oversight

Kankakee County Housing Authority's Low-Rent Housing Program; Kankakee, IL; The Authority Lacked Procedures and Controls Over Subsidy Requests, Maintenance, Admission and Occupancy, Personnel, and Its Homeownership Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-04-08.

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

              AUDIT REPORT




       KANKAKE COUNTY HOUSING AUTHORITY
          LOW-RENT HOUSING PROGRAM

              KANKAKEE, ILLINOIS

                   2005-CH-1010

                   APRIL 8, 2005




              OFFICE OF AUDIT, REGION V
                  CHICAGO, ILLINOIS



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                                                               Issue Date
                                                                        April 8, 2005
                                                               Audit Report Number
                                                                            2005-CH-1010




TO:        Linford Coleman, Director of Public Housing Hub, 5APH


FROM:      Heath Wolfe, Regional Inspector General for Audit, 5AGA

SUBJECT: Kankakee County Housing Authority’s Low-Rent Housing Program; Kankakee,
           IL; The Authority Lacked Procedures and Controls Over Subsidy Requests,
           Maintenance, Admission and Occupancy, Personnel, and Its Homeownership
           Program

                                  HIGHLIGHTS

 What We Audited and Why

            We audited the Kankakee County Housing Authority’s (Authority) Low-Rent
            Housing program. The audit was conducted in response to a citizen’s complaint
            to our office and was part of our comprehensive audit of the Authority. The
            objective of our audit was to determine whether the Authority administered its
            Low-Rent Housing program in an efficient and effective manner. We determined
            whether the Authority had adequate procedures and controls over its subsidy
            requests, preventive maintenance, admission and occupancy, personnel practices,
            and Turnkey III Homeownership Opportunity program.


 What We Found

            The Authority

                •   Improperly included an average of five to seven Turnkey III units in its
                    calculation of its Low-Rent Performance Funding Operating Subsidy since
                    1997, which resulted in the Authority receiving excess operating subsidy
                    totaling $119,376.




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              •      Did not follow its Annual Contributions Contract with the U.S.
                     Department of Housing and Urban Development (HUD) to implement an
                     effective maintenance program. This contributed to the Authority having
                     16 Low-Rent units vacant for longer than 18 months, which resulted in
                     lost rental proceeds of more than $69,000.

              •      Failed to improve its Low-Rent Housing program’s admission and
                     occupancy controls regarding maintaining proper documentation in tenant
                     files, conducting timely re-examinations, accurately calculating total
                     tenant payments, and assigning proper unit sizes for tenants.

              •      Did not follow its personnel policies related to maintaining documentation
                     in personnel files, conducting performance appraisals in a timely manner,
                     and properly administering personnel benefits.

              •      Failed to provide adequate oversight of its Turnkey III Homeownership
                     Opportunity program. It lacked adequate controls to properly manage the
                     program, such as maintaining accurate records and ensuring that only
                     eligible tenants receive the program’s benefits.

What We Recommend


           We recommend that HUD’s Director of Public Housing Hub, Chicago Regional
           Office, require the Authority to (1) reduce its Low-Rent Performance Funding
           Operating Subsidy for the inappropriately used monies and (2) implement
           procedures and controls to correct the weaknesses cited in this report.

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


Auditee’s Response


           We provided the results of our Low-Rent Housing program audit to the Authority
           during our review. We also provided our discussion draft audit report to the
           Authority’s Executive Director and HUD’s staff on March 8, 2005. We
           conducted an exit conference with the Authority’s Executive Director and two
           Commissioners of the Authority’s Board on March 16, 2005.

           We requested the Authority to provide comments on our discussion draft audit
           report by March 23, 2005. The Authority’s Executive Director provided written
           comments dated March 16, 2005. The Executive Director agreed the Authority
           lacked procedures and controls over subsidy requests, maintenance, admission
           and occupancy, personnel, and its Homeownership Opportunity program. We



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       included the complete text of the Executive Director’s comments, along with our
       evaluation of that response, in Appendix B of this report.




