source contracts, not
approved by HUD, resulting in $228,211 in unsupported
payments. Because of the Authority’s actions, the
Authority did not know if it received the best price and
performance under these contacts.
The Authority needs to improve the conditions of some
sites. Maintenance throughout the Authority managed units
appeared slow or non-existent. Needed maintenance
included: demolition of units not viable to rehabilitate;
routine repairs; maintenance of common areas, and
improved security.
Further, the Authority did not develop and implement
written policies and procedures for disbursements to ensure
its funds were properly expended or assets were properly
utilized. Further, the Authority’s audits were not
completed timely as required by OMB Circular A-133 for
Fiscal Years 2000 and 2001 and the audits did not disclose
identity-of-interest issues with related not-for-profit
entities. These entities paid a total of $20,000 to the
Executive Director and the Deputy Director.
We recommend the Authority ensures it adheres to its
Recommendations procurement policy; support or repay any amounts that it
paid in excess of reasonable costs; and re-procure the
contracted services. We recommend the Authority
promptly identify and correct maintenance deficiencies.
Page iii 2004-FW-1001
Executive Summary
We are also recommending the Authority implements the
necessary policies to correct the deficiencies.
We provided a discussion draft to the Authority on
October 9, 2003. We held an exit conference with the
Authority and its attorneys on November 5, 2003. After
incorporating some changes into the report, we provided
the Authority a final draft on November 20, 2003. The
Authority provided written comments on December 10,
2003. Generally, the Authority disagreed with the findings.
The Authority believes some statements in the report are
misleading and without merit. The Authority highlighted
some of its accomplishments that it felt we had not
recognized. The Authority had some positive responses to
the recommendations. We have included the Authority’s
entire response as Appendix C. We considered the
Authority’s response in preparation of our final report and
amended as necessary.
2004-FW-1001 Page iv
Table of Contents
Management Memorandum i
Executive Summary iii
Introduction 1
Findings
1 The Authority Needs to Strengthen its Adherence to 7
Procurement Requirements
2 Some Authority Sites Appeared in Poor Condition 11
3 The Authority Exercised Poor Administration Over its 25
Operations
Management Controls 35
Follow-Up on Prior Audits 37
Appendices
A. Schedule of Questioned Costs 39
B. Listing of Units Observed and Repairs Needed 41
C. Auditee Comments 43
Page v 2004-FW-1001
Table of Contents
Abbreviations
ACC Annual Contributions Contract
Authority City of Little Rock Housing Authority
CFR Code of Federal Regulations
FHA Federal Housing Administration
GAAP Generally Accepted Accounting Principals
HUD Department of Housing and Urban Development
LOCCS Line of Credit Control System
OIG Office of the Inspector General
OMB Office of Management and Budget
PIC PIH Information Center
PIH Public and Indian Housing
PASS Physical Inspection Assessment Subsystem
QASS Quality Assurance Subsystem
RAB Resident Advisory Board
REAC Real Estate Assessment Center
RFP Request for proposal
2004-FW-1001 Page vi
Introduction
The City of Little Rock created the Housing Authority of
Background the City of Little Rock (Authority) in 1940. The Mayor of
Little Rock appointed the first Board of Commissioners
(Board) for the Authority. After the initial appointment, the
Board members approve subsequent changes in the Board’s
composition. Each Commissioner serves a 5-year term
with one term expiring each year. Currently, Wooten Epes
serves as the Board Chairman.
The Board is responsible for setting policy and appoints an
Executive Director to administer the day-to-day operation
of Authority programs. In 1993, the Board appointed Lee
Jones as Executive Director to manage the Authority
including its existing 1,600 low-income units.1
As of January 13, 2003, the Authority managed 1,136
Public Housing low rent units at ten sites.2 The Authority
directly managed 999 of the Public Housing low rent units.
McCormack Baron, Inc. managed 137 low-income units
located in mixed finance developments. However, the
Authority is still responsible for the administration of the
137 units. We limited the scope of our audit to only the
administration and management of the 1,136 low rent units.
The Public Housing low-income properties are disbursed
throughout ten developments as follows:
1
According to the Executive Directors, the Authority administered 900 Section 8 vouchers when he arrived and
the Authority had 439 vacant units.
2
As of January 13, 2003, the Authority administered 2,025 Section 8 vouchers. We did not include the
administration of these units in our audit. Based upon low SEMAP scores, it appears that the Authority has
problems managing its Section 8 program, also.
Page 1 2004-FW-1001
Introduction
Number of
Development Authority Type of Units
Units
Sunset Terrace 74 Family w/ Disability Access
Amelia B. Ives Homes 50 Family w/ Disability Access
Amelia B. Ives Homes 100 Family w/ Disability Access
Hollinsworth Grove 180 Family/Designated
Elderly/Disability Access
Fred Parris Towers 249 Elderly/Handicap
Cumberland Towers 178 Elderly/Handicap
Jesse Powell Towers 168 Elderly/Handicap
Madison Heights, Phase I 59 PH/Mixed Finance Development/
Privately Managed Property
Madison Heights, Phase II 38 PH/Mixed Finance Development/
Privately Managed Property
Homes at Granite 40 PH/Mixed Finance Development/
Mountain Privately Managed Property
Total 1,136
The Authority has accumulated a considerable amount of
unexpended funds. As of January 13, 2003, the Authority
received and disbursed funds from HUD in the amount of: 3
Funds Funds Available
Program Authorized Disbursed Balance
Capital Fund Program4 $8,214,235 $1,795,103 $6,419,132
Comprehensive Grant Program 793,904 0 793,904
Drug Elimination Grant Program 601,965 378,022 223,943
Operating Fund 318,325 81,814 236,511
Public Housing Development Grants 8,531,280 8,039,277 492,003
Resident Opportunity & Self
Sufficiency5 200,000 0 200,000
Urban Revitalization Program
(HOPE6) 1,669,261 1,366,749 302,512
Totals $20,328,970 $11,660,965 $8,668,005
3
This included the Authority’s open grant funds available for the low-income housing between 1995 and 2002.
It did not include Section 8 funds or grant programs that the Authority completed.
4
Approximately $3.6 million is reserved for the construction of replacement housing.
5
According to the Authority, this amount was not available to them until December 18, 2002.
2004-FW-1001 Page 2
Introduction
HUD designed the Capital Fund and Comprehensive Grant
Programs to improve or expand public housing. As the
above chart shows, the Authority has a combined $7.2
million6 in unexpended funds to improve or expand its
public housing stock. These funds have been accumulating
since 1999. Current HUD guidelines allow for this
accumulation of funds.
The Authority received 26 out of 30 on its 2002 PASS
REAC7 score or equivalent to 87 percent. Based upon
conclusions reached in Finding 2 and the Authority’s
acknowledgment of the age of the developments and the
documented need for $14 million in physical rehabilitation,
this score appears inflated. The total REAC score for fiscal
year 2002 was 55 out of 100. HUD considers a housing
authority “troubled” if it scores less than 60.
