oversight

Housing Authority of Fulton County Atlanta, Georgia

Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-04-21.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                              Issue Date
                                                                      April 21, 2005
                                                             Audit Case Number
                                                                      2005-AT-1009




TO:        Boyce Norris, Jr., Director, Office of Public Housing, 4APH


FROM:
           James D. McKay
           Regional Inspector General for Audit, 4AGA

SUBJECT: The Housing Authority of Fulton County
         Atlanta, GA


                                  HIGHLIGHTS

 What We Audited and Why

            We reviewed the Housing Authority of Fulton County’s (Authority)
            administration of its housing development activities as part of our audit of the
            U.S. Department of Housing and Urban Development’s (HUD) oversight of
            Public Housing Agency development activities with related nonprofit entities.

            Our primary objective was to determine whether the Authority had advanced or
            diverted resources subject to an Annual Contributions Contract (Contract) or other
            agreements or regulation to the benefit of other entities without specific HUD
            approval. Our objective included determining whether the Authority’s cost
            allocation method complied with provisions of Office of Management and Budget
            Circular A-87 and whether adequate records were maintained for Public Housing
            program (Public Housing) expenses.


 What We Found

            The Authority inappropriately used Public Housing funds to pay for other
            programs’ and related entities’ expenses in excess of funds the programs or
            entities had on deposit. As of July 31, 2004, six programs or entities owed Public
            Housing $640,221. Since the Authority’s programs and entities did not promptly
            deposit funds with Public Housing, the Authority inappropriately used funds to
         pay the expenses for the programs or entities. In addition, the Authority violated
         its Contract with HUD by inappropriately advancing Public Housing funds for
         some of its activities and activities of the nonprofit entities. These actions
         occurred because the Authority did not have adequate controls in place to limit
         the amount of funds disbursed by the amount of funds on deposit. As a result,
         $640,221 of Public Housing funds could be put to better use.

         The Authority did not support its allocation of salary and benefit costs with
         activity reports or equivalent documentation as required. Thus, it did not have a
         record of the time spent on various activities, and some activities may have paid a
         disproportionate share of the costs. As of September 30, 2004, the Authority had
         allocated $1,329,901 more to its federal programs than had comparable housing
         agencies.

         The Authority did not maintain adequate records for Public Housing expenses
         totaling $770,651 that were incurred during fiscal years 2001 through 2004. The
         Authority (1) reclassified $552,700 in salary and benefit costs without support,
         (2) could not provide support for $181,012 in reclassified expenses, and (3) could
         not provide any documentation for $36,939 in expenses. This occurred because
         the Authority had not established internal controls to maintain adequate records.
         As a result, $770,651 in Public Housing expenses is unsupported.

What We Recommend


         We recommend that the Director of the Office of Public Housing require the
         Authority to repay the $640,221 or current balance owed to Public Housing and
         ensure future transactions comply with the Contract and other HUD requirements.

         We also recommend that the Director of the Office of Public Housing require the
         Authority to provide documentation to justify allocating $1,329,901 more in
         salary and benefit costs than was allocated by comparable housing agencies, or
         reimburse its Public Housing program.

         Further, we recommend that the Director of the Office of Public Housing require
         the Authority to develop internal controls to ensure that $770,651 of Public
         Housing expenses are properly supported and that supporting documentation is
         made readily available upon request.

         For each recommendation without a management decision, please respond and
         provide status reports in accordance with HUD Handbook 2000.06, REV-3.
         Please furnish us copies of any correspondence or directives issued because of the
         audit.




                                          2
Auditee’s Response


           We discussed our review results with the Authority and HUD officials during the
           audit. We provided a copy of the draft report to the Authority officials on
           March 28, 2005, for their comments and discussed the report with the officials at
           the exit conference on April 5, 2005. The Authority provided written comments
           on April 11, 2005.

           The complete text of the auditee’s response, along with our evaluation of that
           response, can be found in appendix B of this report.




