oversight

The Hartford Housing Authority Improperly Used $3.7 Million in Public Housing Operating Subsidies for Its State and Other Federal Programs

Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-09-06.

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

                 AUDIT REPORT




The Hartford Housing Authority Improperly Used $3.7 Million
 in Public Housing Operating Subsidies for Its State and Other
                     Federal Programs


                       2005-BO-1006

                     September 6, 2005

                  OFFICE OF AUDIT, REGION 1
                          Boston, MA
                                                                   Issue Date
                                                                             September 6, 2005

                                                                   Audit Report Number
                                                                            2005-BO-1006




TO:         Donna J. Ayala, Director, Office of Public Housing, Boston, MA, Regional
              Office, 1APH



FROM:       John A. Dvorak, Regional Inspector General for Audit, 1AGA

SUBJECT: The Hartford Housing Authority Improperly Used $3.7 Million in Public
           Housing Operating Subsidies for Its State and Other Federal Programs


                                    HIGHLIGHTS

 What We Audited and Why

             As part of our fiscal year 2005 annual audit plan, we reviewed the low-income
             public housing (public housing) program at the Hartford Housing Authority
             (Authority). Our objective was to determine whether the Authority used low-
             income public housing (public housing) operating subsidies in compliance with
             the financial provisions of its annual contributions contract.


 What We Found

             The Authority did not administer its public housing operating subsidies in
             compliance with the financial provisions of its annual contributions contract. It used
             public housing operating subsidies to pay expenditures of its state-subsidized
             housing program and other federal housing programs. This condition occurred
             because the Authority failed to establish internal controls to ensure compliance with
             its annual contributions contracts for public housing and prevent the use of federal
             funds to pay nonprogram expenses. As a result, the Authority did not have $3.7
             million available to administer its public housing program.
 What We Recommend

           We recommend that the director of the Regional Office of Public Housing,
           Boston, Massachusetts, require that the Authority repay the public housing
           operating fund $3.7 million plus interest. In addition, the Authority should
           establish and implement policies and procedures to ensure that public housing
           operating subsidies are used only for program purposes.

            For each recommendation in the body of the report without a management
            decision, please respond and provide status reports in accordance with U.S.
            Department of Housing and Urban Development (HUD) Handbook 2000.06,
            REV-3. Also, please furnish us copies of any correspondence or directives
            issued because of the audit.

Auditee’s Response

           The complete text of the auditee’s response, along with our evaluation of that
           response, can be found in appendix B of this report. The Authority concurred
           with all of our recommendations and the proposed corrective actions, if properly
           implemented, should be sufficient. However, the Authority did not address our
           recommendation to pay interest on the funds.




                                           2
                            TABLE OF CONTENTS

Background and Objectives

Results of Audit
      Finding 1: The Authority Improperly Used $3.7 Million in Public Housing
                 Operating Subsidies for Other Programs
Scope and Methodology


Internal Controls


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




                                            3
                      BACKGROUND AND OBJECTIVES

The Hartford Housing Authority (Authority) was created under the United States Housing Act of
1937 and section 8-40 of the Connecticut General Statutes to provide low-income public housing
for qualified individuals. The Authority is headed by an executive director and governed by a board
of commissioners. The Authority’s long-time former executive director retired in March of 2005.
The Authority hired an interim executive director and is conducting a nationwide search to fill its
executive director position.

The Authority administers one of the largest low-income public housing (public housing)
programs in Connecticut. It received more than $15.7 million in public housing operating
subsidies from the U.S. Department of Housing and Urban Development (HUD) to support more
than 1,300 families in fiscal years 2002 through 2004.

The Authority must operate its public housing program according to the rules and regulations
prescribed by HUD in accordance with the United States Housing Act of 1937, as amended, and
its annual contributions contract.

HUD officials cited the Authority for using $3.9 million in federal subsidies to subsidize its state
housing program from 1991 through 1998. The Authority’s financial records show that
corrective action was taken to repay the funds.