The Independent Auditors reported significant findings to
the Authority.8 Commendably, the Authority has addressed
and resolved many of the findings, but the Authority still
needs to improve. However, HUD’s Real Estate
Assessment Center (REAC) performed a verification
review of the 2001 Independent Auditors’ report. HUD
REAC’s review identified material weaknesses and / or
reportable conditions that the Independent Auditor’s report
did not disclose.
The Authority has an identity-of-interest nonprofit, Little
The Authority has
Rock Housing Redevelopment, Inc. (Housing
established an identity-of-
Redevelopment), that the Authority appointed to develop
interest nonprofit. Madison Heights III, a mixed finance community.
While the Authority originally attempted procurement of
this contract,9 Housing Redevelopment’s attorney claims
that the Authority did not need to procure a developer
because it hired itself through the identity-of-interest firm
6
$793,904 + $6,419,132 = $7,213,036.
7
HUD’s Real Estate Assessment Center (REAC) performs annual assessments of housing authorities.
Assessments are conducted with both internal and external resources and are intended to measure the following:
federal statutory and regulatory compliance, physical housing condition, housing management, financial
condition, and resident satisfaction. The Physical Inspection Assessment Subsystem (PASS) assesses the
condition of HUD properties through annual inspections conducted by contract inspectors.
8
The fiscal year 2000 and 2001 independent audit reports listed 13 and 5 findings, respectively. Both reports
contained a qualified opinion due to the Authority’s non-compliance with federal requirements.
9
Originally, we reviewed this transaction as procurement and determined the Authority limited competition and
effectively sole-sourced the award to the nonprofit. Based upon the exit conference with the Authority and
attorneys, we removed it from the procurement conclusions.
Page 3 2004-FW-1001
Introduction
of Housing Redevelopment. According to Housing
Redevelopment’s attorney, Housing Redevelopment uses
Authority offices rent-free.10
The Authority maintains its financial records at its
administration office located at 1000 Wolfe Street, Little
Rock, Arkansas, and its procurement records at its
Technical Services building located at 201 E. Roosevelt
Road, Little Rock, Arkansas.
Our overall objective was to determine whether the
Audit Objective and Scope Authority maintained adequate controls over accounts
payable, cash collections, disbursements, receivables, and
procurement. Specifically, we determined whether the
Authority:
1. Followed requirements in its procurement and
contracting activities and
2. Followed requirements over cash collections and
receivables and over cash disbursements and accounts
payable.
Based upon a cursory observation of the Authority’s sites,
we expanded our initial scope to include a determination of
whether the Authority’s public housing units appeared to be
maintained in a decent, safe, and sanitary manner.
To accomplish the objectives, we:
• Reviewed relevant HUD regulations and guidelines and
the available Annual Contributions Contract;
• Reviewed relevant Arkansas State Statutes;
• Examined records maintained by the Authority;
• Reviewed the Authority’s accounting records;
• Reviewed a non-representative selection of contracts;
• Analyzed the Authority’s computer information using
computer assisted auditing software;
• Interviewed HUD officials, Authority personnel, and
residents;
• Observed and photographed resident units; and
• Reviewed the minutes of the Board of Commissioners’
meetings.
10
We removed the procurement of Housing Redevelopment from Finding 1 but discuss Housing Redevelopment
in Finding 3.
2004-FW-1001 Page 4
Introduction
To determine if the Authority met the objectives, we took
non-representative selections of contracts11 and
disbursements, interviews with residents, and observation
of units.12 While not able to extrapolate to the population,
we believe our selections do provide sufficient evidence to
support our conclusions.
Throughout the audit, we reviewed various computer-
generated data. Specifically, using computer-assisted
auditing software we analyzed, assessed, and evaluated the
Authority’s financial records. In addition to using
computer software including ACL and Excel, we assessed
the data by comparison with paper records, i.e. the data
showed numerous missing checks but a manual comparison
to bank statements showed many of the checks were not
missing. We determined the cause of this was that the data
was not formatted consistently. In another example, the
Authority’s contract register was determined incomplete.
Therefore, we could not satisfy ourselves that these records
were complete and accurate. We concluded that the data
had an undetermined reliability. We did not assess other
computer-generated data.
We conducted our fieldwork between January and June
2003. Our audit period generally covered the period from
January 1, 2001, through December 31, 2002, with the
scope expanded as necessary.
We conducted the audit in accordance with generally
accepted governmental auditing standards.
11
Because the Authority did not have an accurate contract register, it did not know how many contracts it had
during the audit period.
12
See listing of properties and number of units on page 2 for the universe.
Page 5 2004-FW-1001
Introduction
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2004-FW-1001 Page 6
Finding 1
The Authority Needs to Strengthen its
Adherence to Procurement Requirements
Of 11 non-representatively selected contracts reviewed, the Authority did not adhere to
procurement requirements in two instances. Violating procurement requirements, the
Authority sole-sourced the John D. Blake & Associates ($204,211) and Senior Citizens
Activities Today (SCAT) ($24,000) contracts. Both federal and Authority requirements
prohibit sole-source contracts unless the Authority met certain conditions. As a result of
the Authority’s actions, the Authority did not know if it received the best price and
performance under these contracts. The Authority should ensure that it adheres to its
procurement policy; support or repay any amounts that it paid in excess of reasonable
costs; and re-procure the contracted services.
In accordance with Authority policy and HUD
The Authority was
requirements, the Authority was required to promote full
required to provide full
and open competition for all procurement contracts.
and open competition.
Requirements only allow procuring goods and services
non-competitively “when the award of a contract is
infeasible under small purchase procedures, sealed bids, or
competitive proposals and one of the following
circumstances applies: the item is available from a single
source; emergency; competition determined inadequate;
and HUD authorizes the noncompetitive proposals.”13
The Authority has been previously informed of
procurement violations and in 2000, the Arkansas
Democrat-Gazette detailed procurement problems with a
plumbing contractor. The Authority did have a
procurement policy that complies with HUD requirements;
however, it was not adhered to in these two instances. The
Authority should ensure that all procurements follow the
federal procurement policy and its own procedures.
To determine if the Authority followed procurement
requirements, we reviewed the disbursement file to
determine a non-representative selection of contracts. We
used this method because the Authority’s contract register
was incomplete.14 In reviewing the disbursement file, we
13
24 CFR 85.36.
14
As a result, the Authority did not have a complete listing of contracts and the universe of contracts was
unknown. The Authority’s listing only contained 41 contracts for the period.
Page 7 2004-FW-1001
Finding 1
noted large payments15 and smaller recurring payments.16
This resulted in selecting eight contracts. We selected the
remaining three contracts based on suggestions.
The Authority sole- Since 1995, John D. Blake & Associates (Blake) have been
sourced computer computer consultants for the Authority. The Authority used
consultant. Blake’s consulting services on the Authority’s computer
software, Emphasys Computer Solutions (ECS). The
services provided include assisting the Authority in: custom
report requirements, training and keeping their work order
history file functional, yearend closings for Section 8 and
financial accounting, and designing yearend accounting
database balance reports. Blake also reviews the software
quarterly and updates it as needed.