                                            3
                            TABLE OF CONTENTS

Background and Objectives                                                            5

Results of Audit
      Finding 1: The Authority Improperly Used and Advanced Public Housing Funds      6

      Finding 2: The Authority Did Not Support Allocated Salary Costs in Excess of    9
      Those of Comparable Housing Authorities

      Finding 3: The Authority Did Not Maintain Adequate Records for Public          12
      Housing Expenses

Scope and Methodology                                                                15

Internal Controls                                                                    16

Followup on Prior Audits                                                             17

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use                 18
   B. Auditee Comments and OIG’s Evaluation                                          19




                                            4
                     BACKGROUND AND OBJECTIVES

The Housing Authority of Fulton County (Authority) was created in 1972 by Fulton County
legislation to help fill the need for decent, safe, sanitary, and affordable housing in
unincorporated Fulton County. The Authority is a public body corporate and politic pursuant to
the laws of the State of Georgia, which was organized to provide low rent housing for qualified
individuals in accordance with the rules and regulations prescribed by the U.S. Department of
Housing and Urban Development (HUD) and other federal agencies.

A nine-member board of commissioners appointed by the Fulton County Board of
Commissioners governs the Authority. The board is charged with setting policy and providing
guidance to the Authority. Bettye Davis resigned as executive director on September 30, 2004.
The board appointed Jonathan Jones as interim executive director effective October 1, 2004.
Subsequently, he was appointed executive director effective March 24, 2005.

The Authority currently administers Public Housing program (Public Housing) properties,
consisting of 100 units at Allen Road Midrise and 9 units at Belle Isle. It manages a Section 8
program consisting of 756 housing choice vouchers with a 2004 budget of $7,434,945. The
Authority received a HOPE VI Revitalization grant award of $17,191,544 in July 2003. The
revitalization plan includes the demolition and revitalization of the Authority’s Red Oak Public
Housing community. The revitalization plan also includes the purchase of additional land to be
used as a community for the elderly and the purchase and rehabilitation of an existing apartment
community. Two tax credit applications have been submitted for the revitalization plans. The
Authority is currently awaiting approval for one application.

The Authority created four nonprofit subsidiaries: (1) Community Opportunity Centers, Inc., an
organization created in January 30, 1987, to provide resident services to its Public Housing
residents; (2) Legacy Community Partnership, Inc., an organization created in January 18, 2001,
as an investment and development entity for residential housing development; (3) Azalea
Apartments, Inc., created in December 4, 1997, as a result of the Authority’s initial HOPE VI
Revitalization plan; and (4) FULCO, an organization created in 1995 as a vehicle to assist in
undertaking its housing development projects. FULCO became independent of the Authority in
March 2002. Some Authority employees and board members also serve as the board of directors
for the affiliated nonprofit corporations.

HUD’s Georgia State Office of Public Housing in Atlanta, Georgia, is responsible for overseeing
the Authority.

Our primary objective was to determine whether the Authority had advanced or inappropriately
used resources subject to an Annual Contributions Contract (Contract) or other agreements or
regulation to the benefit of other entities without specific HUD approval. Our objective included
determining whether the Authority’s cost allocation method complied with provisions of Office
of Management and Budget Circular A-87 and whether adequate records were maintained for
Public Housing expenses.




                                                5
                                 RESULTS OF AUDIT


Finding 1: The Authority Improperly Used and Advanced Public
           Housing Funds
The Authority inappropriately used Public Housing funds to pay for other programs’ and related
entities’ expenses in excess of funds the programs or entities had on deposit. As of
July 31, 2004, six programs or entities owed Public Housing $640,221. Since the Authority’s
programs and entities did not promptly deposit funds with Public Housing, the Authority
inappropriately used funds to pay the expenses for the programs or entities. In addition, the
Authority violated its Contract with HUD by inappropriately advancing Public Housing funds for
some of its activities and activities of the nonprofit entities. These actions occurred because the
Authority did not have adequate controls in place to limit the amount of funds disbursed by the
amount of funds on deposit. As a result, $640,221 of Public Housing funds could be put to better
use.