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                                   TABLE OF CONTENTS

Background and Objectives                                                            5

Results of Audit
      Finding 1: The Authority Claimed Excess Operating Subsidies for Its Low-Rent
                 Housing Program                                                     6
      Finding 2: The Authority Did Not Have an Effective Maintenance Program         8
      Finding 3: The Authority Did Not Meet HUD Requirements in Managing Its
                 Admission and Occupancy Process                                     13
      Finding 4: The Authority’s Personnel Policies Were Not Adequately Followed     16
      Finding 5: The Authority Did Not Properly Manage Its Turnkey III Program       19

Scope and Methodology                                                                22

Internal Controls                                                                    23

Follow up on Prior Audits                                                            25

Appendixes
   A. Schedule of Ineligible Costs and Funds To Be Put to Better Use                 26
   B. Auditee Comments and OIG’s Evaluation                                          27




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                     BACKGROUND AND OBJECTIVES

The Kankakee County Housing Authority (Authority) was organized under the laws of the State
of Illinois as a tax-exempt, quasi-governmental entity under the United States Housing Act of
1937. The Authority’s central administrative office is located at 185 North Saint Joseph Avenue,
Kankakee, IL. The Authority, created by the County of Kankakee in 1966, is a private municipal
corporation governed by a seven-member Board of Commissioners. The Board members,
appointed by the County’s Board Chairman and approved by the County Board, set the overall
policy in matters concerning the operation of the Authority. The Executive Director, appointed
by the Board of Commissioners, is the Chief Executive Officer and is responsible for
coordinating and carrying out the policies established by the Board. Since its creation, the
Authority has grown from a small operation, providing housing for low-income families, to one
of the largest single property managers in Kankakee County.

The Authority was organized to provide decent, safe, and sanitary housing for low-income
families. The Authority entered into Annual Contributions Contract Number C-1009 with the
U.S. Department of Housing and Urban Development (HUD) for the purpose of financing public
housing unit construction and the retirement of debt, and entered into Annual Contributions
Contract Number C-1083 to provide housing assistance payments to owners of low-income
housing units.

The Authority provides subsidized housing to eligible households in Kankakee County, IL. It
operates 308 Low-Rent units in four developments: Midtown Towers, located at 340 North
Dearborn Street; Azzarelli High-Rise, located at 145 West Broadview Drive; and Locust Street
Complex and Wildwood Complex, which are scattered sites. The Authority also has seven
Turnkey III Homeownership Opportunity program (Turnkey III) units in one development called
Old Fair Park. These programs are funded through rental receipts and operating subsidies from
HUD. In addition, grants are received annually for the renovation and modernization of these
units.

The Low-Rent Housing program is not limited to the rental and maintenance of physical
facilities, but also operates programs designed to resolve many of the social and economic
problems experienced by low-income families. It is the Authority’s goal to assist in improving
the living conditions of persons choosing to reside in its Low-Rent Housing and Turnkey III
programs. As of January 1, 2004, the Authority is working under a Memorandum of Agreement
with HUD that specifies performance target dates and strategies to improve the Authority’s
overall operations.

The objective of our audit was to determine whether the Authority administered its Low-Rent
Housing program in an efficient and effective manner. We determined whether the Authority
had adequate procedures and controls over its subsidy requests, preventive maintenance,
admission and occupancy, personnel practices, and Turnkey III program. The overall objective
of our audit was to evaluate the adequacy of the Authority’s Low-Rent Housing program for
providing decent, safe, and sanitary housing to its residents.




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                                RESULTS OF AUDIT

Finding 1: The Authority Claimed Excess Operating Subsidies for Its Low-Rent
                                       Housing Program

The Authority has improperly included an average of five to seven Turnkey III units in its
calculation of the Low-Rent Performance Funding Operating Subsidy since 1997. The Authority
reported the operation of 313 Low-Rent units when they had an average of 308 Low-Rent units.
This was caused by the Authority’s mismanagement of its Turnkey III program (See finding 5).
As a result, the Authority claimed and was paid $119,376 in excess Performance Funding
System Operating Subsidy funds from fiscal years 1997 through 2004.



 Excess Operating Subsidy Paid

              The Authority has erroneously included an average of five to seven Turnkey III units
              in its calculation of Performance Funding System Operating Subsidy since fiscal
              year 1997. The Authority operates 308 Low-Rent housing units in four
              developments: Midtown Towers, Azzarelli High-Rise, Locust Street Complex, and
              Wildwood Complex (scattered sites). The Authority also has seven Turnkey III
              units in one development called Old Fair Park.

              According to the Code of Federal Regulations (24 CFR 990.103(c)), the operating
              fund formula is not applicable to the Turnkey III program. Operating subsidies are
              paid to housing authorities to cover the difference between an allowable level of
              operating expenses and available income. Upon completing the Calculation of
              Performance Funding System Operating Subsidy form, the Authority’s former
              Executive Directors used an incorrect number of units (313) as the basis for claiming
              subsidy rather than the correct number of units (308).