Our overall objective was to determine whether the Authority used public housing operating
subsidies in compliance with the financial provisions of its annual contributions contract. We
focused on whether the Authority improperly used its public housing operating subsidies for
other housing programs and entities.




                                                 4
                                                       RESULTS OF AUDIT

Finding 1: The Authority Improperly Used $3.7 Million in Public
Housing Operating Subsidies for Other Programs.

The Authority improperly used its public housing operating subsidies to pay expenditures of state
and other federal programs. The Authority’s annual contributions contract with HUD states that
public housing operating subsidies may not be used for other programs. The improper use of
funds occurred due to a lack of adequate internal controls for its federal programs and the
operating losses incurred by its state moderate rent program. As a result, the Authority’s public
housing program did not have $3.7 million in funds available to administer the program and
maintain public housing units.


 Federal Funds Must Be Used
 for Specific Programs

               The Authority used a series of fund accounts to track the source and use of funds
               for its federal, state, and local programs. The funds received for all programs
               were transferred into the Authority’s revolving fund, and the Authority paid all
               program expenditures from this fund. According to the rules and regulations,
               public housing operating subsidies are not fungible, and withdrawals shall not be
               made for a specific program in excess of the funds available for that program.
               During fiscal years 2002 through 2004, the Authority withdrew excess funds and
               consistently used more than $1 million in public housing operating subsidies for
               other programs.

                                                                                                                           Public housing
                                                                                                                           operating funds
                                                                                                                              used for
                                                                                                                           other programs

                              6,000,000.00
                              5,000,000.00
                              4,000,000.00
                   Dollars




                              3,000,000.00
                              2,000,000.00
                              1,000,000.00
                                       -
                                                        Mar-02

                                                                 May-02




                                                                                                                  Mar-03

                                                                                                                             May-03




                                                                                                                                                                          Mar-04

                                                                                                                                                                                   May-04
                                                                          Jul-02




                                                                                                Nov-02




                                                                                                                                      Jul-03




                                                                                                                                                        Nov-03




                                                                                                                                                                                            Jul-04




                                                                                                                                                                                                              Nov-04
                                              Jan-02




                                                                                                         Jan-03




                                                                                                                                                                 Jan-04
                                                                                   Sep-02




                                                                                                                                               Sep-03




                                                                                                                                                                                                     Sep-04




                             (1,000,000.00)


                                                                                                                  Month end balance



               During this period, we calculated that the public housing program would have


                                                                                            5
            earned $119,132 in interest if the Authority had placed these funds in 90-day
            treasury bills at the reported Federal Reserve rate (see appendix C).


$3.7 Million Was Used for
Other Programs


            The Authority’s financial records showed that as of December 31, 2004, the
            Authority had used $3,742,403 in public housing operating subsidies for its other
            programs. See the chart below for details.

                                  Res ident O pportunity and S upportive S ervic es
                                  Hope V I
                                  Hous ing Choic e V ouc her
                                  P ublic Hous ing Capital Fund
                                  S tate/loc al

                                                            $7,848
                                                                  $267,116
                                                                                      $884,633
                     $1,641,596




                                                                     $941,210




Inadequate Management
Controls

            This improper use of funds occurred due to a lack of adequate internal controls
            over the Authority’s source and use of funds. The Authority failed to process
            Public Housing Capital Fund, Hope VI, and replacement housing drawdowns
            from HUD in a timely manner, resulting in program funding shortages that were
            covered using public housing operating subsidies. The Authority also
            underestimated the number of Section 8 voucher units under lease in January of
            2004 and did not submit an interim funding request to cover the shortage. The
            Authority’s year-end settlement (HUD 52681) requested the full amount of
            voucher program funds required and HUD paid the Authority an additional
            $670,296 in April of 2005 for fiscal year 2004 expenses. In addition, the
            Authority’s state housing projects incurred operating losses and used surplus
            federal funds to cover the state programs’ expenses.

Repayment May Be Possible



                                                  6
             The Authority acknowledged that public housing operating subsidies may not be
             used for other programs and has started taking action to repay the public housing
             program.