 The Authority Inappropriately
 Used Public Housing Funds to
 Pay Other Programs’ Expenses

               The Authority inappropriately used Public Housing funds to pay for the expenses
               of its programs and nonprofit-related entities. The programs and entities were to
               repay funds to the Public Housing account when they obtained the anticipated
               funding. For example, the Authority’s Section 8 housing choice voucher owed
               the Public Housing account $460,505 as of July 31, 2004. The interim executive
               director stated that there were often delays in receiving its Section 8 funds. As a
               result, the Authority would use Public Housing funds to pay for Section 8
               expenses and would then repay Public Housing once the Section 8 funds were
               received. Although there were payments made from the Section 8 program to
               Public Housing, the Section 8 program never paid the full amount owed.

               Part C, section 10, of the Contract, Pooling of Funds, states that the Authority
               shall not withdraw from any of the funds or accounts authorized under this section
               amounts for the projects under the Contract or for the other projects or enterprise
               in excess of the amount then on deposit in respect thereto. Further, section 9(C)
               of the Contract, states the housing authority may withdraw funds from the general
               fund account only for (1) the payment of costs of development and operation of
               projects under Contract with HUD, (2) the purchase of investment securities as
               approved by HUD, and (3) such other purpose as may be specifically approved by
               HUD.




                                                6
          The Authority did not have adequate internal controls for monitoring its Public
          Housing funds. It did not limit payments from the Public Housing fund to
          amounts a specific program had on deposit. Therefore, the Public Housing
          program was deprived of approved funds that could have been used for additional
          Public Housing activities because it was paying for other programs’ expenses.
          Since the Authority was using Public Housing funds to advance funds to other
          programs, all funds owed to Public Housing should be repaid in a timely manner.

          As of July 31, 2004, the following six programs and entities owed Public Housing
          $640,221.


            Program/Entity                                       Amount Due to Public Housing
            Housing Choice Voucher – Certificate (Section 8)             $ 460,505
            Enterprise Fund                                              $ 103,056
            Homeownership Program                                        $ 53,096
            Azalea Manor                                                 $ 13,234*
            Development -- URDC                                          $ 8,000
            Other sources                                                $ 2,330
            Total owed to Public Housing                                 $ 640,221
            *
                 Azalea Manor accounts receivables have been reclassified from the Public Housing
                general ledger to the Enterprise Fund general ledger. However, the Azalea Manor
                expenses were paid with Public Housing Funds.

          The above balances were not settled monthly and remained outstanding from
          month to month. Although some payments and reclassifications were made to
          reduce the balances owed, at no time were the balances reduced to zero.

          Therefore, the Public Housing program was deprived of $640,221 in HUD
          approved funds that could have been put to better use on additional Public
          Housing activities.

Recommendations

          We recommend that the Director of the Office of Public Housing:

          1A. Require the Authority to repay the $640,221 or current balance owed to
              Public Housing.




                                               7
1B. Ensure future transactions comply with the Contract and other HUD
    requirements. Specifically, the Authority needs to establish controls to
    ensure:

     •   Pooled funds are not withdrawn for a program/entity in excess of the
         amount of funds on deposit for that particular program/entity.

     •   HUD funds are not advanced to other programs or nonprofit entities
         without prior HUD approval.




                                8
Finding 2: The Authority Did Not Support Allocated Salary Costs In
           Excess of Those of Comparable Housing Authorities
The Authority did not support allocated salary costs in excess of the annual salary costs of other
comparable housing authorities. Overall, the Authority did not support its allocation of $2.4 million
in salary and benefit costs allocated from fiscal years 2001 through 2004 with activity reports or
equivalent documentation as required by Office of Management and Budget Circular A-87. The
Authority’s management stated they were not aware of the specific requirements of Circular A-87.
As a result, $1.3 million of excess comparable salary and benefits costs were unsupported.



 The Authority Did Not Support
 Its Allocation of Salary Costs

               The Authority did not support its allocation of salaries and benefits with activity
               reports or equivalent documentation as required by Office of Management and
               Budget Circular A-87. Thus, the Authority did not have a record of the actual time
               spent on the various programs, and some programs may have paid a disproportionate
               share of the costs. Of the $5 million charged to its various programs for fiscal years
               2001 through 2004, the Authority allocated $2.4 million to its various federal
               programs. The Authority’s management was not aware the allocation was to be
               based on activity reports.

