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 THIS PAGE LEFT BLANK INTENTIONALLY 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 THIS PAGE LEFT BLANK INTENTIONALLY 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 THIS PAGE LEFT BLANK INTENTIONALLY 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 THIS PAGE LEFT BLANK INTENTIONALLY 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. Page 41 2004-FW-1001 Appendix B THIS PAGE LEFT BLANK INTENTIONALLY 2004-FW-1001 Page 42 Appendix C Auditee Comments Page 43 2004-FW-1001 Appendix C 2004-FW-1001 Page 44 Appendix C Page 45 2004-FW-1001 Appendix C 2004-FW-1001 Page 46 Appendix C Page 47 2004-FW-1001 Appendix C 2004-FW-1001 Page 48 Appendix C Page 49 2004-FW-1001 Appendix C 2004-FW-1001 Page 50 Appendix C Page 51 2004-FW-1001 Appendix C 2004-FW-1001 Page 52 Appendix C Page 53 2004-FW-1001 Appendix C 2004-FW-1001 Page 54 Appendix C Page 55 2004-FW-1001 Appendix C 2004-FW-1001 Page 56
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)