A written contract did not exist between the Authority and
Blake. Furthermore, the Authority did not have any
procurement documentation such as advertisements, bids,
and work specifications. Despite the lack of a contract and
documentation, the Authority continued to pay Blake. In
2001 and 2002, the Authority paid Blake $78,121 for
consulting services and lodging for the consultant.17 Since
1995, the Authority has spent $204,211 on consulting
services from Blake.
Without a written contract, the Authority should sever its
current relationship with Blake. The Authority needs to
follow requirements when procuring for a computer
consultant including precise work specifications, price/cost
analysis, advertising, evaluating proposals, and monitoring
contractor performance.
The Authority originally contracted with Senior Citizens
The Authority continually Activities Today (SCAT) in 1976 and has continually
renewed a resident renewed it without procurement. SCAT’s main purpose is
services contract since providing recreational services to the seniors18 of the
1976. Authority’s three high-rise buildings. Examples of
recreational services include weekday lunches, bingo,
movies, and crafts. In addition to providing recreational
services, SCAT manages the vending machines, washers,
and dryers in the high-rise developments. SCAT receives
15
Consisting of $20,000 or more.
16
Consisting of $1,000 - $20,000.
17
Includes travel expenses of $2,270.
18
SCAT is open to all high-rise residents, regardless of age, for a small membership fee.
2004-FW-1001 Page 8
Finding 1
all profit from these machines. Further, SCAT received
rent and utilities free of charge.
According to the files, the only amendment to the contract
was dated 1980. It did not appear the Authority attempted
to procure or justify the costs paid to SCAT since 1976.
The Authority paid SCAT $24,000 during 2001 and 2002.19
The Executive Director stated the reason why the Authority
has not procured this service was because there wasn’t a
‘good alternative.’ Further, the Executive Director believed
that SCAT leverages other funds so the Authority residents
receive much more value than what the Authority paid.
Nonetheless, the Authority needs to support its position by
either performing a cost analysis or by soliciting proposals.
Also, HUD’s guidance20 stated the Authority must submit
any professional service contracts to HUD if the term of the
contract, including renewals or options, exceeded 2 years.
Overall, the Authority did not procure 2 out of 11 contracts
properly. The Authority improperly entered into sole-
sourced contracts. Further, in one instance, the Authority
did not have contracts. The Authority did not know if it
received the best price or services. Also, the Authority
needs to ensure that its contract register is complete and
accurate.
Auditee Comments In its response, the Authority agreed to take actions to
implement the recommendations. The Authority expressed
confidence that it could support the questioned costs. The
Authority stated it administered approximately 100 contracts
during this period and did not believe two failures were
unreasonably high.
OIG Evaluation of We commend the Authority for acknowledging the
Auditee Comments procurement problems and agreeing to take positive actions
to correct the problems. As stated in the body of the finding,
the Authority’s contract register only listed 41 contracts as
opposed to the 100 cited in the Authority’s response. From
the 41 contracts, we reviewed 11 or 27 percent of the
19
This did not include the rent, utilities, or profit from vending machines.
20
HUD Handbook 7460.8 4-27 B.2.
Page 9 2004-FW-1001
Finding 1
contracts provided. The two contracts cited represent 19
percent of the contracts reviewed.
Recommendations
We recommend the Director of the Little Rock Office of
Public and Indian Housing require the Authority to:
1A. Adhere to the Authority and HUD procurement
requirements.
1B. Sever its existing relationship with Blake.
1C. Support or repay the $204,211 paid to Blake for
consulting services and lodging.
1D. Determine its needed computer services and properly
procure the services.
1E. Support or repay the $24,000 paid to SCAT since
2001.
1F. Determine the recreational services needed and
properly procure.
1G. Ensure it has written contracts.
1H. Ensure its contract register is current and accurate.
2004-FW-1001 Page 10
Finding 2
Some Authority Sites Appeared
in Poor Condition
Based upon observations of the Authority’s units’ exterior and interviews with 25
residents,21 the Authority units appeared to be in poor condition.22 The observations of
needed maintenance included:
• Demolition of units not viable to rehabilitate;
• Secure vacant buildings;
• Routine repairs to and repainting of units per tenant requests;
• Treatment for insects;
• Replace smoke detector batteries;
• Replacement of air conditioning filters;
• Clean common areas; and
• Improve security.
Several buildings have been burned out and uninhabitable for over 2 years at Hollinsworth
Grove and Amelia B. Ives complexes. Maintenance throughout the Authority managed units
appeared to be slow or non-existent. In addition, residents believed security was poor in the
high-rise properties. The units managed by McCormack Baron have minor problems as
compared to the properties managed by the Authority, albeit, the McCormack Baron
properties are new as compared to the older properties managed by the Authority. A
comparison between the properties would not be appropriate. The Authority should develop
a schedule for routine maintenance and make every attempt to keep the schedule. The
Authority needs to demolish the units not viable for rehabilitation and rehabilitate the units
that can be future homes for families. Although the Authority cannot make every resident
“feel” secure or even have residents report all the maintenance needs, the Authority needs to
be aware of the residents attitudes and communicate the Authority’s actions and if necessary,
the facts about the maintenance and security of the sites.
The Authority contracted with HUD to: “…at all times
The Authority contracted develop and operate each project solely for the purpose of
to provide safe, decent, providing decent, safe, and sanitary housing for eligible
and sanitary housing. families in a manner that promotes serviceability, economy,
efficiency, and stability of the projects, and the economic
and social well-being of the tenants.”23
21
Non-representative selection.
22
To determine if the Authority met this objective, we took a non-representative selection of residents to interview
and units to observe. While not able to extrapolate to the population, we believe our selections provide
sufficient evidence to support our conclusions.
23
Mission Statement 4, Consolidated Annual Contributions Contract with HUD, dated December 15, 1995.
Page 11 2004-FW-1001
Finding 2
Some of the sites the Authority manages appear to be in
Some sites are in poor poor condition. The family units range from clusters of
condition. duplexes to one- or two-story apartment style residences
located in complexes named Amelia B. Ives, Hollinsworth
Grove, or Sunset Terrace. The Authority’s units were built
in the early 1940s through the early 1950s. Sunset Terrace
has 74 units and Amelia B. Ives has 150 units. The
Authority has designated both as “Family w/Disability
Access.” Hollinsworth Grove, consisting of 180 units, is
designated “Family/Designated Elderly/Disability Access.”
Residents complained of the lack of routine maintenance
and the Authority’s slow or lack of response to requests for
repairs. The exterior of the properties supported the
residents’ statements. The Authority needs to perform the
necessary repairs to ensure the units meet HUD’s decent,
safe, and sanitary housing standards.
Hollinsworth Grove, built in 1952, appears to be a severely
Hollinsworth Grove. distressed development that suffers from obvious neglect.