               We compared the Authority with four other housing authorities of similar unit
               size to determine a reasonable salary cost level for the Authority. We reviewed
               two housing authorities for fiscal years 2001 and 2002 and two additional housing
               authorities for fiscal years 2003 and 2004. Based on their salary costs levels, we
               established an average annual salary and wage expense for each fiscal year
               reviewed.

               After comparing the salary costs of the other housing authorities, we determined
               that between fiscal years 2001 and 2004, the Authority did not support allocated
               costs totaling $1,329,901. We found that each year, the Authority exceeded the
               average annual salary as presented in the following table.

                                     Allocated Salary Cost Comparison
                                  Fulton County Allocated   Average Salary and
                    Fiscal Year       Salary Expenses        Wage Expenses         Variance
                       2001             $ 681,860              $ 413,500          $ 268,360
                       2002             $ 602,541              $ 413,500          $ 189,041
                       2003             $ 493,664              $ 140,500          $ 353,164
                       2004             $ 659,836              $ 140,500          $ 519,336
                       Total            $2,437,901             $1,108,000         $1,329,901




                                                  9
            Although the Authority allocated $2.4 million in salary and benefit costs without
            proper support as required by Office of Management and Budget Circular A-87, we
            are only questioning the portion that exceeds the annual salary and benefit costs
            level of comparable housing authorities. Therefore, of the $2.4 million in salary and
            benefit costs allocated, $1.3 million is unsupported.

Authority Used Historical Data
to Allocate Costs

            The Authority operated several programs including Conventional Public Housing,
            Capital Grant, Section 8 and several other grant programs. The former executive
            director stated that budget allocations were based on historical data. She also
            stated that the amount of time spent on a particular program in the prior year
            determined the allocation budgeted for the next year. The interim financial
            operations manager stated that in July 2004, the Authority’s financial consultant
            reviewed its cost allocation plan and created a revised allocation plan. The
            financial consultant based its allocation plan on its discussion with the Authority’s
            program directors regarding the time Authority employees had spent on different
            activities in the prior year.

Circular A-87 Requires Activity
Reports to Support Allocation

            The requirement to use activity reports to support the allocation of costs is included
            in Office of Management and Budget Circular A-87, attachment B, section 8h(4).
            The section states, in part, where employees work on multiple activities or cost
            objectives, a distribution of their salaries or wages will be supported by personnel
            activity reports or equivalent documentation. The activity reports must reflect an
            after-the-fact distribution of the activity of each individual employee. Since the
            Authority did not support its allocation of costs, we are questioning $1.3 million.

Recommendations

            We recommend that the Director of the Office Public Housing:

            2A. Require the Authority to develop a justifiable method of supporting the
                allocated costs. The method could include daily activity reports prepared by
                its staff to support the allocation of costs.

            2B. Require the Authority to provide documentation to justify the $1,329,901 of
                allocated salary and benefit costs in excess of comparable housing agencies
                and ensure appropriate adjustments are made to the various activties, or
                repay its Public Housing program from non-federal funds.




                                             10
2C. Require the Authority to develop a reasonable method for allocating its
    future costs, to include daily activity reports for services performed by its
    staff.




                                 11
Finding 3: The Authority Did Not Maintain Adequate Records for
           Public Housing Expenses
The Authority did not maintain adequate records for Public Housing expenses totaling $770,651
that were incurred during fiscal years 2001 through 2004. The Authority (1) reclassified $552,700
of salary and benefit costs without support, (2) could not provide support for $181,012 in
reclassified expenses, and (3) could not provide documentation for $36,939 in expenses. This
occurred because the Authority did not establish internal controls to maintain adequate records. As
a result, $770,651 in Public Housing expenses was unsupported.