              Beginning with fiscal year 2002, the Authority began including long-term vacant
              units in its calculation of Performance Funding System Operating Subsidy at 100
              percent of the allowable expense level.

              According to 24 CFR [Code of Federal Regulations] 990.108(b)(3), long-term
              vacant units that are not included in the calculation of unit months available are
              eligible for operating subsidy in the requested budget year at the rate of 20 percent of
              the allowable expense level.

              During the audit, we obtained a copy of the listing of the Low-Rent units to
              determine whether they were counted accurately. From this listing, we were able to
              determine which Low-Rent units were vacant for more than an 18-month period.
              Our review also showed the inclusion of seven units that were part of the Authority’s
              Turnkey III program, resulting in excess operating subsidies received during the
              periods noted in the following table:




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                                  Subsidy        Amount
                   Fiscal     Amount Paid       Calculated       Excess
                    Year       to Authority       by OIG      Subsidy Paid
                   1997          $458,767        $453,980        $4,787
                   1998           553,167         548,496         4,671
                   1999           638,316         632,779         5,537
                   2000           570,681         566,356         4,325
                   2001           665,999         659,724         6,275
                   2002           823,655         810,378        13,277
                   2003           860,445         826,628        33,817
                   2004           855,741         809,054        46,687
                   Totals     $5,426,771       $5,307,395      $119,376

             The Authority’s fee accountant completed the Calculation of Performance Funding
             System Operating Subsidy form based on information provided by the Authority’s
             previous administration. However, the fee accountant never reviewed the listing of
             Low-Rent units to obtain an accurate count of units eligible for subsidy.

             The fee accountant said that all information received to complete the various forms
             required by HUD were derived from data received and approved by the Authority’s
             former Executive Director, Finance Director, and the entire Board of
             Commissioners. The fee accountant was unable to determine when the Authority
             started using 313 as its count for Low-Rent units instead of the actual number of
             308.

Conclusion

             The excess funds paid to the Authority for the years shown could have been used
             to support the operations of other housing authorities or for other program-related
             purposes. The Authority needs to take appropriate action to ensure that accurate
             subsidies are claimed in the future.

Recommendations

             We recommend that HUD’s Director of Public Housing Hub, Chicago Regional
             Office, assure that the Authority

             1A. Reduces its Low-Rent Performance Funding Operating Subsidy by $119,376
                 for the excessive operating subsidy cited in this finding.

             1B. Implements adequate procedures and controls to verify the accuracy of units
                 included in the calculation of its operating subsidy.




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Finding 2: The Authority Did Not Have an Effective Maintenance
                              Program
The Authority did not have an effective maintenance program to ensure its Low-Rent unit
deficiencies were identified and repaired in a timely manner. The Authority did not (1) implement a
preventive maintenance plan, (2) assure maintenance staff were adequately trained, (3) accurately
code work orders, (4) address emergency and non-emergency work orders in a timely manner, (5)
properly complete work orders and indicate repair costs, or (6) establish a quality control plan for
reviewing work orders by its staff. This occurred because the Authority lacked direction from its
Board of Commissioners and monitoring of the staff by the former Executive Director and
maintenance supervisor. These poor maintenance practices contributed to the Authority having 16
Low-Rent units vacant for more than 18 months, which resulted in lost rental proceeds of
approximately $69,000.



 Preventive Maintenance Plan

               The Authority did not implement a preventive maintenance plan. The Authority
               established a Preventive Maintenance Program that was approved by its Board of
               Commissioners, adopted in May 2004, and made effective as of July 1, 2004.
               However, we found that the plan was not fully implemented as of March 7, 2005.
               The Authority could not provide documentation showing how the maintenance plan
               was implemented or evidence of scheduled preventive maintenance performed.

               According to 24 CFR [Code of Federal Regulations] 901.5, a maintenance plan is
               defined as a comprehensive annual plan of a public housing authority’s
               maintenance operation that contains the fiscal year’s estimated schedule and is
               supported by a staffing plan, contract schedule, materials and procurement plan,
               training, and approved budget. The plan should establish a strategy for meeting
               the goals and time frames of facilities management planning and execution,
               capital improvements, utilities, and energy conservation activities.

               We found that the Authority had not trained its maintenance staff to ensure they had
               the skills to maintain the mechanical systems in good operating condition.
               Additionally, the Authority lacked direction from its Board of Commissioners and
               guidance and monitoring of the maintenance staff by the former Executive Director
               and maintenance supervisor. The maintenance supervisor reports directly to the
               Executive Director and is responsible for ensuring that all maintenance needs are
               addressed and that maintenance policies are followed.

