oversight

Waterbury Housing Authority, Audit of Selected Programs Waterbury, Connecticut

Published by the Department of Housing and Urban Development, Office of Inspector General on 2004-10-13.

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

           AUDIT REPORT




       WATERBURY HOUSING AUTHORITY
        AUDIT OF SELECTED PROGRAMS

         WATERBURY, CONNECTICUT

                 2005-BO-1001



              OCTOBER 13, 2004



            OFFICE OF AUDIT, REGION I
            BOSTON, MASSACHUSETTS


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                                                                   Issue Date
                                                                          October 13, 2004
                                                                   Audit Case Number
                                                                           2005-BO-1001




TO:            Robert P. Cwieka, Acting Director of Public Housing Hub, 1APH


FROM:          Heath Wolfe, Acting Regional Inspector General for Audit, 1AGA

SUBJECT:       Waterbury Housing Authority
               Audit of Selected Programs
               Waterbury, Connecticut

We completed an audit of the Waterbury Housing Authority’s selected Programs. The selected
Programs included: Capital Fund Program; disposition of the South End project; Public Housing
Development Grant Program; Section 5(h) Homeownership Program; multifamily projects
owned, managed, and administered by the Authority. The primary purposes of our audit were to
determine whether the Authority: administered its selected Programs efficiently, effectively, and
economically; and complied with the terms and conditions of its Annual Contributions Contract,
applicable laws, relative directives, and HUD’s regulations. The audit resulted in five findings.

In accordance with HUD Handbook 2000.06 REV-3, within 60 days please provide us, for each
recommendation without a management decision, a status report on: (1) the corrective action taken;
(2) the proposed corrective action and the date to be completed; or (3) why action is considered
unnecessary. Additional status reports are required at 90 days and 120 days after report issuance for
any recommendation without a management decision. Also, please furnish us copies of any
correspondence or directives issued because of the audit

Should you or your staff have any questions, please contact Cristine O’Rourke, Assistant Regional
Inspector General for Audit, at (617) 994-8382 or me at (617) 994-8380.




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Executive Summary
At the request of HUD’s Hartford Field Office, we completed an audit of the Waterbury Housing
Authority’s selected Programs. The selected Programs included: Capital Fund Program;
disposition of the South End project; Public Housing Development Grant Program; Section 5(h)
Homeownership Program; multifamily projects owned, managed, and administered by the
Authority. The primary purposes of our audit were to determine whether the Authority:
administered its selected Programs efficiently, effectively, and economically; and complied with the
terms and conditions of its Annual Contributions Contract, applicable laws, relative directives, and
HUD’s regulations.

The Housing Authority did not administer its selected Programs in an efficient, effective, and
economical manner. Additionally, the Authority’s management controls were very weak to ensure
that it complied with the terms and conditions of its Annual Contributions Contract, applicable laws,
relative directives, and HUD’s regulations.



                                      The Authority did not effectively administer its Public Housing
 The Authority Did Not                Development Grant and Section 5(h) Homeownership
 Manage Its Development               Programs. HUD provided $3,150,600 in 1990 to construct 30
 And Homeownership                    units. In 1993, the Authority reprogrammed the Development
 Programs Effectively                 funds to the Section 5(h) Homeownership Program to construct
                                      30 new single-family homes. We found that, as of August
                                      2004, the Authority had not constructed the proposed 30 units
                                      and five other homes acquired under the Program remained
                                      vacant for well over five years.

                                      The Authority did not properly administer or dispose of its
 South End Project And                South End project. Specifically, the Authority did not maintain
 Disposition Not Properly             South End’s occupied units and included vacant units in its
 Administered                         operating subsidy calculations. The Authority requested and
                                      received approximately $296,488 in questionable operating
                                      subsidy between January 2001 and June 2004 for units at its
                                      South End project. The Authority did not: 1) actively pursue
                                      the requirements of the conditional disposition approval, 2)
                                      invest any Capital funds, 3) re-occupy units that became
                                      vacant, and 4) maintain the project. As of May 2004, nine
                                      families lived in substandard housing and 12 fewer units were
                                      available to other low-income families.

                                      The Authority inadequately planned for its Capital Fund
 Significant Questionable             Program activities and improperly allocated costs due to:
 Expenditures Incurred In             the quality of Capital Fund Program management, the lack
 The Capital Fund                     of training, and the use of an outdated Physical Needs
 Program                              Assessment. As a result, the Authority: 1) incurred over
                                      $745,000 in ineligible and unsupported costs, 2)


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                             inconsistently disbursed Capital Fund Program funds to its
                             projects, and 3) was unable to reconcile its Capital Fund
                             Program grant activity with HUD’s records.

                             The Authority inappropriately transferred public housing
 The Authority Transferred   funds to Northwood Apartments, a multifamily project
 Public Housing Funds to a   owned, managed, and administered by the Authority. The
 Multifamily Project         Authority transferred $245,000 from its Low-Income
                             Public Housing Program, $325,000 from its Section 8
                             Program, and $240,344 from its Revolving Fund to
                             subsidize the operating expenses of Northwood
                             Apartments.

                             The Authority did not utilize $184,334 in Replacement
 The Authority Did Not       Housing Factor funding due to a lack of management
 Use Replacement Housing     emphasis and oversight. Specifically, the Authority did not
 Factor Funds                establish a plan showing HUD how it would use the funds.
                             The Authority also did not adhere to statutory obligation
                             and expenditure deadlines. Consequently, the Authority
                             lost the opportunity to apply for a second increment of
                             Replacement Housing Factor funds.

                             We recommend that HUD’s Acting Director of Public
 Recommendations             Housing Hub, Boston Regional Office, assures the
                             Authority: reimburse the applicable Program for any
                             inappropriate expenses from non-Federal funds; recaptures
                             Program funds not used; and implements procedures and
                             controls to correct the weaknesses cited in this report

                             We presented our discussion draft audit report to the
                             Housing Authority’s Interim Executive Director and
                             HUD’s staff during the audit. We held an exit conference
                             with the Authority’s Interim Executive Director on August
                             17, 2004. The Authority generally agreed with our findings
                             and recommendations cited in our report.

                             The Authority provided written comments to our discussion
                             draft audit report dated August 20, 2004. We revised the
                             draft report as necessary. We included paraphrased
                             excerpts of the comments with each finding (see Findings
                             1, 2, 3, 4, and 5). The complete text of the Authority’s
                             comments is in Appendix B of this report with the
                             exception of attachments. We provided HUD’s Acting
                             Director of the Boston Regional Office of Public Housing
                             Hub with a complete copy of the Authority’s comments
                             with the attachments.



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Management Memorandum                                                   i



Executive Summary                                                     iii



Introduction                                                           1



Findings

1. The Authority Did Not Maintain Its Public Housing Development
   And Homeownership Programs Effectively                              5

2. South End Project And Disposition Not Properly Administered       13

3. Significant Ineligible And Unsupported Expenditures Incurred
   In The Capital Fund Program                                       25

4. The Authority Transferred Public Housing Funds To A
   Multifamily Project                                               33

5. The Authority Did Not Use Replacement Housing Factor Funds        39



Management Controls                                                  43



Follow-Up On Prior Audits                                            45




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Appendices

   A. Schedule Of Questioned Costs And Recommendations For
      Funds To Be Put To Better Use                               47


   B. Auditee Comments                                            49


   C. Schedule Of Section 5(h) Homeownership Program Properties   55


   D. Schedule Of Ineligible And Unsupported Capital Fund
     Program Costs                                                57




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Introduction
The Waterbury Housing Authority was created pursuant to Section 8-40 of the Connecticut General
Statutes. The Authority contracts with the Federal Government, acting through the Department of
Housing and Urban Development (HUD) for financial assistance in the forms of grants and
operating subsidies for low-income public housing programs pursuant to the United States Housing
Act of 1937, as amended.

A five-member Board of Commissioners governs the Authority and employs an Executive Director
to manage the day-to-day affairs of the Authority. Between March and April 2004, the Mayor of
the City of Waterbury appointed five new Commissioners to replace the members that either
resigned or whose term expired. The former Executive Director resigned in January 2004. From
January to August 2004, an interim Executive Director was managing the Authority until the Board
of Commissioners employed a new full-time Executive Director. The Authority has approximately
65 employees and the main office is located at 2 Lakewood Drive, Waterbury, Connecticut.

The Authority owns 696 units of Federal Low-Income Public Housing and administers
approximately 2,235 Federal Section 8 Program units. From 2001 to 2003, HUD provided over $47
million in Federal subsidies and grants.

                  Program            2001        2002        2003                               Totals
        Low-Income Public Housing
        Operating Subsidy          $2,303,424 $2,830,649 $3,629,868                           $8,763,941
        Section 8                   8,868,153 11,135,876 12,208,370                          $32,212,399
        Capital Fund Program        1,622,309   1,505,260   1,384,592                         $4,512,161
                          1
        Shelter Plus Care                   0     945,000     871,200                         $1,816,200
                   Totals         $12,793,886 $16,416,785 $18,094,030                        $47,304,701

The United States Housing Act of 1937 created and funded HUD’s Public and Indian Housing
Program. Low-Income Public Housing Operating Subsidy provides housing authorities with
monies to fund the daily operating expenses of its developments. These monies enables housing
authorities to keep rents affordable for lower-income families and cover a variety of expenses
including administration, maintenance, utilities, tenant services, and protective services.

The Housing and Community Development Act of 1974 authorized the Section 8 Certificate
Program, and the Housing and Community Act of 1987 authorized the Section 8 Rental Voucher
Program. In October 1998, Congress passed housing reform legislation, including a full merger of
the Certificate and Voucher Programs. This legislation eliminated all differences between the two
Programs, and it required that the subsidy types merge into one Section 8 Program entitled the
Housing Choice Voucher Program. The Section 8 Program is HUD’s major Program for assisting
very low-income families, the elderly, and the disabled to afford decent, safe, and sanitary housing
in the private market.

1
 The Shelter Plus Care Program provides rental assistance for hard-to-serve homeless persons with disabilities in
connection with supportive services funded from sources outside the Program. We elected not to review this
Program.


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Introduction


The Quality Housing and Work Responsibility Act of 1998 converted HUD's prior modernization
initiatives, including the Comprehensive Grant Program, into the Capital Fund Program. Since
Fiscal Year 2000, the Capital Fund Program provides funds annually to housing authorities for
capital and management activities, including modernization, corrections of physical deficiencies,
and development of public housing. HUD awards Capital Fund Program funds to housing
authorities using a formula based on the existing and accrued modernization needs of the
authorities. Until completion of corresponding regulations at Title 24 of the Code of Federal
Regulations (CFR), Section 905, the regulations at 24 CFR 968 continues to apply to assistance
made available through the Capital Fund Program. The provisions of 24 CFR 968, with respect to a
housing authority’s annual statement/action plan was replaced by the Public Housing Agency Plan
rule at 24 CFR 903.