 The Authority Reclassified
 Salary and Benefit Costs
 without Support


               The Authority inappropriately reclassified receivable amounts in order to decrease
               the amount of account receivables reported in its fiscal year 2003 Audited Financial
               Statements. Costs related to resident services were charged to expense categories of
               its related nonprofit entity, Community Opportunity Centers, Inc. Further, costs
               related to HOPE VI and other redevelopment costs, that were allowable under Public
               Housing, were charged to the Authority’s Enterprise Fund. The Public Housing
               program paid these expenses by increasing a receivable account. This caused the
               Authority’s accounts receivable-other account to reach $1.1 million in 2002. These
               costs were not allocated to the proper program, Public Housing. During the 2003
               audit, the Authority recognized the error, reclassified those expenses to Public
               Housing and reduced the receivable accounts. The expenses reclassified totaled
               $739,872. However, approximately 74.7 percent of the costs reclassified, or
               $552,700 was salary and benefit costs. The Authority did not support its allocation
               of salary and benefit costs with personnel activity reports as required by Office of
               Management and Budget Circular A-87. The Authority did not support that the
               salary and benefit costs reclassified as Public Housing costs actually supported
               Public Housing activities. The Authority did not have documentation to support the
               time charged by its business activities and related entity. As a result, $552,700 in
               salary and benefits costs that were reclassified is unsupported.

               The requirement to use activity reports to support the allocation of costs is included
               in Office of Management and Budget Circular A-87, attachment B, section 8h(4).
               The distribution of salaries or wages will be supported by personnel activity reports
               or equivalent documentation. The activity reports must reflect an after-the-fact
               distribution of the activity of each individual employee. Since the Authority did not
               support its allocation of costs, it cannot support that $552,700 of salary and benefit
               costs supported Public Housing activities.


                                                 12
The Authority Could Not
Provide Support for
Reclassified Expenses


           The Authority could not provide support for $181,012 in expenses that were
           reclassified from September 30, 2003 through July 31, 2004. These expenses
           were initially paid with Public Housing funds, which created a receivable due to
           Public Housing from its other programs and its related nonprofit entity,
           Community Opportunity Centers, Inc. The reclassification of these expenses
           reduced the receivable owed to Public Housing without repayment of the balance.
           The Authority could not explain or provide documentation to support why these
           reclassifications occurred. This occurred because the Authority has not
           established internal controls to ensure that adequate records are maintained for
           Public Housing expenses. As a result, $181,012 in receivables was not supported
           and receivable balances were decreased without repayment.

The Authority Did Not
Maintain Supporting
Documentation

           The Authority could not provide documentation for $36,939 in expenses incurred
           between May 4, 2001 and July 20, 2004. These expenses were recorded in the
           Public Housing general ledger; however, the Authority did not provide additional
           support for these expenses. Based on the records reviewed, we could not verify
           that the expenses were Public Housing expenses. We requested the Authority’s
           supporting documentation during our audit. However, the financial operations
           specialist stated that many of the records for the 2001 expenses were maintained
           at the Fulton County Government offices, and the Authority was not able to
           obtain that information from the County during our audit. The Authority needs to
           establish internal controls to ensure adequate documentation is maintained to
           support its Public Housing expenses.

           The Authority’s Contract, section 15(A) states that the Authority must maintain
           complete and accurate books of account for the projects of the Authority in such a
           manner as to permit the preparation of statements and reports in accordance with
           HUD requirements and to permit timely and effective audit. Further, Office of
           Management and Budget Circular A-87 (C)(1)(j) states that all expenses must be
           adequately documented.




                                           13
Recommendations



          We recommend that the Director of the Office of Public Housing:

          3A.     Ensure that the Authority develops internal controls to ensure that Public
                  Housing expenses are properly supported and that supporting
                  documentation is made readily available upon request.

          3B.     Provide documentation to justify the $552,700 in salary and benefit costs
                  that were reclassified as Public Housing costs, or repay its Public Housing
                  program from non-federal funds.

          3C.     Ensure that the Authority provides adequate support for $181,012 in
                  reclassified Public Housing receivables, or repay its Public Housing
                  program from non-federal funds.

          3D.     Ensure that the Authority provides adequate support for $36,939 of Public
                  Housing expenses, or repay its Public Housing program from non-federal
                  funds.




                                           14
                        SCOPE AND METHODOLOGY

To accomplish our audit objective, we reviewed the following:

•   Applicable laws, regulations, and other HUD program requirements;

•   The Authority’s Contracts; and

•   HUD’s and the Authority’s program files.