Conclusion

             The Authority improperly used $3,742,403 in public housing operating subsidies to
             pay for its state, local, and other federal programs. This occurred because of a lack
             of adequate internal control over the source and use of funds and failure by the
             Authority to obtain reimbursements from HUD in a timely manner and submit
             updated Section 8 funding requests. In addition, the Authority used public
             housing operating subsidies to cover shortages in its state and local programs.
             These improper uses of funds reduced the amount of funds available to support
             the public housing program, and the Authority must repay these funds with
             interest. In addition, the Authority lost the opportunity to earn interest on the
             funding had it invested. We estimated the public housing program might have
             earned $119,132 in interest if the funds had not been used for other programs.

Recommendations


             We recommend that the director of the Office of Public Housing require the
             Authority to

             1A. Immediately cease the practice of using public housing operating subsidies to
                 pay expenses for other programs.

             1B. Repay $1,641,596 plus interest to the public housing operating reserve from
                 nonfederal funds.

             1C. Repay $941,210 to the public housing operating reserve account from the
                 Public Housing Capital Fund Program and pay interest from nonfederal funds
                 for the inappropriate use these funds. Funds owed from any grants which are
                 closed must be provided from nonfederal funds

             1D. Repay $844,633 to the public housing operating reserve from Housing Choice
                 Voucher funds and pay interest from nonfederal funds for the inappropriate
                 use these funds. ($670,296 of the $844,633 may come from FY 2004 Housing
                 Choice Voucher Program funds and the remaining $214,237 must come from
                 nonfederal funds)




                                               7
1E. Repay $267,116 to the public housing reserve account from Hope VI funds
    and pay interest from nonfederal funds for the inappropriate use these funds.
    Funds owed from any grants which are closed must be provided from
    nonfederal funds.

1F. Repay $7,848 to the public housing operating reserve from Resident
    Opportunities and Supportive Services funds and pay interest from nonfederal
    funds for the inappropriate use these funds.

1G. Strengthen and implement controls over tracking and reporting of federal
    public housing operating subsidies to ensure that the Authority is using these
    funds for this federal program only.

1H. Strengthen and implement controls over cash management to ensure timely
    reimbursements are obtained for its federal programs.

1I.   Submit monthly accounting reports on source and use of federal funds with
      adequate documentation to HUD for monitoring.




                                 8
                                SCOPE AND METHODOLOGY

We performed our review in accordance with generally accepted government auditing standards.
We conducted the audit between March and July 2005 and covered the period of January 2002
through June 2005. The majority of our fieldwork was completed at the Authority’s office
located at 180 Overlook Terrace in Hartford, Connecticut. Our audit covered the period of
January 1, 2002, through June 30, 2005. To accomplish our audit objectives, we

   •   Reviewed program requirements including federal laws and regulations, Office of
       Management and Budget circulars, and the consolidated annual contributions contract
       between the Authority and HUD.

   •   Reviewed the Authority’s financial statements and independent public accountant’s reports.

   •   Interviewed Authority and HUD personnel and officials and reviewed meeting minutes from
       the Authority’s board.

   •   Analyzed the Authority’s records for fiscal years 2002, 2003, 2004, and 2005.

   •   Summarized results of our analyses.




                                                9
                              INTERNAL CONTROLS

Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following objectives are being achieved:
   •   Effectiveness and efficiency of operations,
   •   Reliability of financial reporting, and
   •   Compliance with applicable laws and regulations.

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


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

                  •   Compliance with laws and regulations – Policies of management to
                      reasonably ensure that resource use is consistent with laws and regulations.

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

 Significant Weaknesses
              Based on our review, we believe the following items to be significant weaknesses:
                  •   The Authority did not ensure public housing operating subsidies were only
                      used for this federal program in compliance with laws and regulations.
                      (see finding 1).