In addition to the Low-Income Public Housing Program and assistance, the Waterbury Housing
Authority also owns, manages, and administers Section 8 project-based rental assistance for two
other projects. In December 1996, the Authority acquired these projects, which operate under
Sections 221(d)(3) and 241(f) of the National Housing Act. The projects are Villagewood
Apartments and Northwood Apartments. These projects operate under the terms of a Regulatory
Agreement between HUD and the Authority; which establishes the rental schedule and limits
occupancy to families of low or moderate income.



                                     The primary purposes of our audit were to determine whether
 Audit Objectives                    the Authority: administered its selected Programs efficiently,
                                     effectively, and economically; and complied with the terms
                                     and conditions of its Annual Contributions Contract,
                                     applicable laws, relative directives, and HUD’s regulations.
                                     The selected programs are: a) Capital Fund Program, b)
                                     disposition of the South End project, c) Public Housing
                                     Development Grant Program, d) Section 5(h)
                                     Homeownership Program, and e) multifamily projects
                                     owned, managed, and Section 8 contract administered by
                                     the Authority.

                                     To accomplish the audit objectives, we:
 Audit Scope and
 Methodology                             Reviewed: the applicable Code of Federal Regulations;
                                         applicable HUD Handbooks; applicable HUD Notices
                                         and Directives; files maintained by HUD’s Hartford
                                         Field Office; information in HUD’s automated systems,
                                         such as the Public and Indian Housing Information
                                         Center, Line of Credit Control System, Public Housing
                                         Agency Plans, and Public Housing Assessment System;
                                         HUD’s Real Estate Assessment Center physical
                                         inspection reports for 1999 through 2003; Independent
                                         Public Accountant reports for fiscal years 2001 through



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          2003; and the minutes of the Waterbury Housing
          Authority’s Board of Commissioners meetings;
          Interviewed: HUD’s staff to obtain background
          information and procedural information; applicable
          Authority officials to obtain information relating to the
          Authority’s organization, operations, management
          controls; and its procedures for accounting,
          administration, procurement, maintenance, capital
          planning, development, and replacement housing;
          Obtained an understanding of the Authority’s
          management controls relevant to our audit objectives
          through inquiries, observations, inspection of
          documents and records, or review of other reports;
          Conducted physical inspections to assess the general
          condition of the Authority’s Low-Income Housing
          projects; and
          Tested 100 percent of Capital Fund Program expenses
          incurred between July 1, 2001 and June 30, 2003 for
          propriety.

       We conducted the audit between November 2003 and June
       2004. Our audit generally covered the period from July 1,
       2001 through June 30, 2003. When appropriate, we
       extended the audit to include other periods. We conducted
       our audit in accordance with Generally Accepted
       Government Auditing Standards.




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                                                                                                    Finding 1


       The Authority Did Not Manage Its Public
      Housing Development And Homeownership
                Programs Effectively
The Waterbury Housing Authority did not effectively administer its Public Housing Development
Grant and Section 5(h) Homeownership Programs. Specifically, the Authority did not construct any of
the proposed 30 units. This condition occurred because the Authority failed to provide adequate
oversight and control over the Development Grant and Section 5(h) Homeownership Programs.
Consequently, the Authority did not create the additional housing opportunities for low-income
persons.



                                          The Public Housing Development Program was established
    Development Grant                     under the United States Housing Act of 1937. The
    Program Purpose                       Program authorizes HUD to assist housing authorities with
                                          the development and operation of low-income housing
                                          projects and financial assistance in the form of grants. The
                                          purpose of the Program is to develop units that serve the
                                          needs of public housing residents over the long term and
                                          have the lowest possible life cycle costs, taking into
                                          account future operating and replacement costs, as well as
                                          original capital investments (24 CFR 941).

                                          During the late 1980s and early 1990s, HUD authorized
    HUD Funds Authority                   three Development Grants totaling over $10 million. The
    Development Beginning                 following table shows the breakdown and status of each
    In 1988                               grant, based on HUD’s and the Authority’s records as of
                                          August 2004:

                                                        Number                                    Balance
                    Reservation     Development           of        Amount         Amount          (As of:
     Grant Number      Date             Type             Units     Authorized     Disbursed       6/1/2004)
                                        New
     CT26P006012    9/19/1988       Construction          34      $ 3,512,200      $3,512,200               $0
                                        New
     CT26P006013    9/18/1990 2     Construction          30         3,150,600        856,659       2,293,941
                                   Acquisition with
     CT26P006015    9/26/1991       Rehabilitation        30         3,361,500      3,361,500                 0
                        Totals                            94      $ 10,024,300    $ 7,647,280     $ 2,293,941


2
  HUD funded the CT26P006013 Development Grant by two separate reservations. HUD made the initial
reservation for $951,700 on September 28, 1989 and made the second reservation for $2,198,900 on September 18,
1990


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Finding 1


                                        In the early 1990s, HUD approved the Authority to
    Development Progress                construct 94 new units with the Development Grants. In
                                        late 1992, the Authority completed 34 of the 94 units by
                                        constructing nine buildings at five different sites in
                                        Waterbury, Connecticut. HUD approved the Authority’s
                                        request to reprogram the remaining Development Grant
                                        funds for its newly developed Section 5(h) Homeownership
                                        Program.

                                        Section 5(h) of the United States Housing Act of 1937
    Purpose Of The Section              authorized the Section 5(h) Homeownership Program3. HUD
    5(h) Homeownership                  designed the Program to help low-income families purchase
    Program                             homes through an arrangement that benefits both the buyer
                                        and a housing authority that sells the unit. The Program
                                        gives the buyer access to an affordable homeownership
                                        opportunity and to the many tangible and intangible
                                        advantages it brings. Housing authorities retain and reuse the
                                        proceeds of sale of low-income housing units to meet other
                                        low-income housing needs.

                                        In 1993, the Authority adopted a Section 5(h)
    Section 5(h)                        Homeownership Program. The Authority planned to create
    Homeownership Program               60 homeownership opportunities for its current low-income
    Implemented In 1993                 housing tenants. In July 1993, concurrent with the executed
                                        5(h) Implementation Agreement between the Authority and
                                        HUD, the Authority reprogrammed the outstanding
                                        development grant funds to the Section 5(h) Homeownership
                                        Program to build 30 new single-family detached homes and
                                        to acquire and rehabilitate 30 additional single-family
                                        detached homes.

                                        The Authority generally operated its Section 5(h)
    Authority Complied With             Homeownership Program in compliance with HUD’s
    Section 5(h)                        regulations. The Authority appropriately acquired homes and
    Homeownership Program               sold them to qualified low-income homebuyers.
    Regulations                         Additionally, the Authority appropriately controlled a
                                        subsequent resale transaction of one of its homes.

                                        As of August 2004, the Authority had not constructed any of
    Authority Did Not Meet              the proposed 30 new homes. Therefore, the Authority did
    Its Homeownership Goals             not meet its homeownership goals. The Authority acquired
                                        29 existing homes between December 1993 and July 1999.

3
 The Quality Housing and Work Responsibility Act of 1998 authorized the Section 32 Homeownership Program,
which replaced the Section 5(h) Homeownership Program. The effective date for the new Section 32
Homeownership Program was April 10, 2003. Previously approved Homeownership Programs continue to operate
under the 5(h) rules.


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                                                                               Finding 1


                          As of August 2004, the Authority rehabilitated and sold 23
                          homes to its low-income housing tenants (see Appendix C of
                          this report). The Authority incorporated one additional home
                          into its Low-Income Public Housing Program and currently
                          receives operating subsidy for this unit. Therefore, five
                          homes remain unsold as of August 2004.

                          According to the Authority’s implementation schedule, the
Authority Did Not         Authority planned to turn around each home within
Manage the                approximately eight months. The Authority’s sale of the
Homeownership Program     homes averaged approximately 25 months. For sales
Efficiently               completed between May 1995 and August 2004, the
                          Authority lost an average of approximately $4,000 per sale,
                          despite the rehabilitation work performed. In this period, the
                          Waterbury, Connecticut housing market was declining.

                          As of August 2004, four of the five unsold homes were
                          vacant for nearly eight years. The fifth home was vacant for
                          just over five years. Meanwhile, the Authority drew down
                          $856,659 from the remaining Development Grant to sustain
                          the Section 5(h) Homeownership Program and maintain the
                          vacant homes. Costs to sustain the Program included salaries
                          and allocations of administrative expenses. Maintenance
                          costs included utility costs, property taxes, landscaping, and
                          pest control. The Authority already drew down all funds
                          under the CT26P006015 Development Grant. While the
                          Authority legitimately spent $856,659 on operating and
                          maintenance costs, these expenditures detracted from the
                          funds available to develop other needed housing. Instead, the
                          Authority should sell the remaining homes and use the
                          proceeds.

                          The Authority needs to reconcile its bank account statements
Improper Accounting And   with its own books and records to identify the Section 5(h)
Reporting Of The          Homeownership Program cash reserves. As of April 2004,
Homeownership Program     the Authority’s books and records indicated a cash reserve
                          balance of $688,240, which the Authority accumulated
                          through the sale of homes. However, the Authority could not
                          reconcile this amount with its bank accounts. HUD requires
                          each housing authority to establish an auditable system to
                          provide adequate accountability for the receipt, retention, and
                          expenditure of all sale proceeds (24 CFR 906.17). The
                          Authority commingled Section 5(h) Homeownership
                          Program cash reserves with its other program accounts. The
                          Authority should use any remaining cash reserves to sustain




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Finding 1


                            the Section 5(h) Homeownership Program instead of drawing
                            down from the remaining Development Grant.

                            Additionally, the Authority did not submit annual sales
                            reports to HUD. According to Program requirements,
                            housing authorities shall submit annual sales reports to HUD
                            until the authorities complete all planned sales of individual
                            dwellings. Sufficient reporting and record keeping is
                            necessary for HUD to monitor the authority’s compliance
                            with its approved homeownership plan.

                            As of December 2003, over 800 people on the Authority’s
 Authority Has A Need for   combined Federal Low-Income Public Housing and Section
 Low-Income Housing         8 Programs waiting lists were waiting for housing. For over
                            a decade, the Authority had the opportunity and funding to
                            develop homeownership opportunities, but had not
                            successfully done so. The Authority had not identified any
                            new sites for possible development or developed any new
                            firm proposals.