Located between the Little Rock International Airport and
the Arkansas River, the majority of the units are single
story. A few buildings had a second story added with
siding and flat roofs. A visual inspection of the exterior of
the units revealed apparent major problems with the
maintenance of the development.
Hollinsworth Grove has needed rehabilitation for several
years. For example, severe fire damage to several buildings
prevented their use and posed a safety hazard for the
remaining residents. Additional buildings were
uninhabitable because of a lack of general maintenance or
repair. The neglected buildings were disbursed throughout
the development. Three attempts to speak to the site
manager were unsuccessful due to a closed office during
business hours.24 The residents had no apparent means to
resolve problems on-site with the lack of site manager
availability.
The following pictures were taken at Hollinsworth Grove
showing examples of abandoned buildings throughout the
development.
24
The site manager was contacted on April 2, 2003.
2004-FW-1001 Page 12
Finding 2
Picture 1 This building consists of four units. Note the missing windows and
screen on the second floor and graffiti covered exterior.
Picture 2 This picture shows fire damage at the opposite end of the same
building.
At the time of the picture, the Authority had not secured
this fire-damaged building, i.e. boarding up the units. By
not securing the building, the Authority exposed the
building to additional damage from the elements and
vandals. The building posed a sanitary and safety issue to
the residents living in Hollinsworth Grove.
Page 13 2004-FW-1001
Finding 2
An additional example at Hollinsworth Grove was an
occupied unit and another abandoned building as its
neighbor. In Picture 3, note the occupied building in the
foreground and the abandoned building behind it. The
abandoned building has a chain link fence around it but that
has done little to deter entry into the unit as evidenced by
the fence being bent in several places where it has been
compromised.
Picture 3
The Authority has known about the conditions at
Hollinsworth Grove since 2001. In 2001, the Authority
wanted some Hollinsworth Grove units demolished. The
Authority solicited contractors to demolish and restore the
site of Booker Homes and demolish three units at
Hollinsworth Grove. In August 2001, the Authority elected
not to proceed with the demolition of the three units at
Hollinsworth Grove.25 The bid amount of $35,000 was
deducted from the contract and the buildings remain. The
Authority stated HUD had not approved its demolition
application. The Authority should demolish buildings not
25
Change order number 7 to the Authority’s Contract 1139 dated August 20, 2001, with Jimmy A. Patton
Contractor, Inc.
2004-FW-1001 Page 14
Finding 2
viable for rehabilitation and secure and rehabilitate those
viable buildings.
Amelia B. Ives appeared only marginally better than
Amelia B. Ives. Hollinsworth Grove. It also has several buildings not fit for
habitation. The Amelia B. Ives development consists of
150 units that were built over 50 years ago. The
appearance of many of the units is poor. Of the 150 units,
several were boarded or needed demolition and/or
rehabilitation. For example, one unit is missing
approximately 50 percent of its brick at one end. A two-
story building, Picture 4, and a one-story building, Picture
5, had obvious fire damage. Unlike the units shown at
Hollinsworth, the Authority did board up the lower and
upper floor windows limiting the exposure to the elements
and vandals.
Picture 4
Page 15 2004-FW-1001
Finding 2
Picture 5 – Note the weathered appearance of the plywood boarding the windows.
As with Hollinsworth Grove, the damaged properties at
Amelia B. Ives appear to have needed repair or demolition
for some time.
In addition to the poor exterior maintenance of buildings in
Residents cannot get the development, interior condition appeared poor. For all of
Authority to maintain the Authority’s sites, 25 residents were interviewed.26 Two
property. residents living in Hollinsworth Grove had concerns with the
management of the development. An elderly resident of
Hollinsworth Grove presented the more serious concerns.
She reported extensive termite damage in her unit and a lack
of routine maintenance despite repeated requests to
management (see Picture 6).
26
A non-representative selection.
2004-FW-1001 Page 16
Finding 2
Picture 6
The resident also had a bullet hole in her front screen door.
A repair was observed in the main door behind the screen
in the bullet’s trajectory (see Picture 7). The resident said
she was in the kitchen at the time of the gunshot and
thankfully, did not get hurt.
Picture 7
A resident at the Amelia B. Ives development also
expressed problems with termites. According to the
Page 17 2004-FW-1001
Finding 2
resident, she called the Authority’s maintenance department
numerous times but the Authority has not dispatched an
exterminator. The resident said the Authority told her to
use dish soap to get rid of the termites. Also, her sink is
pulling away from the wall. Despite several calls to
maintenance repair, no one has come. The approximately
½” gap between the sink and wall is shown in Picture 8:
Picture 8
Another resident at Amelia B. Ives reported that she could
not get a hole repaired in her floor (see Picture 9). She has
also requested paint for some wall patches in her living
room. According to the resident, these existed when she
moved into the unit. The resident has been unsuccessful in
persuading the Authority to make the needed repairs.
2004-FW-1001 Page 18
Finding 2
Picture 9
The high-rise developments had problems with both
General maintenance security issues and maintenance problems. The Authority
appears poor in the high- managed three high-rise buildings, Fred Parris Towers,
rise developments. Cumberland Towers, and Jesse Powell Towers. All the
high-rises were built in the mid-1970s and were designated
as Elderly/Handicapped units. It appeared the Authority
did not perform routine maintenance at the high-rises.
To illustrate the need for routine cleaning and maintenance at
Parris Towers. Parris Towers, Picture 10 shows the laundry room air
conditioning vent on the ninth floor.
Page 19 2004-FW-1001
Finding 2
Picture 10
All three of the high-rises had similar general maintenance
issues in their common areas. The residents also
complained of dirty elevators and lobbies.
Four residents were interviewed at Parris Towers and two
of the four expressed concern about their safety in the
building. One was so frightened of other residents
“hassling” her; she answered her door with a knife in hand.
She quickly apologized and put it away but reported to us
that there were “outlaw folks” in the building and she
needed to protect herself. Another resident said she felt the
Authority was just pulling people off the street without any
background check. Another resident interviewed stated he
has developed a “thick skin” and did not let the other
residents bother him. He did not know where he could live
for the amount of money he pays in rent so he had to stay.
Of seven residents interviewed at Cumberland Towers, each
complained about the “new” people coming to the building to
Cumberland Towers.
live. One tenant reported an attack on a friend in the elevator
the night before. She would not report the attack because the
other resident would hurt her worse.27 Another said she did
not like the Authority letting dope addicts and drunks live
27
Other than communication of the policy and taking corrective action when brought to the Authority’s attention,
OIG does not have a recommendation to correct residents not reporting maintenance problems or crime.
2004-FW-1001 Page 20
Finding 2
with the elderly. When they get drunk and “stuff” they pick
on the other residents. Another resident agreed with the other
residents that more security was needed as well as a site
coordinator that could manage the building. He feared the
drug addicts from Flower Square were moving into the
building and he did not want to live where guns are going off
down the hall.
The longtime Cumberland residents said serious problems
with security and maintenance have developed within the
last couple of years. They reported that the fire alarm goes
off accidentally so often that they ignore it. According to a
resident, most of the residents were old and frail they can’t
walk down the stairs once, much less several times a day or
week.