We reviewed various documents including: financial statements, general ledgers, bank
statements, minutes from board meetings, check vouchers, invoices, loan documents, related
development agreements, management agreements, partnership agreements, and reports from the
independent public accountant. We also reviewed all related nonprofit entities’ bylaws and
incorporation documents. In addition, we gained an understanding of the Authority’s accounting
system as it related to our review objective.

We also interviewed the HUD Georgia State Office of Public Housing program officials and
Authority management and staff.

We reviewed all of the salary and benefit records available for fiscal years 2001 through 2004.
In addition, we reviewed all of the transactions that decreased Public Housing’s receivable
amounts reported in its 2002 and 2003 audited financial statements. Further, we reviewed all
receivables included in the Public Housing general ledger in excess of $50,000. We also
reviewed all Public Housing accounts receivable activity from October 2003 through
July 31, 2004, in order to determine if receivable balances were settled on a monthly basis. We
excluded any items that were not paid with Public Housing funds.

We performed our audit from July 2004 through February 2005. Our audit covered the period
from October 1, 2000 through July 31, 2004, but we extended the period as necessary.

We performed our review in accordance with generally accepted government auditing standards.




                                               15
                              INTERNAL CONTROLS

Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following objectives are being achieved:

   •   Effectiveness and efficiency of operations,
   •   Reliability of financial reporting, and
   •   Compliance with applicable laws and regulations

Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. Internal controls include the processes and procedures for
planning, organizing, directing, and controlling program operations. They include the systems
for measuring, reporting, and monitoring program performance.



 Relevant Internal Controls
We determined the following internal controls were relevant to our audit objectives:

               •   Compliance with laws, regulations, policies, and procedures that management
                   has implemented to reasonably ensure that resource use is consistent with
                   laws and regulations.

               •   Safeguarding of resources, policies, and procedures that management has
                   implemented to reasonably ensure that resources are safeguarded against
                   waste, loss, and misuse.

We assessed the relevant controls identified above.

               A significant weakness exists if internal controls do not provide reasonable
               assurance that the process for planning, organizing, directing, and controlling
               program operations will meet the organization’s objectives.

 Significant Weaknesses

Based on our review, we believe the following items are significant weaknesses:

               •   The Authority did not have a system to ensure that federal funds were
                   properly used and the funds were not put at risk (see findings 1 and 3).

               •   The Authority did not have a proper system to ensure that costs charged
                   among its various programs were properly supported (see finding 2).




                                                16
                     FOLLOWUP ON PRIOR AUDITS


Public Housing Management
Operations
Audit Number: 95-AT-202-1010


     A prior Office of Inspector General (OIG) audit report of the Authority was completed on
     August 2, 1995. The four findings for this audit were (1) housing units did not meet housing
     quality standards; (2) contract procurement and administration need improvement;
     (3) Authority needs to resolve Section 8 portability balances with other Public Housing
     authorities; and (4) other administrative matters, specifically; budgetary controls need
     improvement and excess funds not collateralized. The prior OIG audit findings have been
     cleared.

Fiscal Year 2003 Audited
Financial Statements of the
Authority


     Malcolm Johnson Company, Certified Public Accountants, completed the most recent
     audit of the Authority’s financial statements for the 12-month period ending on
     September 30, 2003. The financial statement report contains an unqualified opinion.
     However, there were reportable conditions that were not considered to be material
     weaknesses. The report included the following five findings: (1) Use of Public Housing
     Resources in Non-ACC Activities, (2) Deficiency in Accounting for Section 8 Housing
     Choice Voucher Portability, (3) Budgetary Controls Deficiencies, (4) Internal Control
     Deficiencies over Accounting and Reporting, and (5) Deficiencies in Resident Files.

     Deficiencies similar to findings 1, 3, and 4 in the last financial statement audit are
     reported in the findings section of this report. These deficiencies were reported in 2003,
     which was included in our audit period. These deficiencies did not affect our audit
     objectives because they were included in our audit scope. Since the independent public
     accountant’s Section 8 housing choice voucher portability and resident file findings were
     not in the scope of this audit, we did not review these findings during our audit. The
     Authority has developed a corrective action plan to address all the findings contained in
     the 2003 financial statement audit. There were no findings contained in the 2002
     financial statement audit.