                            The Authority did not actively manage the Section 5(h)
 Poor Management            Homeownership Program from 1999 through 2003.
 Oversight Contributed To   Specifically, there was no Authority director in charge of the
 The Deficiencies           Program during this period. This contributed to no sales
                            activity during this time (see Appendix C of this report). The
                            deficiencies existed due to a lack of effective management
                            oversight. In January 2004, the Authority assigned someone
                            to direct the Program. The Authority also indicated that it
                            suffered from the lack of local support for its programs.
                            Finally, the Authority also indicated it could not obtain
                            suitable sites for its proposed developments and it had
                            problems finding qualified and interested participants.
                            However, the Authority could not support these assertions
                            with documentation. In its original development proposal,
                            the Authority identified 88 sites for development.

                            Waterbury, Connecticut needs more low-income housing.
 The Authority Needs To     The Authority failed to develop this housing despite the
 Take Action                availability of funding from HUD for over a decade. The
                            Authority needs to sell its remaining Section 5(h)
                            Homeownership Program homes or incorporate them into its
                            Low-Income Public Housing Program. The Authority also
                            needs to reprogram the remaining Development Grant funds
                            to develop new housing.




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                                                                         Finding 1




Auditee Comments    [Excerpts paraphrased from the Authority’s comments on our
                    draft audit report follow. Appendix B, page 50, contains the
                    complete text of the comments for this finding.]

                    The Authority responded that it plans to develop up to 16
                    units of low-income public housing with the remaining
                    Development Grant funds.

                    The Authority also responded that it took the following
                    actions to address the original audit recommendations: 1) the
                    Authority assigned the Resident Initiatives Coordinator to
                    direct the Section 5(h) Homeownership Program, and 2) the
                    Authority sold one of the six remaining 5(h) homes in June
                    2004. As of April 2004, six 5(h) homes remained unsold.

                    Additionally, the Authority responded that it plans to take the
                    following additional recommended actions:

                    1) Sell four 5(h) homes by June 30, 2005 following the
                       completion of renovations;
                    2) Pursue the conversion of the remaining 5(h) property to a
                       Low-Income Public Housing Program unit; and
                    3) Construct a new development plan for the remaining
                       Development Grant funds.

                    The Authority responded that although it has a detailed
                    breakdown of the 5(h) Program cash reserve balance;
                    however, the funds are not actually available because the
                    Authority spent them on Low-Income Public Housing
                    Program operations.



OIG Evaluation Of   The Authority plans to develop up to 16 Low-Income Public
Auditee Comments    Housing Program units—14 fewer units than the originally
                    proposed 30 units. Had the Authority effectively and timely
                    utilized the Development Grants, more needy families in the
                    City of Waterbury could have been housed. The Authority
                    should complete a formal written plan and submit it to HUD
                    within 60 days. HUD will need to determine: 1) if the plan is
                    viable; and 2) if the plan to construct only 16 units is
                    appropriate when the original development plan was to
                    construct 30 new units.




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Finding 1


                    We acknowledge the selection of the Resident Initiatives
                    Coordinator for the 5(h) Program and we removed the related
                    recommendation from this report. We also verified the
                    closing documents for the 5(h) home already sold and
                    adjusted the finding discussion and recommendations to
                    address the five remaining unsold homes at August 31, 2004.

                    We also recognize the Authority’s actions to sell four of the
                    remaining 5(h) homes and incorporate the last home into the
                    Low-Income Public Housing Program.             However, we
                    disagree with the timeframe to sell the homes. During our
                    inspections of these homes in December 2003, we noted that
                    substantial renovations were already in progress. In addition,
                    the Authority originally planned to turn around these homes
                    within eight months.

                    The missing 5(h) Program cash reserve balance represents a
                    significant accounting weakness that the Authority needs to
                    address. Regardless of the accounting weakness, the
                    Authority should not draw down any additional Development
                    Grant funds for administering the 5(h) Program.

                    In June 2004, the Authority drew down an additional $83,079
                    from the Development Grant for 5(h) Program operations.
                    We updated the finding discussion and related
                    recommendations as appropriate to reflect the status of the
                    Grant as of August 2004.



  Recommendations   We recommend that HUD’s Acting Director of Public
                    Housing Hub, Boston Regional Office, assure the Waterbury
                    Housing Authority:

                    1A. Establishes and adheres to a time frame to sell the
                        remaining five Section 5(h) homes or incorporate the
                        homes into its Low-Income Public Housing Program.


                    1B. Adjusts the Section 5(h) Homeownership Program cash
                        reserve balance.


                    1C. Ceases using Development Grant funds for Section
                        5(h) Homeownership Program expenses.




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                                                       Finding 1


       1D. Develops a new development plan within 60 days and
           reprogram the $2,293,941 in remaining Development
           Grant funds from the Section 5(h) Homeownership
           Program for use with the newly proposed development
           project.

       We also recommend that HUD’s Acting Director of Public
       Housing Hub, Boston Regional Office:

       1E. Evaluates the Authority’s plans and established
           timeframes for completion of the Section 5(h)
           Homeownership Program and new development
           project.


       1F. Recaptures the $2,293,941 in Grant funds unless the
           Authority adheres to HUD’s approved timeframes.


       1G. Prohibits the Authority from drawing down any
           additional funds from the CT26P006013 Development
           Grant for use with the Section 5(h) Homeownership
           Program.


       1H. Terminates the Section 5(h) Implementation
           Agreement upon: 1) the completion of the sales of the
           remaining six homes; or 2) the completion of their
           incorporation into its Low-Income Public Housing
           Program.




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                                                                                                Finding 2


         South End Project And Disposition Not
                Properly Administered
The Waterbury Housing Authority did not properly administer its South End Apartments project and
the disposition of this project. Specifically, the Authority requested and received approximately
$296,488 in questionable operating subsidy between January 2001 and June 2004 for units at its South
End project. The Authority was not properly maintaining the project’s occupied units and the
Authority included vacant units in its operating subsidy calculations. Once it submitted its disposition
application to HUD in August 1997, the Authority’s management decided: 1) not to invest any money
into the project; 2) not to re-occupy units that became vacant; and 3) not to maintain the project. The
Authority had not actively pursued meeting the conditions of the disposition approval, yet it continues
to not maintain the project and to keep units vacant, while receiving operating subsidy for these units.
As a result, tenants are living in substandard housing that is not decent, safe, and sanitary, and there is
less affordable housing available to low-income families.



                                         Housing Authorities must receive approval from HUD to
 Disposition Authority                   demolish or otherwise dispose of housing units that they have
                                         previously agreed to operate as public housing. The Annual
                                         Contributions Contract is the instrument by which HUD
                                         agrees to provide annual subsidies to specific publicly owned
                                         housing units, in exchange for a commitment from the
                                         housing authority to maintain those units for low-income use
                                         under the system of rules that governs Federally funded
                                         public housing. The Annual Contributions Contract prohibits
                                         housing authorities from demolishing these units or disposing
                                         of them without the approval of HUD’s Secretary. When
                                         public housing units outlive their usefulness or can better
                                         serve the community in another form, demolition or
                                         disposition rules provide the housing authority with an
                                         avenue for seeking permission to remove them from the
                                         Annual Contributions Contract and thereby deregulate their
                                         use.

                                         The Authority's reason for applying for disposition of the
  Disposition Application                South End project, a 13-year old project at the time of
  And Approval                           application, was to allow for expansion of the adjacent
                                         business. The owner of this business wanted to expand and
                                         approached the Authority to buy the property. This business
                                         owner is the brother of the current Mayor of the City of
                                         Waterbury, who was elected in 2001. From 1993 to 2001,
                                         the current Mayor was a former Connecticut State




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                           Representative. The Mayor also has a financial interest in the
                           business.
                           Additionally, another local former Congressman was actively
                           working with the Authority and HUD to get this application
                           approved. HUD’s Hartford Field Office and its Special
                           Applications Center did not fully support this disposition and
                           the Authority was not the one pushing for the disposition.
                           The former Congressman contacted HUD’s former Assistant
                           Secretary for Public and Indian Housing in December 2000
                           and requested that HUD grant, at least, conditional approval
                           of the Authority's application.

                           In January 2001, HUD’s Special Applications Center
                           approved the application with conditions. These conditions
                           included gaining site control for the replacement units,
                           environmental requirements, and solicitation of public bids at
                           or above the appraised value of the property. The Special
                           Applications Center also required, as part of its approval, that
                           the Authority remove the seven vacant units from its
                           operating subsidy calculations starting January 2001. The
                           Authority would have to take any additional vacant units out
                           if its operating subsidy calculations when the Authority
                           submitted its revised or next operating subsidy submission.
                           In May 2001, HUD’s Hartford Field Office informed the
                           Authority not to remove these units from its operating
                           subsidy calculations until the site control issue was resolved.

                           Between January 2001 and November 2002, the Authority’s
                           files showed very little evidence that it was actively trying to
                           meet the conditions of the approval.               The former
                           Congressman was not re-elected in November 2002. After
                           November 2002, the Authority did not take any additional
                           action with regard to meeting the conditions of the
                           disposition approval, specifically gaining site control.

                           Part A, Section 4, of the Authority's Annual Contributions
 Authority Required To     Contract dated September 29, 1995, states the Authority
 Effectively Operate Its   shall at all times develop and operate each project solely for
 Projects                  the purpose of providing decent, safe, and sanitary housing
                           for eligible families in a manner that promotes
                           serviceability, economy, efficiency, and stability of the
                           projects, and the economic and social well-being of the
                           tenants.

                           24 CFR 970.12 states until such time as HUD approval may
                           be obtained, the housing authority shall continue to meet its



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                         Annual Contributions Contract obligations to maintain and
                         operate the property as housing for low-income families.

                         The Authority violated its Annual Contributions Contract’s
South End Project Not    obligations.      The Authority’s officials advised that
Maintained               management made a decision not to invest any money into
                         the South End project, once they submitted their disposition
                         application. The Authority did not perform any preventative
                         maintenance or invest any capital funds into the project, since
                         the disposition application submission. Additionally, we
                         inspected occupied units, which indicated that the Authority
                         did not maintain occupied units, during the same period the
                         Authority received operating subsidy for all 21 units–
                         occupied and vacant. Between January 2001 and June 2004,
                         the Authority received $296,488 in operating subsidy for all
                         21 units at the South End project.

                         HUD’s Real Estate Assessment Center physical inspection
                         results from 1999 to 2004 showed numerous deficiencies at
                         the South End project. During our inspections, we noted
                         that the Authority did not correct most of the deficiencies
                         identified by HUD’s latest Real Estate Assessment Center
                         inspection and the Authority’s latest in-house annual
                         inspection in May 2003. Furthermore, the Real Estate
                         Assessment Center identified similar deficiencies each year
                         and found numerous systemic deficiencies. Correcting
                         these deficiencies will require significant cash outlays in
                         order for the Authority to get its units back to lease-up
                         condition.