Of four residents interviewed at Powell Towers, three
Powell Towers. expressed concern for their safety. One resident lived in
the high-rise for many years and explained it was not an
elderly development anymore. When she moved in, it was
the nicest low-income property in the City but in the last 2
years most of the “new tenants” are middle-aged men with
drug problems. Coupled with the “new tenants,” the
residents interviewed noted a severe decline in
maintenance. Residents stated their complaints directly to
the Executive Director of the Authority had been ignored.
The Resident Advisory Board for the properties also
Overall tenant expressed their dissatisfaction with maintenance in
dissatisfaction with particular. Some Board members felt routine maintenance
Authority maintenance. would prevent problems. For example if air filters were
replaced routinely, the air conditioning systems in the high-
rise properties might run more efficiently and break down
less. In addition, the dirty air causes health problems for
some of the residents. The less frequent calls for repair
would save the Authority money in the long run. Another
concern was pest problems. Residents didn't feel that the
Authority was doing everything it could to prevent pests.
The residents explained that contacting the Executive
Director did not help.
Dissatisfaction for maintenance and safety was evident in
all Authority controlled developments. Overall, of 22
residents interviewed,28 77 percent were dissatisfied with
maintenance and 59 percent were concerned for their
28
Three residents interviewed live in McCormack Baron managed properties.
Page 21 2004-FW-1001
Finding 2
safety. These numbers are significant and indicate a need
for management to address the issues.
The Authority was aware the elderly residents fear the
disabled residents, as they were sometimes aggressive or
unruly. The Executive Director and the Deputy Director
stated they were concerned about the residents but have not
found the best means to resolve the problems. According to
the Executive Director, the Authority lacked funds to add
security and fair housing issues prevented the Authority
from moving the disabled residents by any means other
than attrition. The Authority should attempt to use some of
its reserves for added security while the composition of
residents is rearranged through attrition. Additionally, the
Authority should continue its efforts to alleviate residents’
concerns by informing residents of obstacles and working
with HUD for additional solutions. Also, the Authority
should use necessary reserves to repair units and
demolished uninhabitable buildings.
Madison Heights I, Madison Heights II, and Granite
Properties managed by Mountain Developments had few problems.29 These
McCormack Baron had properties were new and should not require the same degree
few problems. of maintenance as the older properties. Any opinion on
whether or not the difference in management has any
bearing on the better physical condition would be
speculative.
The Authority refuted that it had not met its responsibility
Authority claims it has with respect to maintenance and it could not control the
met its responsibility. way residents “feel.” The Authority cited its
accomplishments in the areas of maintenance and the
systems it has in place to identify and correct maintenance
problems. Further, it was in the process of correcting
deficiencies noted. Lastly, it cited HUD’s positive physical
inspection of the units.
We agree with the Authority’s action to correct the
problems noted and further agree that the Authority cannot
control residents “feeling.” Further, we acknowledge
HUD’s physical inspection of the units. Based upon our
limited inspections and interviews with residents, we
maintain some of the sites appear in poor condition. Also,
we would suggest the local office or REAC perform a re-
29
McCormack Baron manages these properties. A few hairline cracks were noted in the Granite Mountain
properties and some loose tile. Madison Heights was constructed with exposed wiring in the utility room.
2004-FW-1001 Page 22
Finding 2
inspection of the sites specifically mentioned in this
finding.
Auditee Comments The Authority took great exception to this finding. The
Authority questioned the scope and methodology used by us
in drawing our conclusions. It cited the inclusion of the
discussion on Hollinsworth Grove in the report as “wholly
without merit.” The Authority plans to demolish the
buildings at Hollinsworth Grove in February 2004. The
Authority stands by the scores provided by the REAC
inspectors and the tenant surveys.
OIG Evaluation of We commend the Authority for correcting the problems cited
Auditee Comments from our observations. Further, we are pleased that the
Authority will finally demolish the buildings at Hollinsworth
Grove. The Authority did not specifically discuss the actions
it would take to demolish or repair the units at Amelia B.
Ives. We did not entirely understand the Authority’s strong
objection to this finding. For instance, the Authority states it
concluded that Hollinsworth Grove was a “severely
distressed development,” but our inclusion of this “fact” in
the report is irresponsible.30 Further, the Authority cited in
its response the age of the developments, about 50 years for
the low-rise sites and 25 years for the high-rise sites, and the
documented need for $14 million of rehabilitation.31 The
Authority’s response seems to strengthen the conclusions in
the report, specifically, “some Authority sites appeared in
poor condition.” We would be remiss if we did not report
this.
Recommendations We recommend the Director of the Little Rock Office of
Public Housing require the Authority to:
2A. Improve its system of correctly collecting,
performing, reporting, and verifying maintenance
requests.
2B. Demolish the burned out units at Hollinsworth Grove.
30
Hollinsworth Grove makes up approximately 18 percent of the Authority managed units.
31
This is approximately $14,000 per an Authority managed unit.
Page 23 2004-FW-1001
Finding 2
2C. Demolish or repair the burned out units at Amelia B.
Ives.
2D. Perform the repairs identified for units visited (see
Appendix B).
2E. Communicate to the residents the policies and
corrective action the Authority has taken to improve
security and maintenance.
2004-FW-1001 Page 24
Finding 3
The Authority Exercised Poor Administration
Over Its Operations
The Authority had poor controls over cash disbursements, accounts payable and accounts
receivable, and asset management. HUD required the Authority to expend funds for
reasonable and necessary items and to maintain financial records. Specifically, the
Authority’s Board of Commissioners were responsible for ensuring that the Authority had
systems in place to measure, monitor, and report program performance. The Authority
did not develop and implement written policies and procedures for disbursements to ensure
its funds were properly expended or assets were properly utilized. For example, manuals
provided contained some instructions on processing of payments in the Authorities
computer but did not contain who approved payments or the documents needed for
payment. Further, the Authority did not have written procedures for reconciliation of
bank accounts or accounting for receivables. In a test of 100 disbursements, the Authority
had sufficient documentation to support all the payments.32
The Authority’s audits were not completed timely as required by OMB Circular A-133 for
fiscal years 2000 and 2001 and the audits did not disclose identity-of-interest issues with
related not for profit entities.33
The Authority has turned over the development of Madison Heights III to an identity-of-
interest firm, Housing Redevelopment. The Authority has granted or will grant Housing
Redevelopment significant amount of funds. The Authority needs to ensure that both it
and Housing Redevelopment have the proper controls to ensure the funds received are
expended in accordance with applicable requirements.
It appears the Authority has lost sight of its primary purpose of providing decent, safe, and
sanitary housing for low-income residents. This is illustrated in Finding 2 that shows the
conditions of some units and sites. Further, the Authority has not used its assets in some
instances consistent with its mission; for instance, it leased land for a nominal amount to
the Audubon Society for 99 years eliminating the land as a resource for low-income
housing.