                                                 10
                                    APPENDIXES

Appendix A

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

 Recommendation           Ineligible 1/    Unsupported      Unreasonable or      Funds to be put
        number                                      2/       unnecessary 3/       to better use 4/
      1B               $1,825,565
      1C                $941,210
      1D                $844,633
      1E                $267,116
      1F                 $23,251



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

2/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of audit. Unsupported costs
     require a decision by HUD program officials. This decision, in addition to obtaining
     supporting documentation, might involve a legal interpretation or clarification of
     departmental policies and procedures.

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




                                              11
Appendix B

        AUDITEE COMMENTS AND OIG’s EVALUATION


Ref to OIG Evaluation   Auditee Comments

Comment 1




                         12
Appendix B

        AUDITEE COMMENTS AND OIG’s EVALUATION

Ref to OIG Evaluation   Auditee Comments

Comment 1




                         13
Appendix B

        AUDITEE COMMENTS AND OIG’s EVALUATION

Ref to OIG Evaluation   Auditee Comments

Comment 1




                         14
                     OIG Evaluation of Auditee Comments

            The Authority concurred with all of our recommendations and the proposed
Comment 1
            corrective actions, if properly implemented, should be sufficient to address the
            deficiencies identified in the report. However, the Authority did not address
            our recommendation to pay interest on its improper use of the federal funds.
            HUD needs to ensure that the Authority addresses payment of interest for its
            improper use of the funds.




                                         15
                     Appendix C
                          SCHEDULE OF INTEREST LOST

                 Public housing operating       91-day
                fund 10 acct # 115500 "due     treasury         OIG imputed interest
  Date 1          from other programs"         bill rates   (annual yield / 100 / 12 * due from)
 1/31/2002                      1,679,850.61     1.769      $                    2,476.38
 2/28/2002                       -101,444.82     1.769                            (149.55)
 3/31/2002                      1,604,103.84     1.821                           2,434.23
 4/30/2002                      2,583,748.59      1.76                           3,789.50
 5/31/2002                      1,827,675.08      1.76                           2,680.59
 6/30/2002                      1,179,718.63     1.719                           1,689.95
 7/31/2002                      2,502,142.32     1.712                           3,569.72
 8/31/2002                      2,740,392.40     1.661                           3,793.16
 9/30/2002                      1,382,673.97     1.566                           1,804.39
10/31/2002                      3,101,420.63     1.578                           4,078.37
11/30/2002                      2,505,112.77     1.228                           2,563.57
12/31/2002                      2,240,455.30     1.207                           2,253.52
 1/31/2003                      2,740,288.20     1.159                           2,646.66
 2/28/2003                      3,212,021.97     1.195                           3,198.64
 3/31/2003                      2,923,449.97     1.121                           2,730.99
 4/30/2003                      2,899,476.12     1.141                           2,756.92
 5/31/2003                      3,764,253.18     1.121                           3,516.44
 6/30/2003                      2,945,377.64     0.903                           2,216.40
 7/31/2003                      2,911,542.73     0.964                           2,338.94
 8/31/2003                      3,365,068.47     0.997                           2,795.81
 9/30/2003                      3,449,206.68     0.953                           2,739.24
10/31/2003                      3,411,531.97      0.96                           2,729.23
11/30/2003                      3,607,903.39     0.946                           2,844.23
12/31/2003                      2,450,048.72     0.901                           1,839.58
 1/31/2004                      2,540,516.34     0.907                           1,920.21
 2/29/2004                      3,190,444.67     0.947                           2,517.79
 3/31/2004                      2,691,495.71     0.961                           2,155.44
 4/30/2004                      3,267,739.60     0.985                           2,682.27
 5/31/2004                      4,363,005.23     1.066                           3,875.80
 6/30/2004                      3,143,137.58     1.381                           3,617.23
 7/31/2004                      3,726,106.99     1.449                           4,499.27
 8/31/2004                      4,371,106.57     1.607                           5,853.64
 9/30/2004                      3,764,306.32     1.741                           5,461.38
10/31/2004                      4,260,578.76      1.89                           6,710.41
11/30/2004                      5,042,864.52     2.238                           9,404.94
12/31/2004                      3,753,473.42     2.269                           7,097.19
                                                            $                   119,132.48


1
    Month/day/year


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