                         Our inspection showed the current tenants resided in
Tenants Living In        substandard housing that was not decent, safe, and sanitary.
Substandard Conditions   Our inspection of the project and occupied units identified
                         the following systemic deficiencies:
                            Mold problems;
                            Exposed wiring;
                            Non-Ground Fault Circuit Interrupter outlets near water
                            sources;
                            Cable and/or phone wires on the floor at the top of the
                            stairs causing potential tripping hazards;
                            Detached front stoops and handrails from entryways;
                            Missing or rusted heat covers;




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                           Backsplashes and counters rotted out due to leaking
                           faucets;
                           Floor tiles missing and cracked; sometimes an entire
                           floor surface had no tile;
                           Large hole and water stained living room ceilings due
                           to plumbing leaks in upstairs bathrooms;
                           Walls and ceilings need painting; and
                           Grass growing in the gutters and disconnected
                           downspouts.

                        The seriousness of these deficiencies is illustrated in our
                        inspections of 20 West Clay Street-Unit C, 10 West Clay
                        Street-Unit C, and 20 West Clay Street-Unit E.

                        Our inspection of 20 West Clay Street, Unit C, in April 2004
 20 West Clay Street,   identified: 1) a serious mold problem on the bathroom
 Unit C                 ceiling; 2) non-Ground Fault Circuit Interrupter in the kitchen
                        and bathroom; 3) exposed wiring in the laundry room; 4)
                        water damage on the living room ceiling, due to a leak from
                        the upstairs bathroom; 5) a rotted out backsplash; and 6)
                        cracked and broken floor tiles. Additionally, ceilings were
                        discolored on the second floor, which could indicate a mold
                        problem in the attic as well.




                                      Mold covering Ceiling of Upstairs Bathroom
                                             20 West Clay Street, Unit C

                        Our inspection of 10 West Clay Street, Unit C, in April
 10 West Clay Street,   2004 identified: 1) non-Ground Fault Circuit Interrupter in
 Unit C


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                       the kitchen and bathroom; 2) a missing globe cover in the
                       kitchen; 3) a hole in the living room ceiling due to a leak
                       from the upstairs bathroom; 4) water damaged kitchen
                       ceiling; 5) missing kitchen floor tile; 6) a need for paint on
                       walls and ceilings; and 7) a detached outside handrail and
                       front stoop.




                                         Kitchen Floor Tiles Missing
                                         10 West Clay Street, Unit C




                                      Kitchen Ceiling Water Damaged
                                        10 West Clay Street, Unit C

                       Our inspection of 20 West Clay Street, Unit E, in April 2004
20 West Clay Street,   identified: 1) a missing Ground Fault Circuit Interrupter in
Unit E                 the kitchen; 2) missing globe covers in the laundry room and


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               at the top of the stairs; 3) water damage on the living room
               ceiling, from a water leak in the upstairs bathroom; 4)
               cracked and missing floor tiles; 5) a rotted out backsplash and
               damaged countertop; 6) a poorly repaired hole on the
               bathroom floor; 7) mold growth in bathroom; 8) detached
               outside handrail and front stoop; and 9) a need for paint on
               walls and ceilings. Additionally, ceilings were discolored on
               the second floor, which may indicate a mold problem in the
               attic as well.




                             Kitchen Countertop Damaged and Rotted
                                   20 West Clay Street, Unit E




                        Living room ceiling water stained and damaged
                                  20 West Clay Street, Unit E




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                                   When we discussed these deficiencies with the Authority’s
Authority’s Response To            officials, they said it would correct the emergency conditions.
Inspection Results                 The Authority’s officials also said they will not correct the
                                   other identified items because the Authority lacks the needed
                                   funding. The Authority is receiving operating subsidy for all
                                   units and it should be correcting all deficiencies. Failure to
                                   correct the identified deficiencies violates the Annual
                                   Contributions Contract with HUD.

                                   The Authority’s officials attributed the condition of the
                                   South End project to its decision in August 1997 not to
                                   invest any money into this project pending its disposition.

                                   The Authority continued to request and receive operating
Ineligible Operating               subsidy for all 21 units at the South End project between
Subsidy Received                   January 2001 and June 2004. During this period, the
                                   Authority did not maintain the project nor did it actively
                                   pursue disposition. As a result, the Authority received
                                   approximately $296,488 in questionable operating subsidy
                                   between January 2001 and June 2004. The break down of
                                   operating subsidy received for occupied and vacant units
                                   are in the following tables:

                                              Vacant Units
                                                   Operating Subsidy Number of  Total Operating
                     Operating Subsidy Number of       Amount        Months in Subsidy Received
        Time Period   Per Unit Month     Units      Received/Month Time Period for Time Period
        1/01 to 6/01      $280.80         7             $1,966          6          $11,794
        7/01 to 6/02      $338.51         8             $2,708          12           32,497
        7/02 to 6/03      $352.72         8             $2,822          12           33,861
        7/03 to 6/04      $344.91         8             $2,759          12           33,111
                                         Total                                      $111,263


                                             Occupied Units
                                                   Operating Subsidy Number of  Total Operating
                     Operating Subsidy Number of       Amount        Months in Subsidy Received
        Time Period   Per Unit Month     Units      Received/Month Time Period for Time Period
        1/01 to 6/01      $280.80         14            $3,931          6          $23,587
        7/01 to 6/02      $338.51         13            $4,401          12           52,808
        7/02 to 6/03      $352.72         13            $4,585          12           55,024
        7/03 to 6/04      $344.91         13            $4,484          12           53,806
                                         Total                                   $185,225

                                   According to 24 CFR 990.108, HUD may allow an
                                   authority direct costs for vacant units that are approved for



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                           deprogramming; limited to the minimum services and
                           protection necessary to protect and preserve the units until
                           they are deprogrammed. HUD will have to decide whether
                           to allow the Authority direct costs for these units.

                           The Authority was required to continue to meet its Annual
 Units Not Re-Occupied     Contributions Contract obligations to maintain and operate
                           the project as housing for low-income families, until HUD
                           approved the disposition application.      The Authority
                           decided not to re-occupy vacated units once it submitted
                           the disposition application in August 1997. As of the
                           application submission, families occupied 19 of the 21
                           units. These units are three-bedroom and four-bedroom
                           units, which are very desirable for low-income families
                           with children. At the time, the Authority received
                           conditional approval by HUD’s Special Applications
                           Center nearly three and a half years later, the South End
                           project had only 14 occupied units. Five of the 14 units
                           were vacant over a year and half before disposition
                           approval. Because of the Authority’s decision to not re-
                           occupy units, the Authority lost approximately $34,290 in
                           rental income between August 1997 and December 2000.

                           In 1997, the Authority had a Federal Low-Income Public
                           Housing Program waiting list of approximately 705 people.
                           As of December 2003, the Authority had a Low-Income
                           Public Housing waiting list of approximately 355 people;
                           268 were for three-bedroom units and 20 were for four-
                           bedroom units. The Authority’s decision not to re-occupy
                           units once they became vacant and its lack of action to
                           meet the requirements of the disposition approval resulted
                           in less affordable housing for low-income families.

                           The Authority’s Board of Commissioners did not provide
 Inadequate Oversight By   adequate oversight regarding to the South End disposition.
 The Board Of              The Board’s minutes showed very limited discussion of the
 Commissioners             South End project or the status of the disposition. Between
                           January 2001 and December 2003, the Board of
                           Commissioners went into Executive Session 26 times with
                           no adequate reason provided. Since the minutes do not
                           provide an adequate reason for going into Executive
                           Session, we do not know if the Board of Commissioners
                           discussed the disposition of the South End with the
                           Authority’s management.




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                     The Authority did not comply with the State of
Authority Did Not    Connecticut’s Freedom of Information Act requirements
Comply with State    regarding Executive Sessions. Under Section 1-225 of the
Requirements         State’s Freedom of Information Act, a public agency may
                     hold an executive session upon an affirmative vote of two-
                     thirds of the voting members. Each public agency must
                     state the reasons for the Executive Session. Section 1-200
                     of the State’s Freedom of Information Act states the public
                     may be excluded from Executive Sessions for reasons such
                     as discussions regarding: 1) employment and terminations;
                     2) negotiations for pending claims or litigation; 3) security
                     strategy; 4) discussion of the selection of a site or the lease,
                     sale, or purchase of real estate by a political subdivision of
                     the State when publicity would cause a likelihood of
                     increased price; or 5) discussion of any matter which would
                     result in the disclosure of public records, such as draft
                     notes, personnel and medical files, and records of
                     investigations.

                     When the Authority’s Board of Commissioners went into
                     an Executive Session, the minutes of the general meeting
                     did not indicate the specific reason(s) for going into
                     Executive Session. Of the 26 times the Board of
                     Commissioners went into Executive Session, the Authority
                     did not document the reason eight times. For the remaining
                     18 times, the Authority documented the reason as:
                     personnel matter; personnel issues; pending claims; or
                     personnel matters and pending claims. The Authority did
                     not provide any other details except for the times that the
                     Board of Commissioners made motions to go into
                     Executive Sessions and the times the Executive Sessions
                     ended. Upon inquiry, the Authority’s officials could not
                     recall the reasons the Board of Commissioners went into
                     Executive Sessions. The Authority must provide a more
                     adequate explanation for going into Executive Session in its
                     Board minutes.

                     As of August 2004, the Authority had not disposed of the
Disposition Status   South End project. The Authority took the disposition
                     plans out of its draft Public Housing Agency Plan
                     submitted to HUD on April 13, 2004. However, it had not
                     requested approval from HUD’s Special Applications
                     Center to withdraw its plans to dispose of the project, as
                     required.




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                      With the large need for low-income housing in Waterbury,
 Action Necessary     Connecticut, the Authority needs to obtain the required
                      approval from HUD’s Special Applications Center for its
                      plans not to dispose of the project and take active steps to
                      get this project back into lease-up condition. The Authority
                      neglected the South End project for nearly seven years and
                      as a result, the project requires large capital outlays. In
                      addition, the Authority needs to reimburse HUD for the
                      ineligible operating subsidy it received for not maintaining
                      the project. Finally, the public is entitled to greater
                      disclosures as to why the Authority goes into Executive
                      Sessions during its Board of Commissioner meetings; thus,
                      the Authority needs to adequately document these reasons.



  Auditee Comments    [Excerpts paraphrased from the Authority’s comments on our
                      draft audit report follow. Appendix B, pages 50 and 51,
                      contains the complete text of the comments for this finding.]

                      The Authority plans to take the following recommended
                      actions: 1) formally cancel the disposition of the South End
                      project; 2) perform a capital needs assessment; 3) correct
                      deficiencies and reoccupy the project; and 4) provide
                      adequate documentation in the recording Board of
                      Commissioner’s minutes for executive sessions.