The Authority needs to strengthen its internal control over its accounting functions to protect
its assets. In the event the Authority chooses to lease property, it should ensure the property
is related to its mission of providing decent and safe housing to Little Rock’s low-income
families.
32
The Authority provided sufficient support at the exit conference to correct the $14,052 in unsupported amounts
included in the discussion draft.
33
Supposedly, the Authority’s 2002 audit has disclosed the identity-of-interest firm, Housing Redevelopment.
The Authority did not provide to us.
Page 25 2004-FW-1001
Finding 3
Generally Accepted Accounting Principles (GAAP) require
Need for segregation of the accounting duties of paying vendor invoices, receiving
duties and limited control payments, and reconciling bank statements be segregated to
to accounting functions. the greatest degree possible. At the Authority, accounting
employees that make payments also collect receivables.
Also, employees perform each other’s work so each
employee has access to all phases of the accounting
process.
All accounting employees had access to the signature
cartridge used to sign checks with two signatures: (1)
Executive Director’s and (2) the Deputy Director’s. The
employees’ access circumvented the Authority’s
requirement of two signatures on checks. The Authority’s
actual practice of allowing all employees access to the
signature cartridge usurped any policy.
Further, the Authority did not use preprinted check
numbers or computer-generated numbers. A manual log
for check numbers was maintained for the employees to
assign check numbers that allowed any check number be
assigned to any payment thereby eliminating accountability
for each check.
In this environment, the opportunity for diversion of funds
was higher than a mere assessment of high risk for internal
control purposes; it was a continuous opportunity for
diversion of funds by any of the employees.
The Authority needs to segregate duties to the greatest extent
possible. In addition, computer-generated or pre-numbered
checks should be used in order to safeguard its cash.
Controls need to be reinstated for the signature cartridge so
that only the persons who are signature authorities have
access and control of the cartridge. In instances where
further segregation of duties is not cost-effective, the
Executive Director and Board members must actively review
controls, receipts, expenditures, and reports and follow-up
when questions arise.
To accomplish our objectives, we reviewed the disbursement
file, using computer software, to determine a non-
representative selection of disbursement checks. To
determine the selection, we utilized the software’s “random
sample” function. Limitations in the selection included
2004-FW-1001 Page 26
Finding 3
separating the 2001 and 2002 information and filtering out
any payments under $1,000. As a result, we selected 50
disbursements from 2001 and 2002.
The Authority’s former Systems and Finance Director had
Former Systems and access to six Authority bank accounts totaling $525,943.
Finance Director still has The Authority had not corrected the situation because the
access to $525,000 in Finance Director was overhauling the accounting
Authority bank accounts. department and has not had time to correct the bank
account access list. Despite HUD requirements to the
contrary, the Authority did not have written policies for
accurate bank account access list. As a result, the
Authority unnecessarily put itself at increase risk of theft.
The Authority should ensure its bank has a correct access
list.
The former Systems and Finance Director resigned in
January 2002.
The former Systems and Finance Director resigned from
the Authority in January 2002. This resignation should
have constituted a change in the access list of all Authority
bank accounts. However, as of August 18, 2003, the
Authority had not done this. The reasons included no
policy requiring it and the Finance Director has not had the
time to do so. Consequently, the former Systems and
Finance Director still as access to six accounts totaling
$525,943.34
The Authority is required to maintain “Effective control
over and accountability for all funds, property and other
assets. Recipients shall adequately safeguard all such
assets and assure they are used solely for authorized
purposes.” In addition, the Authority must maintain
“Effective control and accountability must be maintained
for all grant and subgrant cash, real and personal
property, and other assets. Grantees and subgrantees must
adequately safeguard all such property and must assure
that it is used solely for authorized purposes.” 35
The Authority put itself at risk for possible theft. A written
policy could reduce this unnecessary exposure to theft.
However, the Authority should remove the former Systems
34
As of December 31, 2002.
35
24 CFR 84.21 and 24 CFR 85.20.
Page 27 2004-FW-1001
Finding 3
and Finance Director’s name and anyone else that does not
need access to its bank accounts.
The Authority received miscellaneous income from the
Incorrect method of
rental of the roofs of the high-rises to wireless providers.
accounting for lease
Generally Accepted Accounting Principals (GAAP)
income.
requires leases to be accounted for as a receivable and the
income recognized as it becomes due to the Authority.
This allows the income to be recognized by matching the
income to the period earned and shown as the asset or
liability36 on the balance sheet. It also allows the lease
amounts to be considered in the cash projections as money
that may be utilized in the future.
The Authority's Finance Officer said he knew the receipts
for the Telephone Company rent receipts for the towers on
top of the high-rise buildings were not being recorded
correctly. The Finance Officer said he had been recording
them as "Miscellaneous Deposits" and then transferring to
the appropriate account with a journal voucher. The
Finance Officer stated he has not had the time or staff to set
them up correctly. It did not appear the Authority had
enough trained staff to assist in accounting for all
transactions for the Authority. In addition to maintaining
its books and records according to GAAP, the Authority
should ensure that staff is adequately trained.
We tested 100 disbursement checks37 from 2001 through
The Authority needs 2002. Of the 100 checks tested, the Authority had
better controls over supporting documentation for all checks.
disbursements.
However, the Authority did not stamp 66 of the 100
invoices “paid” or otherwise cancel to prevent multiple
payments from the same original invoice, 12 of the
payments did not reflect an accounting distribution to show
how the checks were charged.
The Authority did not have a written control policy over
disbursements. The Authority should establish and
implement a written control policy regarding disbursements
reflecting federal laws and regulations.
36
Prepaid Lease for the tower would be a liability until it is earned.
37
A non-representative selection from approximately 4,700 checks during the audit period.
2004-FW-1001 Page 28
Finding 3
The Executive Director did not have the authority to lease
The Authority leased 68 property for purposes other than low-income housing. The
acres to the Audubon Authority leased 68 acres of property to the Arkansas
Society for a dollar a year. Audubon Society for 99 years. HUD Little Rock field
office General Counsel disclosed at least a portion of the
leased property has deed restrictions, which prevented it
from being used for anything other than low-income
housing. At first, the Executive Director denied that a lease
existed, but staff later provided a copy of the lease.
According to the Authority, the City of Little Rock was
about to condemn the acreage for the benefit of the
Audubon Society so the Authority leased it to the Audubon
Society for $1 per year for 99 years. Besides not having the
authority to lease the entire property, the choice to lease
was a poor one if the City of Little Rock was going to
condemn it. Generally, when property is condemned, the
City would pay the owner fair value of the property. The
condemnation proceeds could have been spent to acquire
property in another location for housing.
According to the Authority, the land is not suitable for
housing due to its proximity to the airport and created a
liability to the Authority in terms of safety and upkeep of the
vacant property. The Authority believes the lease to the
Audubon Society is advantageous and is a good use of the
land.
The HUD field office should review the Audubon Society
lease with the Authority, the property involved, and the
portion that has land use agreements attached. This land or
comparable fair value should be returned to the Authority
to provide housing for low- and moderate-income families.