               The adopted preventive maintenance plan was designed to inspect, monitor, and
               maintain the Authority’s mechanical systems in good operating condition and in
               accordance with HUD and the City of Kankakee’s building codes. The systems
               under the plan are elevators, alarms (smoke/fire), heating, ventilation, hot and cold
               water supply, fire extinguishing system, vehicles, and equipment. The full
               implementation of this plan will help ensure that all building and units are safe,




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          decent, and in sanitary condition and all major systems are in sound operating
          condition. It will also help to quickly prepare vacant units for reoccupancy.


Work Orders

          The Authority (1) coded 3 emergency work orders as routine, (2) did not complete 9
          emergency work orders within the required time of 24 hours, (3) did not complete 24
          non-emergency work orders within the average 25 calendar-day requirement, (4)
          had 108 incomplete work orders, and (5) failed to provide 3 housing units with an
          annual inspection for the current fiscal year. We reviewed 476 work orders
          generated by the Authority between July 1, 2002, and June 30, 2004, for 39 units
          statistically selected from 85 occupied Low-Rent family units as of June 30, 2004.
          We wanted to determine whether the Authority addressed work orders appropriately
          and attempted repairs in a timely manner.

          According to 24 CFR [Code of Federal Regulations] 901.25, the public housing
          authority’s work order system must be adequate in terms of how the public housing
          authority accounts for and controls its work orders and timely in preparing and
          issuing work orders. Part 901.25(a) denotes a completion time of 24 hours or less
          for emergency work orders and states that all emergency work orders should be
          tracked. Part 901.25(b) states that all non-emergency work orders are to be
          completed within an average of 25 calendar days.


Emergency Work Orders


          The Authority needs to improve its coding of emergency work orders and the
          timeliness of completing them. We determined there were three emergency work
          orders coded as routine. The Authority’s current Executive Director said during that
          period, the Authority had several temporary receptionists receiving tenant calls who
          entered the wrong information into the computer system. This caused some
          miscoding on some of the work orders that were generated.

          We also noted 9 emergency work orders that were not completed within the 24-hour
          period as established by 24 CFR [Code of Federal Regulations] 901.25. The
          Authority defines an emergency as any situation that presents an immediate threat to
          the life, health, or safety of a resident or could result in the damage to or destruction
          of the Authority’s property. Examples of emergency conditions are gas leaks, toilet
          stoppage, sewer backup in the unit, and broken water pipes or a severe leak in the
          unit. The time of completion for each of the 9 work orders averaged 104 hours, as
          shown in the following table:




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                                                             Date            Number of
                   Address                Date Began      Completed           Hours
         915 East Chestnut                 07/06/04        07/13/04            173
         955 East Chestnut                 04/15/03        04/22/03            171
         307 North Evergreen               07/16/02        07/23/02            168
         955 East Chestnut                 10/09/02        10/15/02            144
         1044 North Chicago                01/02/04        01/05/04             72
         931 East Chestnut                 01/20/04        01/23/04             65
         709 West Harbor                   07/05/03        07/07/03             54
         861 West Harbor                   02/19/03        02/21/03             48
         725 West Harbor                   08/17/03        08/19/03             45
          Average Number of Hours                                                104


Non-emergency Work Orders

          In our audit scope of 476 work orders, we found 24 nonemergency work orders that
          were not completed within the average 25-calendar-day requirement. Routine work
          orders are those issued for maintenance work that is not of an emergency or urgent
          nature. Routine work orders include many types of work requests, such as requests
          for minor repairs, cabinet repairs, painting, plaster, drywall, and carpentry. The
          average time of completion for each of the 24 work orders averaged 95 calendar
          days for a work order that should have been completed within an average of 25
          calendar days.

          We determined the Authority did not have a maintenance plan with a prescribed
          timeframe for completion of routine work orders before May 17, 2004. According
          to 24 CFR [Code of Federal Regulations] 901.25, all non-emergency work orders
          that were active during the assessed fiscal year should be tracked (including
          preventive maintenance work orders). With the implementation of the Authority’s
          maintenance plan, all routine work orders should be tracked until completed.


Incomplete Work Orders

          The Authority failed to properly complete the description for 108 of 476 (23
          percent) work orders reviewed. The work orders failed to contain information such
          as: description of the problems and the work performed, stock numbers and
          materials used, quantity of parts used, charges to tenants, and signatures of the staff
          performing the work and of the tenant receiving the service. In addition, many of
          the work orders with descriptions showed very brief explanations describing the
          work performed for the statistically selected sample of 39 units.