                      The Authority disagrees with the recommendation to repay
                      ineligible operating subsidy. The Authority believes the
                      operating subsidy for all occupied units should be eligible. In
                      addition, the Authority believes that the operating subsidy
                      received for the vacant units is eligible and referred to a HUD
                      letter dated May 2004 issued by the Hartford Field Office.



  OIG Evaluation Of   We acknowledge the Authority’s planned actions; since these
  Auditee Comments    actions are not complete, the related recommendations
                      remain unchanged.

                      We revised our recommendation to allow HUD to determine
                      the eligibility for the occupied units that did not meet HUD’s
                      requirements for decent, safe, and sanitary conditions.

                      As the Authority did not actively pursue the disposition, the
                      Authority is not eligible for the operating subsidy for the



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                  vacant units. HUD may choose to allow the Authority
                  funding for vacant units, limited to the minimum services
                  necessary to protect and preserve the units. Additionally, we
                  updated the operating subsidy paid through June 30, 2004
                  because the Authority drew down all its fiscal year 2004
                  funds.      We updated the finding discussion and
                  recommendations accordingly.



Recommendations   We recommend that HUD’s Acting Director of Public
                  Housing Hub, Boston Regional Office:

                  2A. Determines if the Authority should be allowed the
                      $185,225 of operating subsidy paid for units that did
                      not meet HUD’s requirements for decent, safe, and
                      sanitary conditions.


                  2B. Determines if the Authority should be allowed any
                      direct costs for the vacant units approved for
                      deprogramming.


                  We also recommend that HUD’s Acting Director of Public
                  Housing Hub, assure the Waterbury Housing Authority:

                  2C. Reimburses the $111,263 in ineligible operating
                      subsidy from non-Federal funds for the vacant units
                      less any approved direct costs.


                  2D. Reimburses any operating subsidy paid for occupied
                      units that HUD determines to be ineligible from non-
                      Federal funds.


                  2E. Follows through with its plans to formally cancel the
                      disposition.


                  2F. Performs a capital needs assessment of the South End
                      project within 60 days.




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               2G. Develops a corrective action plan to correct the
                   deficiencies and re-occupy vacant units to avoid
                   losing rental income in addition to the $34,290
                   already lost.


               2H. Adequately documents the reasons that the Board
                   goes into Executive Session.




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                                                                                          Finding 3


      Significant Ineligible And Unsupported
     Expenditures Incurred In The Capital Fund
                      Program
The Waterbury Housing Authority inadequately planned for its Capital Fund Program activities and
improperly allocated costs. This is attributable to the Authority’s poor management over the Capital
Fund Program, the lack of training provided to the Authority’s staff involved with the Program, and
the use of an outdated Physical Needs Assessment utilized as part of the Capital Fund Program
planning process. As a result, the Authority: incurred over $745,000 in ineligible and unsupported
costs; disbursed Capital Fund Program funds to its projects inconsistently; and was unable to
reconcile its Program grant activity with its General Ledger.



                                      The Quality Housing and Work Responsibility Act of 1998
 Physical Needs                       converted HUD's prior modernization initiatives, including
 Assessment Outdated                  the Comprehensive Grant Program, into the Capital Fund
                                      Program. Until completion of the new regulations, the
                                      regulations at 24 CFR 968 continue to apply to assistance
                                      made available through the Capital Fund Program. These
                                      regulations require housing authorities to complete a
                                      Physical Needs Assessment during the initial year of
                                      funding and every sixth year thereafter, as part of an overall
                                      Comprehensive Plan (24 CFR 968.315).

                                      The Authority last prepared its Physical Needs Assessment
                                      in June 1997. The Authority intends to update its
                                      Assessment in 2005--eight years after the completion of its
                                      previous one. The Authority submitted a Capital Fund
                                      Program Annual Statement and a Five-Year Action Plan
                                      related to its planned Capital Fund Program activities as
                                      part of its annual Public Housing Agency Plan submitted to
                                      HUD. These documents do not substitute for an actual
                                      Physical Needs Assessment, which identifies the physical
                                      needs of each project.

                                      Despite receiving additional Capital Fund Program funds in
 The Authority                        fiscal year 2003, the Authority did not adequately plan for
 Inadequately Planned                 its Program activities. Specifically, the Authority utilized
 Capital Fund Program                 an outdated Physical Needs Assessment in planning its
 Activities                           Capital Fund Program activities and its staff indicated that
                                      they did not receive any training regarding the Program.
                                      This is attributable to the Authority’s mismanagement of



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                           the Capital Fund Program. HUD awarded the Authority
                           additional funds to reward its timely obligation of Capital
                           Fund Program funds.

                           The Authority’s primary staff working with the Capital Fund
 The Authority’s Staff     Program said they had not received any formal training on
 Lacked Formal Training    the Program or its predecessor, the Comprehensive Grant
 On The Capital Fund       Program. They also said they were not familiar with the
 Program                   Capital Fund Program’s rules and regulations. Staff training
                           was not included in the Authority’s 2000, 2001, or 2003
                           Capital Fund Program Annual Statements. The 2002 Capital
                           Fund Program Annual Statement included $30,000 for
                           management training; however, the Authority had not
                           expended any of these funds as of December 31, 2003.

                           The Authority was not properly allocating its Capital Fund
 Capital Fund Program      Program costs to its General Ledger. A review of the
 Costs Improperly          General Ledger history for each of the Capital Fund Program
 Allocated                 grants showed the Authority allocated expenditures in excess
                           of available funds and continues to allocate expenditures in
                           excess of available funds. As a result, the Authority posts
                           large, lump-sum reclassification entries at the end of its fiscal
                           year. These reclassifications make it very difficult to assess
                           the Capital Fund Program costs.                 Despite these
                           reclassifications, the Authority continued to charge costs to
                           its Capital Fund Program grants in excess of available funds.

                           Because of the Authority’s inadequate planning and improper
 Impact On Capital Fund    allocation of its Capital Fund Program activities, the
 Program Activities        Authority:
                               Incurred significant ineligible and unsupported costs;
                               Was unable to reconcile its Capital Fund Program grant
                               activity with HUD’s records; and
                               Disbursed Capital Fund Program funds to its projects in
                               an inconsistent manner.

                           For fiscal years 2000 to 2003, HUD awarded the Authority
 Authority Received $4.6   $4,671,161 in Capital Fund Program funds. As of March 4,
 Million In Capital Fund   2003, the Authority drew down $3,700,970. The following
 Program Funds             table shows the awarded amounts and draw downs for each
                           of the Authority’s Program grants:




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                                                                                      Finding 3

                                      Capital Fund Program Grant    Awarded      Disbursed
                                           CT26P006501-00          $1,567,046    $1,567,046
                                           CT26P006501-01          $1,598,855     1,560,377
                                           CT26P006501-02          $1,505,260       573,547
                                                 Totals            $4,671,161    $3,700,970

                                Our review identified $745,058 in ineligible and
Ineligible And                  unsupported Capital Fund Program costs—$652,540
Unsupported Costs               classified as management improvements and $92,518
Identified                      classified as dwelling structures, which are two spending
                                categories of the Capital Fund Program.

                                      Management                   Dwelling
              Capital Fund           Improvements                 Structures
              Program Grant    Ineligible Unsupported     Ineligible Unsupported        Totals
              CT26P006501-00    $ 51,194      $156,842            $0           $0       $208,036
              CT26P006501-01     176,866       158,086             0            0        334,952
              CT26P006501-02            0      109,552       92,518             0        202,070
                   Totals       $228,060      $424,480      $92,518            $0       $745,058

                                The Authority used $228,060 under the management
Ineligible And                  improvements line item for payments to at least four different
Unsupported Management          vendors relating to the preparation of vacant units for the next
Improvement Costs               tenant, otherwise known as "unit turnaround".               Unit
                                turnaround activities are normal operating expenses for a
                                housing authority and are not eligible Capital Fund Program
                                expenses (24 CFR 968.112(g)(1)).

                                The unsupported management improvement costs relate to
                                three major categories including: 1) $143,984 for
                                rehabilitation salaries and benefits; 2) $27,064 for the
                                Berkeley Heights Tenant Council; and 3) $230,000 in salaries
                                and benefits for the Authority’s Police Officers. The
                                Authority did not provide support for the rehabilitation
                                salaries and benefits; therefore, HUD needs to determine the
                                eligibility of these costs. The Authority claimed the Berkeley
                                Heights Tenant Council is duly organized Resident Council.
                                The Authority provided the Tenant Council $1,592 per
                                month for operating costs. The Authority was in the process
                                of preparing a detailed report of all Resident Council
                                expenditures. HUD will need to determine the eligibility of
                                these costs. Finally, the Authority was able to sufficiently
                                support expenses for two of the four Police Officers. The
                                third Officer’s certification expired in 2001 and the Authority
                                did not support the payments for the fourth Officer. The
                                Authority needs to provide support for all Officers’ charged
                                to the Capital Fund Program.



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Finding 3


                          The remaining $23,432 in unsupported cost was
                          miscellaneous expenses. HUD needs to determine if these
                          costs are eligible as well. See Appendix D of this report for a
                          detailed breakout of all the ineligible and unsupported Capital
                          Fund Program costs by grant.

                          Of the $2,772,434 received by the Authority for dwelling
 Ineligible Dwelling      structures, $92,518 was for ineligible expenditures.
 Structure Cost           Specifically, the ineligible cost of $92,518 related to a
                          duplicate entry posted by the Authority. The Authority
                          agreed that this was an ineligible cost.

                          The Authority reconciled the total Capital Fund Program
 Authority Needs To       drawdowns with its general ledger; however, the Authority
 Reconcile Capital Fund   needs to reconcile the ledger’s line items with the line items
 Program Activity With    in HUD’s records through the Line of Credit Control
 HUD’s Records            System. The Authority should provide this reconciliation
                          to HUD for review and initiate the necessary budget
                          revisions. The Authority expects to be able to support its
                          expenditures after it completes this reconciliation.

                          We examined the amount of Capital Fund Program
 Authority Distributes    expenditures by project and by age of project. This review
 Capital Fund Program     indicated that the Authority inconsistently distributed its
 Funds Inconsistently     Capital Fund Program funds amongst its projects. As an
 Among Its Projects       example, the Authority's largest project, Berkeley Heights, a
                          300-unit, 50-year old project, received only three percent of
                          the overall Capital Fund Program actual/planned funding
                          from the 2000 through the 2004 Program Grants. In contrast,
                          Springbrook Apartments, a 56-unit, 23-year old project,
                          received 16 percent of the overall Capital Fund Program
                          actual/planned funding from the 2000 through the 2004
                          Program Grants.