The Authority selected Housing Redevelopment as the
The Authority hired an developer for Madison Heights III. The Authority
identity-of-interest firm to attempted procurement of a developer but according to
develop Madison Heights Housing Redevelopment’s attorney decided to contract
III. with itself through Housing Redevelopment. By selecting
itself as the developer, the Authority said it did not have to
follow procurement requirements.
The following table shows the relationship between the two
organizations:
Page 29 2004-FW-1001
Finding 3
Housing
Name Authority Position Redevelopment
Position
Wooten Epes Current Board Chairman President
L. Lee Jones Executive Director Executive Director
John Toney, CPA Former Board Chairman Project Manager
Calvin Scribner Former Board Member Board Member
The Authority will provide significant amount of funds to
Housing Redevelopment. Currently, no contract or
memorandum of understanding exists between the two
organizations.38 Further, Housing Redevelopment has no
employees and consequently, no systems or policies in
place to ensure the proper use of funds. According to staff,
the Executive Director and Deputy Director have
performed many of Housing Redevelopment’s tasks.
According to Housing Redevelopment’s attorney, Housing
Redevelopment has hired a consultant to help run Housing
Redevelopment until it has sufficient funds to hire full-time
employees.39 Also, Housing Redevelopment is striving
towards unquestionable independence from the Authority.
However, it will not be considered independent until
Housing Redevelopment no longer utilizes any Authority
employees, has an entirely independent board, and no
longer seeks the cooperation and input of the Authority.
Currently, Housing Redevelopment operates rent free from
the Authority’s office. Through cursory review of the
Authority’s records, it appears the Authority has provided
Housing Redevelopment over $180,000 from its low-rent
funds.40
According to HUD regulations,41 “…no employee, officer,
or agent of the grantee or sub grantee shall participate in
selection, or in the award or administration of a contract
supported by federal funds if a conflict of interest, real or
apparent, would be involved.”
38
Housing Redevelopment’s lawyer did provide a recycling agreement between the Authority and Housing
Redevelopment that sets out the general use of funds and repayments.
39
We did not review the awarding of this contract or the awarding of the contract to Housing Redevelopment’s
attorney.
40
We did not review the transactions because they were outside our scope. Further, we did not review the
Authority’s financial data to determine the total amount provided to Housing Redevelopment.
41
24 CFR 85.36 (b)(3).
2004-FW-1001 Page 30
Finding 3
HUD should scrutinize and monitor this development
agreement and the funds provided to Housing
Redevelopment to ensure that it has appropriate controls to:
o Safeguard assets.
o Ensure compliance with regulations including those
over revenue and expenditures.
o Capacity to perform its missions.
Further, if Housing Redevelopment becomes “independent”
from the Authority, the Authority and HUD need to ensure
it continues to monitor Housing Redevelopment for
compliance with regulations and agreements.
Financial statements issued by the Authority during the audit
Nondisclosure of material period did not disclose the interest of the Executive Director,
items in financial current Chairman of the Board of Commissioners and former
statements. Chairman of the Board of Commissioners in the Authority’s
identity-of-interest firms, Housing Redevelopment. GAAP
required full disclosure in order for the users of the financial
statements in order for the statements to be useful. The
failure to disclose the interests limited the financial
statement’s usefulness as the interests in Housing
Redevelopment and Granite Mountain Development Limited
Partnership.
Furthermore, the Authority’s Board Chairman and Housing
Redevelopment’s President signed a certification stating that
Housing Redevelopment did not have a conflict of interest
with the Authority.
Management was responsible for the financial statements and
should ensure all interests in other entities were disclosed.
The financial statements for fiscal year 2002 should be
complete and include all appropriate disclosures to ensure
they are useful to their readers.42
Both the Executive Director and the Deputy Director
The Executive Director received $10,000 from two not-for-profit entities related to
and the Deputy Director the Authority. Housing Redevelopment paid the Executive
inappropriately accepted Director $10,000 and Granite Mountain Development
$10,000. Limited Partnership paid the Deputy Director $10,000. The
Authority claimed these payments were for work on Granite
Mountain Development.
42
According to the Authority’s response, the 2002 audit has the appropriate disclosures.
Page 31 2004-FW-1001
Finding 3
The Authority and Housing Redevelopment’s attorney claims
the payments were compensation for services rendered. But,
they did not provide any evidence of what, when, or how the
services were provided.
Neither the Executive Director nor the Deputy Director
should have accepted the payments. According to 24 CFR
85.36, “employees or agents will neither solicit nor accept
gratuities, favors or anything of monetary value from
contractors, potential contractors, or parties to
subagreements.”43
The HUD field office should determine how to correct the
receipt of the money by the Executive Director and Deputy
Director.
Auditee Comments In its response, the Authority stated, “there are a number of
separate conclusions reached in Finding 3. Many of these are
easily corrected. Others, however, will take more work.
Finally, on some of the findings, no change will be made.
The OIG auditors merely failed to review all of the records
available to them.”
The Authority states it has established proper controls
disbursements and bank account access. It also agreed to
implement other recommendations. The 2002 audited
financial statements were in accordance with GAAP and had
proper disclosure. Based upon the 2002 audit, the Authority
believes the recommendation regarding the disclosure of the
identity of interest is “entirely without merit.”
The Authority stated that the lease with the Audubon Society
would not be effective until HUD approved.
The Authority’s response explained the relationship between
Housing Redevelopment and the Authority. The response
also claimed that HUD would “review and approve all of the
documents for the revitalization of Madison Heights III.”
The Authority’s response again states that the payments to
the Executive Director and Assistant Executive Director were
for compensation and appropriate. The Authority’s response
stated, “the Report’s questioning of this payment is further
43
24 CFR 85.36.
2004-FW-1001 Page 32
Finding 3
evidence that it did not fully understand the concept of an
identity-of-interest corporation.”
OIG Evaluation of We commend the Authority for taking positive action to
Auditee Comments correct the identified problems. The Authority never
provided the 2002 financial statements so we could not
determine the accuracy of their statements. Nonetheless,
correcting the accounting and disclosing identity-of-
interests firms in 2002 does not change the fact that the
audited financial statements did not report these items in
the 2001 or 2000 financial statements.
After reviewing the Authority’s response and the evidence,
we removed the phrase “misappropriation of assets” in the
discussion of the Audubon lease.
The lack of procedures and controls at Housing
Redevelopment weakens its argument that agreements or
payments are appropriate. The Authority’s response states
that the payments to the Executive Director and Assistant
Executive Director were additional compensation decided
upon by the Housing Redevelopment Board of Directors and
criticized us for not understanding identity of interest.
As stated in the report, Housing Redevelopment had no
policies and procedures in place to determine the
appropriateness of the payments including, but not limited to,
adhering to HUD and Office of Management and Budget
requirements, documenting the services received for the
compensation, and documenting that the services were
beyond their duties as Executive Director and Assistant
Executive Director.