                                             17
                                    APPENDIXES

Appendix A

               SCHEDULE OF QUESTIONED COSTS
              AND FUNDS TO BE PUT TO BETTER USE


                 Recommendation                                 Funds to Be Put to
                     Number              Unsupported 1/           Better Use 2/
                       1A                                            $640,221
                       2B                   $1,329,901
                       3B                      552,700
                       3C                      181,012
                       3D                       36,939
                      Total                 $2,100,552               $640,221


1/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity where we cannot determine eligibility at the time of audit. Unsupported costs
     require a 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.

2/   “Funds to be put to better use” are quantifiable savings that are anticipated to occur if an
     OIG recommendation is implemented, resulting in reduced expenditures at a later time
     for the activities in question. This includes costs not incurred, deobligation of funds,
     withdrawal of interest, reductions in outlays, avoidance of unnecessary expenditures,
     loans and guarantees not made, and other savings.




                                              18
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         19
Comment 2




Comment 3




Comment 4




            20
Comment 5




Comment 6




            21
22
                      OIG Evaluation of Auditee Comments




Comment 1   We used both terms “used” and “advanced” because the Authority used funds
            for its related non-profit entity, Azalea Manor. This improper use of funds
            was also cited in the Authority’s 2003 audited financial statements.

Comment 2   As noted in appendix A of the report, funds to be put to better use is a type of
            costs associated with quantifiable savings that are anticipated to occur if an
            OIG recommendation is implemented. Costs questioned as funds to be put to
            better use include improperly used and advanced funds. Therefore, the
            $640,221 qualifies as funds to be put to better use.

Comment 3   The OIG agrees with the Authority that expenses of an agency with a
            comparable sized inventory may not fairly represent the actual expenses being
            incurred. However, the Authority did not maintain accounting records as
            required to fairly present the results of their operation. Further, the Authority
            was cited in its 2003 audited financial statements as having a
            disproportionately high payroll for its size. To provide some perspective on
            the extent of the problem, OIG used comparable expenditures. We did not
            compare salaries by specific employees. Eventually, HUD and the Authority
            will have to negotiate an amount representative of the eligible expenses.

Comment 4   The OIG used the version of OMB Circular A-87, Section 11(h)(4), which was
            in effect from May 4, 1995 through May 10, 2004, and is the majority of the
            time for which the costs were questioned. A new version of OMB Circular A-
            87 was issued on May 10, 2004. Both Sections 11(h)(4) and 8(h)(4) cite the
            same requirements. We will use the most recently issued version in our report.
            Section (8)(h)(4) requires the Authority to provide support for employees
            working on multiple activities with personnel activity reports or equivalent
            documentation. The Authority did not support salaries and benefits allocated
            to various federal programs as required by OMB Circular A-87.

Comment 5   The OIG has provided a detailed listing of unsupported reclassifications
            totaling $181,012 and unsupported expenses totaling $36,939. The eligibility
            of the expenses cannot be ascertained without supporting documentation. We
            will provide the Authority with a listing of the unsupported salary and benefit
            reclassified based on the Authority’s 2003 audited financial statements. The
            information provided by the Authority for the reclassified expenses does not
            show why the reclassifications occurred; it only shows that the
            reclassifications were recorded in the Public Housing general ledger. The
            Authority will need to provide evidence to HUD showing the reason for the
            reclassifications.




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Comment 6   The OIG provided a detailed listing of unsupported expenses totaling $36,939.
            The OIG reviewed Public Housing general ledgers and other information
            provided by the Authority. The six invoices provided with the comments were
            not provided during our review and we cannot determine the eligibility of the
            costs at this point. The two actual checks provided did not contain support for
            the amounts recorded in the Public Housing general ledger, which is why the
            costs were questioned as unsupported. The Authority will need to provide
            sufficient supporting documentation to HUD in order to resolve the
            unsupported expenses.




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