                          The following table shows ann analysis of the Authority’s
                          Capital Fund Program expenditures:




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                                                                                      Finding 3

                                                                        Average Program
                                                                        Expenditures per
                                                                             Unit;
                                    Development      Occupancy Number Actual/Planned
                                       Name            Date    of Units   (2000-2004)
                                 Berkeley Heights    12/3/1953    300         $141
                                 Bergin Apts.        9/12/1972     76        $1,179
                                 Oak Terrace Apt.    11/6/1971     54        $2,480
                                 Pearl Lake Apts.    12/16/1970    39        $1,534
                                 Springbrook Apts.    8/1/1971     56        $4,028
                                 Truman Apts.         1/3/1974     80        $2,743
                                 Austin Rd. Apts.     8/1/1982     36        $4,550
                                 South End Apts.      2/1/1984    21         $2,230
                                 Scattered Sites      8/1/1992    34          $80


                          The Authority’s inadequate planning for Capital Fund
Capital Fund Program      Program activities and improper allocation of Program funds
Funds To Correct          resulted in the Authority incurring a number of ineligible and
Physical And              unsupported expenditures. Because of these ineligible and
Management Deficiencies   unsupported expenditures, less Capital Fund Program funds
Reduced                   were available to correct physical and management
                          deficiencies and keep units in the Authority’s housing
                          portfolio safe and desirable places to live. The ineligible and
                          unsupported costs represent funding that otherwise could
                          have been used to improve the Authority’s physical and
                          management deficiencies and adequately maintain the
                          Authority’s housing portfolio.



 Auditee Comments         [Excerpts paraphrased from the Authority’s comments on our
                          draft audit report follow. Appendix B, pages 51 and 52,
                          contains the complete text of the comments for this finding.]

                          The Authority took the following actions to address the audit
                          recommendations: 1) determined that no funding was
                          available from its previous Low-Income Public Housing
                          Program Operating budgets; and 2) completed a
                          reconciliation of its Capital Fund Program activity.

                          The Authority plans to take the following recommended
                          actions: 1) send appropriate staff to training for the Capital
                          Fund Program; and 2) update its physical needs assessment
                          and make any necessary adjustments to its Capital Fund
                          Program Annual Statements and/or Five-Year Action Plan.




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                      Concerning the unsupported costs, the Authority believes that
                      all costs are eligible and it provided supporting
                      documentation for consideration.

                      Additionally, the Authority acknowledged the $92,518
                      ineligible cost, but did not indicate that it would reimburse
                      the Capital Fund Program. The Authority also requested that
                      HUD not freeze the remaining Capital Fund Program
                      funding.



  OIG Evaluation Of   We acknowledge the Authority’s determination that no
  Auditee Comments    funding is available from previous Operating Budgets.
                      Therefore, we removed the related recommendations from
                      this report.

                      We reviewed the Authority’s reconciliation of Capital Fund
                      Program activity; however, the activity was not reconciled
                      with HUD’s records through the Line of Credit Control
                      System. Thus, we revised our recommendations accordingly.

                      In addition, we reviewed the Authority’s documentation for
                      the unsupported costs. As a result, we identified $320,578 in
                      ineligible costs and $424,480 in unsupported costs. We
                      revised the finding discussion and recommendations
                      accordingly.

                      Finally, HUD initiated an automatic review of the
                      Authority’s Capital Fund Program vouchers submitted for
                      payment in response to our recommendation. Therefore, we
                      removed the recommendation from this report.



  Recommendations     We recommend that HUD’s Acting Director of the Public
                      Housing Hub, Boston Regional Office:

                      3A. Reviews the Authority’s reconciliation with HUD’s
                          records.


                      3B. Determines if the Authority needs to perform Capital
                          Fund Program budget revisions due to the results of
                          the reconciliation.



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       We also recommend that HUD’s Acting Director of Public
       Housing Hub, Boston Regional Office, assure the Waterbury
       Housing Authority:

       3C.      Provides a reconciliation of its Capital Fund
                Program activity with HUD’s records within 30
                days.


       3D.      Reimburses its Capital Fund Program $320,578
                from non-Federal funds for the ineligible costs cited
                in this finding.


       3E.      Provides documentation to support the $424,480 in
                unsupported costs cited in this finding. If the
                Authority cannot provide documentation, then the
                Authority should reimburse its Capital Fund
                Program from non-Federal funds for the appropriate
                amount.


       3G.      Provides adequate training to its staff working
                directly on the Capital Fund Program.


       3H.      Updates its Physical Needs Assessment and makes
                any necessary adjustments to its Capital Fund
                Program Annual Statements and/or Five-Year
                Action Plan.




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     The Authority Transferred Public Housing
         Funds To A Multifamily Project
The Waterbury Housing Authority inappropriately transferred $245,000 from its Low-Income
Public Housing Program to Northwood Apartments. Northwood Apartments is one of two
multifamily projects owned, managed, and administered by the Authority. Northwood Apartments
incurred operating losses of approximately $800,000over the last two years. The Authority
transferred $245,000 from its Low-Income Public Housing Program, $325,000 from its Section 8
Program, and $240,344 from its Revolving Fund to subsidize the operating expenses of Northwood
Apartments. As a result, these funds were not available for the intended Programs.



                                    HUD entered into an Annual Contributions Contract for
 Public Housing Funds               low-income projects with the Authority for all of its Public
 Intended For Public                Housing on September 28, 1995. Under this Annual
 Housing Projects                   Contributions Contract, HUD requires the Authority to use
                                    its public housing funds for costs of the operation of the
                                    projects under the Contract.       The Contract defines
                                    operating expenditures as all costs incurred by the
                                    Authority for administration, maintenance, and other costs
                                    that are necessary for the operation of the projects. The
                                    Contract defines project as Public Housing developed,
                                    acquired, or assisted by HUD under the Housing Act of
                                    1937, other than under Section 8 of the Act. The term
                                    includes all real and personal property, tangible and
                                    intangible, which the Authority holds or acquires in
                                    connection with a project covered under the Contract.

                                    In December 1996, the Authority acquired a 182-unit project
 Authority Acquired
 Replacement  Reserve
                    Two             called Northwood Apartments and a 164-unit project called
 Multifamily Projects               Villagewood Apartments. Each of these projects have two
                                    HUD-insured loans—one under Section 221(d)(3) of the
                                    National Housing Act and the other under Section 241(f) of
                                    the National Housing Act. Additionally, each project
                                    receives subsidy under HUD’s Section 8 Program for the
                                    majority of its units. As of February 4, 2004, Northwood
                                    Apartments and Villagewood Apartments had 161 and 132
                                    subsidized units, respectively.

                                    Although Villagewood Apartments was able to meet its
 Northwood Apartments               financial obligations, Northwood Apartments incurred
 Plagued with Financial             operating losses of $227,883 during fiscal year 2002 and
 Difficulties                       $572,633 during fiscal year 2003. These losses resulted from



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                                    the project’s high number of vacant units resulting in lost rent
                                    revenue of $277,628 during fiscal year 2002 and $474,409
                                    during fiscal year 2003. Of the 161 subsidized units, the
                                    Authority only had 104 under lease at June 30, 2003, leaving
                                    57 units (35 percent) vacant. The Authority’s officials said
                                    many of the units were not livable and required large
                                    amounts of capital to repair them before they would be
                                    suitable for re-leasing.

                                    Contributing further to the financial difficulties of
 Authority And City                 Northwood Apartments was the large payments made for
 Disputed Tax Rates For             property taxes and other alternative property tax payments
 Two Multifamily Projects           known as Payments-In-Lieu-of-Taxes. The Authority and
                                    the City of Waterbury disagreed on the tax amounts for
                                    Northwood Apartments and Villagewood Apartments. The
                                    Authority believed the projects should be subject to the
                                    Payments-In-Lieu-of-Taxes rate while the City believed the
                                    projects should be subject to the regular property tax rate.
                                    Ultimately, the City returned both projects to the regular tax
                                    rolls with regular taxes retroactive to October 2001. Under
                                    the regular rate, Northwood Apartments owed $425,071 due
                                    on March 2003. Additionally, Northwood Apartments was
                                    delinquent on its Payments-In-Lieu-of-Taxes for December
                                    1996 to September 2001 for another $556,677. The
                                    Authority paid the delinquent Payments In-Lieu of Taxes in
                                    2002 and paid the retroactive regular tax payments in 2003.

                                    Because of the financial difficulties of Northwood
 Authority Transferred              Apartments, the Authority transferred $570,000 from its
 Over $810,000 To                   Low-Income Housing and Section 8 Programs to
 Northwood Apartments               Northwood Apartments. In addition, the project was
                                    unable to reimburse the Authority’s Revolving Fund
                                    $240,344 because of insufficient funds to meet operating
                                    expenses.

                                     Fund                     Amount     Source of Funds
                    Low-Income Public Housing General Fund     $75,000   Unknown
                    Low-Income Public Housing General Fund      70,000   Bond Proceeds
                    Low-Income Public Housing                  100,000   Unknown
                    Section 8 Fund                             185,000   Administrative Fee Reserve
                    Section 8 Fund                              40,000   Unknown
                    Section 8 Fund                             100,000   Administrative Fee Reserve
                    Revolving Fund                             240,344   Unknown
                                     Total                    $810,344

                                    The Authority transferred $285,000 from its Section 8 Fund
 $385,000 Transferred to            and $100,000 from its Low-Income Public Housing
 Pay City


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                                    General fund to pay property taxes and Payments In-Lieu
                                    of Taxes for Northwood Apartments.

                             Date Posted       Amount       Date Posted to
            NorthwoodTax      toGeneral       Diverted to      General
              Payment           Ledger        Northwood        Ledger              Source of Funds
                  $185,326   3-24-2003         $185,000      4-30-2003       Administrative Fee Reserve
                                                                             Low-Income Public Housing
                  $90,055    12-31-2003        $100,000       7-31-2003      General Fund
                  $90,055    1-29-2004         $100,000       1-31-2004      Administrative Fee Reserve

                                    The Authority also transferred $185,000 for operating
$185,000 Transferred to             expenses.     Northwood Apartments’ audited financial
Cover Northwood                     statements for its fiscal year ended June 30, 2002 showed a
Apartments Operating                $115,000 note payable from Northwood Apartments to the
Expenses                            Authority to be used for Northwood Apartments’ operating
                                    expenses. The Authority funded this $115,000 note
                                    through a $75,000 transfer from the Low-Income Public
                                    Housing General Fund and a $40,000 transfer from the
                                    Section 8 Fund. Under the terms of the note, Northwood
                                    Apartments had to repay the Authority only if the project
                                    generated surplus cash. The audited financial statements of
                                    Northwood Apartments for the fiscal year ended June 30,
                                    2003 showed the Authority forgave this note payable, and
                                    reclassified the funds as a capital contribution to
                                    Northwood Apartments. A transfer of $70,000 from the
                                    Low-Income Public Housing General Fund to Northwood
                                    Apartments on April 30, 2003 occurred. The Authority
                                    could not provide an explanation for this transfer.
                                    Considering the financial difficulties of the project, the
                                    transfer was likely to cover operating expenses.