Recommendations We recommend the Director of the Little Rock Office of
Public Housing require the Authority to:
3A. Establish and implement proper controls over
disbursement including segregation of duties; use of
pre-numbered or computer generated check numbers;
and restricting the access to the signature cartridge.
Page 33 2004-FW-1001
Finding 3
3B. Establish and implement proper controls over its bank
account access list including immediately making any
necessary changes.
3C. Ensure the accounting records are maintained in
accordance with GAAP.
3D. Ensure that staff is adequately trained.
3E. Ensure the financial statements for the current year
disclose all entities that have identity of interest with
the Authority.
3F. Renegotiate the lease with the Audubon Society
removing the portion of the property that has land use
restrictions for low-income property.
3G. Determine the fair market value for the use of the
Authority’s administration building and collect that
amount from Housing Redevelopment for the period
of time the not-for-profit has used the Authority’s
property and a fair rental rate for future periods.
Further, we recommend the Director of the Little Rock
Office of Public Housing:
3H. Scrutinize and monitor this development agreement
and the funds provided to Housing Redevelopment to
ensure that it has appropriate controls to: (1)
safeguard assets; (2) ensure compliance with
regulations including those over revenue and
expenditures; and (3) capacity to perform its missions.
3I. Take appropriate action to correct the receipt of
money by the Executive Director and the Deputy
Director.
2004-FW-1001 Page 34
Management Controls
In planning and performing our audit, we obtained an understanding of the management
controls that were relevant to our audit objectives. Management is responsible for
establishing effective management controls. Management controls, in the broadest sense,
include the plan of organization, methods, and procedures adopted by management to ensure
that its goals are met. Management controls include the processes for planning, organizing,
directing, and controlling program operations. They include the systems for measuring,
reporting, and monitoring program performance.
To determine if the Authority met the objectives, we took
Relevant Management non-representative selections of contracts, cash
Controls disbursements and collections, interviews with residents, and
observation of units. While not able to extrapolate to the
population, we believe our selections do provide sufficient
evidence to support our conclusions.
We determined the following management controls were
relevant to our audit objectives:
Adequacy of and adherence to written policies and
procedures regarding cash management and procurement.
Selection, award, and performance of contracts.
Eligibility and adequacy of records maintained for
disbursements to employees and vendors in accordance
with laws and regulations.
Maintenance of units as decent, safe, and sanitary housing
for residents.
A significant weakness exists if management controls do
Significant Weaknesses not give reasonable assurance that resource use was
consistent with laws, regulations, and policies; that
resources were safeguarded against waste, loss, and misuse:
and that reliable data were obtained, maintained, and fairly
disclosed in reports. Based on our audit, the following
items were significant weaknesses, in that the Authority
lacked administrative controls to ensure:
1) The contracts were properly procured in accordance with
regulations (Finding 1).
2) The contracts expend funds that were eligible, necessary,
and supported (Finding 1).
3) Cash collections and disbursements were used consistent
with the Authority’s mission (Finding 3).
Page 35 2004-FW-1001
Management Controls
4) Records were maintained which adequately identify the
source and application of funds provided for HUD-
assisted activities (Finding 3).
5) Properties are maintained as safe and decent low-income
housing (Finding 2).
2004-FW-1001 Page 36
Follow-Up on Prior Audits
Office of the Inspector General Audit Reports
This is the first audit of the Authority by the Office of Inspector General.
Independent Accountant Financial Audit Reports
Miller & Rose
Miller & Rose, CPAs, issued the Independent Auditor’s reports for the last 3 years. Due to
previous year’s noncompliance with annual independent audits, Miller & Rose issued audit
reports for Fiscal Years 1999, 2000, and 2001 in July 2002.44
The most recent report was for Fiscal Year 2001. In this audit report, Miller & Rose expressed a
qualified opinion citing a failure to keep a physical inventory and the inability to determine the
impact on the financial statements.
In accordance with Government Auditing Standards, Miller & Rose reported instances of
noncompliance with federal requirements. In addition, Miller & Rose found reportable
conditions in the design or operation of the internal control over financial reporting. These
conditions were also considered material weaknesses in their report.
In accordance with OMB Circular A-133, Miller & Rose reported the Authority did not comply
with requirements regarding eligibility and reporting that are applicable to its Public and Indian
Housing Section 8 Tenant Based Cluster and Low Income Housing residents. Miller & Rose
reiterated its concern over internal control over compliance with requirements and “noted certain
matters involving the internal control over compliance and its operation that we consider to be
reportable conditions.”
44
OMB Circular A-133 requires annual audits from non-federal entities that expend $300,000 or more in a year in
federal awards to have a single or program-specific audit conducted for that year.
Page 37 2004-FW-1001
Follow-Up on Prior Audits
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2004-FW-1001 Page 38
Appendix A
Schedule of Questioned Costs
Recommendation Vendor Name Unsupported1
1C John D. Blake $204,211
1E SCAT 24,000
3H Executive Director and
Deputy Director 20,000
Total $248,211
1
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.
Page 39 2004-FW-1001
Appendix A
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2004-FW-1001 Page 40
Appendix B
Listing of Units Observed and
Maintenance Needed
Name of Unit Number or
Complex Address Maintenance Needed
Amelia B. Ives 200 East 28th Street Repair bathroom sink. Treat the unit for termites.
Repair hole in floor in kitchen. Paint patches in living
Amelia B. Ives 201 East 28th Street room.
Amelia B. Ives 31 I Les Walk Replace Smoke Detector Battery.
Ensure cabinet installation is complete and stove has
Cumberland Towers Unit 601 been returned to apartment.
Cumberland Towers Unit 304 Repair window in door leading to deck.
Cumberland Towers Unit 605 Paint unit. Replace air filter.
Repair peeling paint and metal plaster trim pulling away
Granite Mountain 1 A Harris from wall
Repair tile floor leading into the kitchen lifting from the
Granite Mountain 4 A Harris Circle floor.
Repair damage from termites. Repair burned floor.
Hollinsworth 74 Hollinsworth Dr Clean air ducts. Replace air filter. Replace baseboard.
Madison Heights 1201 Monroe, Unit E Cover exposed wiring in the laundry room.
Paris Towers Unit 918 Repair front left burner on stove.
Paris Towers Unit 1017 Replace air conditioning filter.
Repair cabinet pulling away from ceiling. Cover
telephone line outlet. Assist tenant in putting light
Paris Towers Unit 613 covers back on lights.
Powell Towers Unit 517 Replace air conditioning filter. Paint unit.
Powell Towers Unit 903 Treat for insects.
Repair broken window. Repair water fountain in the hall
Powell Towers Unit 511 so water high enough to drink.
Sunset Terence 2706 Battery St. Replace Smoke Detector Battery.
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Appendix C
Auditee Comments
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Appendix C
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Appendix C
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Appendix C
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City of Little Rock Housing Authority Procurement and Asset Control Little Rock, Arkansas
Published by the Department of Housing and Urban Development, Office of Inspector General on 2004-01-26.
Below is a raw (and likely hideous) rendition of the original report. (PDF)