                                    Northwood Apartments also owes the Authority’s
Northwood Apartment                 Revolving Fund $240,344 for operating expenses paid on
owes Authority Revolving            its behalf for the months of April and May 2004.
Funds $240,344                      Essentially, the Authority's Revolving Fund was
                                    subsidizing the Authority's Northwood Apartments until
                                    the project was able to reimburse the Fund. The Authority
                                    reimbursed the Fund from many different of the
                                    Authority’s programs; therefore, the exact source of funds
                                    used to subsidize Northwood Apartments was unclear.

                                    HUD and the Authority entered into a separate Annual
Section 8 Administrative            Contributions Contract for the Section 8 Rental Certificate
Fee Reserves May Be                 and Voucher Program on June 4, 1998. Under this
Used For Other Housing              Contract, HUD requires the Authority to place any program
Purposes                            receipts that exceed program expenditures into an



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                           administrative fee reserve. HUD allows the Authority to
                           use funds in the administrative fee reserve for other
                           housing purposes if permitted by State and local law.

                           In May 2004, the Authority accepted a $12,750,000 bid
 Authority Plans To Sell   from an independent third party for the purchase of
 Multifamily Properties    Northwood Apartments and Villagewood Apartments. The
                           Authority’s officials said the Authority hopes to have a
                           formal purchase and sales agreement finalized by mid-June
                           2004; however, it does not expect to complete the sale until
                           October 2004.

                           The Authority’s Northwood Apartments will continue to
 Transfers Likely To       face shortfalls in its operating cash flow until the Authority
 Continue Until Sale       finalizes the sale. It is likely that Northwood Apartments
 Completed                 will owe substantially more to the Authority's Revolving
                           Fund before the finalization of the sale. The Authority
                           expects that the sales proceeds will be sufficient to cover all
                           monies owed to the Revolving Fund.

                           To sustain the Authority’s multifamily project during a
 Authority Could Use       period of operating shortfalls, the Authority transferred
 Proceeds From Planned     over $810,000 from its Public Housing and Section 8
 Sale To Repay             Programs. As a result, fewer funds were available for the
 Transferred Funds         Programs. The Authority needs to continue its planned sale
                           and return all transferred funds to the appropriate Program.



  Auditee Comments         [Excerpts paraphrased from the Authority’s comments on our
                           draft audit report follow. Appendix B, pages 52 and 53,
                           contains the complete text of the comments for this finding.]

                           The Authority took the following recommended actions: 1)
                           ceased transferring Low-Income Public Housing Program
                           funds to Northwood Apartments; 2) reconciled Northwood’s
                           books to the other Federal program accounts; and 3) executed
                           a sales contract with the prospective buyer of Northwood and
                           Villagewood Apartments.

                           The Authority plans to take the following recommended
                           actions: 1) place all sale proceeds in a restricted account; 2)
                           reimburse the other Federal programs affected by the
                           transfers from the restricted account; and 3) establish a plan
                           for the use of the remaining sale proceeds.




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OIG Evaluation Of   We recognize the Authority completed actions in regards to
Auditee Comments    our original recommendations and its agreement to
                    implement our additional recommendations. However, this
                    does not constitute final resolution.

                    The Authority needs to: 1) finalize the sale; 2) use the sales
                    proceeds to repay the other Federal programs; and 3) develop
                    a viable plan for alternate reimbursement if the sales
                    proceeds do not fully reimburse the other Federal programs.




Recommendations     We recommend that HUD’s Acting Director of Public
                    Housing Hub, Boston Regional Office:

                    4A. Verifies that the Authority ceased transferring Low-
                        Income Public Housing Program funds to Northwood
                        Apartments.


                    4B. Reviews the Authority’s reconciliation of all accounts
                        used to identify and quantify the sources for all
                        transfers to the multifamily properties.

                    We also recommend that HUD’s Acting Director of Public
                    Housing Hub, Boston Regional Office, assure the Waterbury
                    Housing Authority:

                    4C. Establishes and adheres to a timeline to complete the
                        sale of Northwood and Villagewood Apartments.


                    4D. Places all sale proceeds in a restricted account.


                    4E. Uses non-Federal funds to reimburse $485,344 to the
                        Low-Income Public Housing Program ($245,000) and
                        the Revolving Fund ($240,344) for the ineligible costs
                        cited in this finding as of May 31, 2004).


                    4F. Provides documentation to support the funding source
                        for the $240,344 transferred from the Authority’s
                        Revolving Fund to its Northwood Apartments to


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Finding 4


                    determine whether the transferred funds were used
                    appropriately. If supporting documentation cannot be
                    provided to identify the funding source, the Authority
                    should reimburse its Revolving Fund the appropriate
                    amount.


               4G. Reimburses the appropriate program for any funds
                   transferred after May 31, 2004 from non-Federal funds.


               4H. Establishes and adheres to a plan to use any remaining
                   proceeds from the sale of the properties in accordance
                   with State and local law.




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                                                                                              Finding 5


       The Authority Did Not Use Replacement
               Housing Factor Funds
The Waterbury Housing Authority did not utilize $184,334 in Replacement Housing Factor funding
due to a lack of management emphasis and oversight. Specifically, the Authority did not establish
and submit a plan to HUD in a timely manner to show how the Authority would use the funds, and
did not adhere to statutory obligation and expenditure deadlines. As a result, the Authority lost
$68,725 in Replacement Housing Factor funding and may lose another $115,609 in funding for
replacement housing needs. Additionally, the Authority lost the opportunity to apply for a second
increment of Replacement Housing Factor funds.



                                       HUD provides Replacement Housing Factor funds in five-
 Purpose Of Replacement
 Replacement Reserve                   year increments to housing authorities that have a reduction
 Housing Factor Funds                  in units attributable to demolition or disposition. Any
                                       reduction in units will decrease Capital Fund Program funds
                                       available to a housing authority. Housing authorities must
                                       make reasonable progress on the use of Replacement
                                       Housing Factor funding in accordance with HUD's
                                       requirements and regulations. To demonstrate reasonable
                                       progress, Replacement Housing Factor funds must be
                                       obligated within: 1) 24 months from the date that the funds
                                       become available; or 2) with specific HUD approval, 24
                                       months from the date the housing authority accumulates
                                       adequate funds to undertake replacement housing.
                                       Additionally, housing authorities must only use the funding
                                       for replacement housing purposes. (24 CFR 905.10(i))

                                       As of August 2004, HUD reserved $184,334 in Replacement
 Authority Authorized                  Housing Factor funding for the Authority for the 2000 to the
 $184,334 In Replacement               2004 grant years. The following table shows the breakdown
 Housing Factor Funds                  of each grant:


                     Obligation      Disbursement      Amount     Amount       Amount
 Grant Number        Deadline          Deadline        Reserved   Obligated   Disbursed      Balance
 CT26R006501-00      9/30/2003        9/30/2005         $22,988      $0          $0           $22,988
 CT26R006501-01      9/30/2003        9/30/2005          23,454       0           0            23,454
 CT26R006501-02      6/30/2004        6/30/2006          22,283       0           0            22,283
 CT26R006501-03      9/16/2005        9/16/2007          53,272       0           0            53,272
 CT26R006501-04    Not established   Not established     62,337       0           0              62,337
                      Totals                           $184,334      $0          $0           $184,334




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                             While HUD reserved funding for the Authority for the 2004
                             grant year; HUD had not authorized or spread the funding
                             among the various budget line items as of August 2004.

                             For Replacement Housing Factor funding received before
 Replacement Housing         fiscal year 2003, all housing authorities regardless of their
 Factor And Public           intent to request a second funding increment must submit to
 Housing Agency Plan         the local HUD Field Office a Replacement Housing Factor
 Requirements Not Met        Plan for the use of the first funding increment. The plan was
                             due by May 30, 2003 or the due date of the housing
                             authority’s Annual Plan for that year, whichever was later.
                             Furthermore, housing authorities that did not submit a
                             Replacement Housing Factor Plan will have an obligation
                             and expenditure commencement date based on the date when
                             HUD made the funds available for each grant. Any housing
                             authorities that do not adhere to obligation and expenditure
                             deadlines face the loss of Replacement Housing Factor funds.

                             Due to the timing of its annual Public Housing Agency Plan,
                             the Authority had a Replacement Housing Factor Plan
                             deadline of May 30, 2003. The Authority did not submit the
                             plan by May 30, 2003. The Authority had not addressed
                             Replacement Housing Factor funding in any of its annual
                             Public Housing Agency Plans. Housing authorities must
                             provide an Annual Statement/Performance and Evaluation
                             Report for each of its Replacement Housing Factor grants
                             with each Public Housing Agency Plan as required by HUD
                             Notice PIH 2003-07.

                             The Authority can no longer use $68,725 in Replacement
 Authority Lost $68,725 In   Housing Factor funds from its 2000 through 2002 grants
 Replacement Housing         because it did not obligate these funds timely. According
 Factor Funds And May        to HUD’s Fiscal Year 2003 Appropriations Act, HUD must
 Lose Additional Funds       recapture any amounts made available for Fiscal Years
                             1999 through 2003 that remain unobligated by the
                             established deadlines. The Authority should adhere to the
                             obligation and expenditure deadlines for the remaining
                             grants to avoid losing future funding, including the
                             $115,609 already reserved for grant years 2003 and 2004.

                             The Authority lost its chance for a second five-year block of
 Additional Funding          Replacement Housing Factor funding because it failed to
 Increment No Longer         meet obligation and expenditure deadlines during the first
 Available To The            funding increment. Any housing authority that fails to meet
 Authority                   the deadlines will not receive any Replacement Housing
                             Factor funding for the second increment. The Authority did



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                           not receive any specific HUD approval for the extension of
                           obligation deadlines. Additionally, the Authority did not
                           submit a Replacement Housing Factor Plan by May 30, 2003,
                           as required. In December 2003, HUD’s Hartford Field
                           Office notified the Authority that it did not meet this
                           regulatory requirement. As a result, the Authority will not
                           receive any Replacement Housing Factor funding under the
                           second increment.

                           The Authority did not provide sufficient management
Poor Management            oversight over the Replacement Housing Factor grants. The
Oversight Contributed To   Authority did not take action in response to HUD’s
The Deficiency             requirements and directives. One of the Authority’s former
                           Executive Directors did not communicate effectively or
                           otherwise share knowledge of the grants with the rest of the
                           Authority, namely with the Board of Commissioners and
                           Finance Department. A review of the documented minutes
                           of the Board of Commissioner’s meetings and our
                           discussions with the Authority’s officials indicated a lack of
                           awareness of the Replacement Housing Factor Program.



 Auditee Comments          [Excerpts paraphrased from the Authority’s comments on our
                           draft audit report follow. Appendix B, page 53, contains the
                           complete text of the comments for this finding.]

                           The Authority agreed that it did not meet the requirements for
                           the use of the Replacement Housing Factor grants. The
                           Authority requested that HUD consider allowing the
                           Authority to use all Replacement Housing Factor funds. The
                           Authority will submit a Replacement Housing Factor Plan if
                           the Authority is still eligible to use the funds.



 OIG Evaluation Of         If a housing authority does not obligate Replacement
 Auditee Comments          Housing Factor funds as required, the authority cannot use
                           the funds. HUD must recapture these funds in accordance
                           with its Fiscal Year 2003 Appropriations Act. Since this
                           requirement is statutory, HUD cannot waive the
                           implementation of this provision.

                           In August 2004, HUD made changes to the Authority’s
                           obligation and disbursement deadlines. As a result, funds for
                           the 2001 and 2002 Replacement Housing Factor grants were



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                    at risk of recapture. Additionally, HUD reserved the fifth
                    year of funding for the Authority. We incorporated this
                    updated information into our finding.

                    HUD must determine if the Authority is eligible to use the
                    remaining Replacement Housing Factor grant funds. HUD’s
                    regulations stipulate that housing authorities may only use the
                    funds for replacement housing needs having a reduction in
                    units attributable to demolition and disposition of units
                    during the period. Since the Authority plans to cancel the
                    disposition process of the South End project, the Authority
                    may not be eligible to use the Replacement Housing Factor
                    funding.




  Recommendations   We recommend that HUD’s Acting Director of Public
                    Housing Hub, Boston Regional Office:

                    5A. Recaptures and reprograms the $68,725 reserved under
                        the 2000 through 2002 Replacement Housing Factor
                        grants.

                    5B. Determines if the Authority is eligible to use the
                        remaining $115,609 in Replacement Housing Factor
                        funding given the proposed cancellation of the South
                        End project (see Finding 2 of this report). If the
                        Authority is no longer eligible to use the remaining
                        Replacement Housing Factor funding, then recapture
                        the funds. If the Authority is still eligible to use the
                        remaining funding, ensure the Authority submits a
                        Replacement Housing Factor Plan within 60 days or
                        risk recapture.




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Management Controls
Management controls include the plan of organization, methods, and procedures adopted by
management to meet its goals are met. Management controls also include the processes for
planning, organizing, directing, and controlling program operations. They include the systems for
measuring, reporting, and monitoring program performance.



                                     We determined that the following management controls were
 Relevant Management                 relevant to our audit objectives:
 Controls
                                         Controls over the requisitioning funds from HUD.
                                         Controls over the planning and monitoring of routine
                                         maintenance, capital needs, disposition of units,
                                         replacement housing, and other development activities.
                                         Controls over the timely obligations and expenditures of
                                         grant funds.
                                         Controls over computer-processed data.
                                         Controls to ensure costs incurred were for eligible
                                         activities, properly supported by appropriate source
                                         documentation, and were allowable as specific grant or
                                         program expenditures.
                                         Controls over accounting practices, including cash
                                         disbursements and bank reconciliations.
                                         Controls over procurement practices.
                                         Controls over HUD reporting requirements.

                                     We assessed all of the relevant control categories identified
                                     above during our audit of the Waterbury Housing Authority’s
                                     selected programs.

                                     It is a significant weakness if management controls do not
                                     provide reasonable assurance that the process for planning,
                                     organizing, directing, and controlling program operations
                                     will meet an organization's objectives.

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


                                         The Authority lacked a system in place to ensure the
                                         timely obligation and expenditure of grant funds (see
                                         Findings 1 and 5).


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                      The Authority’s controls were weak to ensure it
                      completed development and replacement housing
                      activities timely or in accordance with HUD’s approved
                      development proposals (see Findings 1 and 5).
                      The Authority lacked a system to ensure the timely
                      disposition of units approved for disposition (see Finding
                      2).
                      The Authority failed to ensure costs incurred were for
                      eligible activities, properly supported by appropriate
                      source documentation, and were allowable as specific
                      grant or program expenditures (see Findings 3 and 4).
                      The Authority lacked effective accounting policies and
                      procedures to ensure that its Capital Fund Program books
                      and records were auditable (see Finding 3).




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Follow-Up On Prior Audits
This is the first audit of the Waterbury Housing Authority’s Capital Fund Program, disposition of
the South End project, Public Housing Development Grant Program, Section 5(h)
Homeownership Program, and multifamily projects owned, managed, and administered by the
Authority.

The Authority hired an Independent Public Accountant to review their financial statements for
the fiscal year ended June 30, 2002. The Accountant issued their report on March 5, 2003. This
report included a finding relating to deficiencies in annual Capital Fund Program reporting to
HUD. Specifically, the Accountant reported that the expenditures recorded in the Authority’s
General Ledger did not agree to the expenditures reported on the Annual Statement/Performance
and Evaluation Report filed with HUD for the period ended December 31, 2001. This finding
was significant to our audit objectives relating to the Capital Fund Program.

The Authority hired the same Accountant to report on the financial statements for the fiscal year
ended June 30, 2003. The 2003 Accountant’s report showed that the Authority implemented
corrective action to address the 2002 issue; however, we determined that the condition still exists
and the actions taken by the Authority were not adequate (see Finding 3 of this report).




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                                                                           Appendix A
Schedule Of Questioned Costs And
Recommendations For Funds To Be Put To
Better Use

                                                 Questioned Costs
     Recommendation                                                Unnecessary/     Funds Put To
         Number              Ineligible 1/     Unsupported 2/     Unreasonable 3/   Better Use 4/
           1D                                                                         $2,293,941
           2A                                          $185,225
           2C                   $111,263
           2G                                                                              34,290
           3E                    320,578
           3F                                           424,480
           4E                    245,000
           4F                                           240,344
           5A                                                                             68,725
           5B                                                                            115,609
         Totals                 $676,841               $850,049                $0     $2,512,565


1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
   that the auditor believes are not allowable by law, contract or Federal, State or local polices
   or regulations.

2/ 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 future decision by HUD program officials. This decision, in addition to obtaining
   supporting documentation, might involve a legal interpretation or clarification of
   Departmental policies and procedures.

3/ Unnecessary/Unreasonable costs are those costs not generally recognized as ordinary,
   prudent, relevant, and or necessary within established practices. Unreasonable costs exceed
   the costs that would be incurred by a prudent person in conducting a competitive business.

4/ Funds Put to Better Use are quantifiable savings that are anticipated to occur if an OIG
   recommendation is implemented resulting in reduced expenditures in subsequent period for
   the activities in question. Specifically, this includes costs not incurred, de-obligation of
   funds, withdrawal of interest, reductions in outlays, avoidance of unnecessary expenditures,
   loans and guarantees not made, and other savings.




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Auditee Comments




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                                                                                                    Appendix C

Schedule Of Section 5(h) Homeownership
Program Properties
                                                                 Purchase Amount              Date      Sale
No.   Property Address                      Type                   Date      Paid             Sold      Price
 1 118 Citizens Avenue             Single-family detached         12/02/93 $110,000           1/24/96    $85,000
 2 238-240 Fanning Street          Duplex                         12/02/93    130,000        10/17/97     90,000
 3 5 Cassidy Avenue                Triplex                        12/03/93    175,000         1/24/96    130,000
 4 45 Bishop Street4               Single-family detached         12/17/93     79,000          NA        NA
 5 55 Bishop Street                Single-family detached         12/17/93     79,000         5/18/95     70,000
 6 59 Bishop Street                Single-family detached         12/17/93     79,000         5/18/95     70,000
 7 162 Plank Road                  Single-family detached         10/07/94     95,000         4/17/96     96,000
 8 34 Terrace Avenue               Single-family detached         10/07/94     80,000         9/09/96     82,000
 9 137 Townsend Avenue             Single-family detached         11/22/94    115,000         4/17/96    105,000
10 47 Bagley Terrace               Single-family detached         11/23/94     99,900         5/18/95    101,000
11 100 Morton Road                 Single-family detached         11/23/94     99,900        10/06/95    101,000
12 216 Greenwood Avenue            Single-family detached         11/29/94     98,000         4/17/96     90,000
13 124 Wilson Street               Single-family detached         11/30/94     90,000         8/28/96     90,000
14 266 Woodtick Road               Single-family detached         12/01/94     90,000         8/23/96     88,000
15 81 Brookview Avenue             Single-family detached         10/24/96     72,000            NOT SOLD
16 75 Madison Avenue               Single-family detached         10/29/96     70,000            NOT SOLD
17 86 Hallock Street               Single-family detached         10/30/96     82,000            NOT SOLD
18 16 Whittlesey Avenue            Single-family detached         11/05/96     70,000            NOT SOLD
19 34 Springdale Avenue            Single-family detached         11/18/96     80,000         6/24/99     74,990
20 13 Ivy Lane                     Single-family detached          3/27/97    102,000        10/09/97    102,000
21 89 Morton Road                  Single-family detached          3/27/97    105,000        6/23/04     143,000
22 3 Gordon Street                 Single-family detached         12/04/97    108,000         8/18/99     95,000
23 19 Ivy Lane                     Single-family detached         12/04/97    102,000         8/03/99    100,000
24 47 Midvale Avenue               Single-family detached         12/04/97    109,000         5/20/99    113,000
25 37 Midvale Avenue               Single-family detached         12/04/97    109,000         8/19/98    112,400
26 118 Wilson Street               Single-family detached          5/19/98    111,000         4/13/99    109,000
27 88 Circular Avenue              Single-family detached          7/06/99     70,000            NOT SOLD
28 174 Rodney Street               Single-family detached          7/06/99    103,500        12/05/03    120,500
29 178 Rodney Street               Single-family detached          7/06/99    115,000        12/05/03    125,000
                                   Totals                                  $2,828,300                 $2,292,890




________________________
4
    45 Bishop Street was converted to a Low-Income Public Housing Program unit and receives operating subsidy.



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                                                                                             Appendix D

Schedule Of Ineligible And Unsupported
Capital Fund Program Costs
                                                                 Grant Number
                                   CT26P006501-00         CT26P006501-01         CT26P006501-02
           Description          Ineligible Unsupported Ineligible Unsupported Ineligible Unsupported    Totals
Dwelling Structures                                                             $92,518                  $92,518
Unit Turnaround                   $51,194               $176,866                                        $228,060
Rehab Salaries and Benefits                    $77,828                $66,156                            143,984
Berkeley Heights Tenant Council                 11,144                  6,368                 $9,552      27,064
Miscellaneous                                   17,870                  5,562                             23,432
Authority Police Officers                       50,000                 80,000                100,000     230,000
             Totals               $51,194     $156,842 $176,866      $158,086 $92,518       $109,552    $745,058




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