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Repair Costs Not Indicated on
Work Orders

             The Authority did not indicate the costs of repairs on work orders. Work orders
             did not specify the costs of repairs for routine, urgent, and emergency work done.
             The Authority’s procedure was to only specify the cost of repairs in instances in
             which the tenant caused the damage and was responsible under the terms of
             his/her lease. Our review of 476 work orders determined that 15 work orders
             were marked to charge tenants for damaged units. However, 10 work orders did
             not have a description of the work performed and had limited information on why
             the tenant was being charged, and only 4 indicated amounts to be charged. The
             Authority should keep track of costs incurred on work orders for budgeting
             purposes and for keeping track of the costs to maintain its housing units.

Causes for Work Order
Deficiencies


             The Authority’s current Executive Director said the problems with the work orders
             occurred because the Authority lacked a quality control plan for reviewing work
             orders by the staff, and they were not being reviewed by the maintenance supervisor.
             Recently, the Authority hired a Technical Services Manager who is responsible for
             reviewing all work orders completed by the maintenance staff for accuracy. The
             Technical Services Manager is also responsible for making site visits to ensure the
             quality of work performed.

Units Vacant More Than 18
Months


             The Authority's lack of an adequate unit repair program resulted in units being
             vacant longer than 18 months. This caused the Authority to lose operating
             proceeds totaling $69,601. If any public housing authority lacks an adequate unit
             repair program and units remain vacant longer than 18 months, it will lose its
             operating proceeds. To determine the lost operating proceeds, the operating
             subsidies per unit is first calculated to include any Comprehensive Grant, Drug
             Elimination Grant, and rental receipts divided by the total number of supported
             units. This amount is then annualized and multiplied by the total number of units
             not brought on-line within 18 months. We noted 16 units as not being on-line
             within an 18-month period during our audit scope.

Conclusion

             The condition of the Authority’s housing units was at risk due to inadequate
             inspections and controls to ensure work was done properly—resulting in some
             long-term vacant units and deficiencies remaining outstanding for long periods of
             time. In addition, the projects and equipment can slowly deteriorate causing


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          additional damage due to a lack of preventive maintenance. The maintenance
          staff can possibly do harm to property, equipment, and themselves due to a lack of
          training. Overall, there was a lack of assurance that HUD operating subsidies
          were being used to maintain decent, safe, and sanitary housing units.

          As a result, HUD could not be assured that services provided by the Authority’s
          maintenance staff was effective and efficient, and that all unit deficiencies were
          identified and repaired in a timely manner.

Recommendations

          We recommend that HUD’s Director of Public Housing Hub, Chicago Regional
          Office, assure that the Authority

          2A. Implements a preventive maintenance plan for units and systems.

          2B. Provides scheduled training for maintenance staff to update their
              maintenance skills.

          2C. Implements a quality control plan for its work order system to ensure work
              orders are completed properly and timely, and applicable repair costs are
              noted.

          2D. Implements procedures and controls to ensure Low-Rent Housing units are
              not vacant for more than an 18-month period. These procedures and
              controls will help ensure the Authority receives $69,601 in operating
              proceeds for the future.




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Finding 3: The Authority Did Not Meet HUD Requirements in
           Managing Its Admission and Occupancy Process
The Authority did not follow HUD’s regulations and other requirements in managing its
admission and occupancy process. The Authority failed to (1) maintain proper documentation in
tenant files for verification of eligibility, (2) conduct reexaminations in a timely manner, (3)
accurately calculate annual income and total tenant payments, and (4) assign proper unit sizes.
The Authority’s failure to follow regulatory requirements was attributed to a lack of staff training
on the processes necessary to perform the requirements of the admission and occupancy
standards and oversight by management. In addition, due to high employee turnover, various
staff members handled tenant files, increasing the risk of misplacing documents. As a result,
HUD and the Authority lacked assurance that required documentation was complete, accurate,
and completed in a timely manner.



 Tenant Files Reviewed


               HUD’s Public Housing Occupancy Guidebook, chapter 7.11, states that each
               applicant and tenant file must contain the following information: name, relationship
               to head of household, Social Security number and citizenship, amounts and sources
               of income of all family members, rent computation, application form, and screening
               information (such as tenant history, credit history, and a verification of criminal
               history).

               We statistically selected 39 tenant files out of a population of 277 Low-Rent units as
               of July 31, 2004, to determine the sample size of tenant files to review. Of the 39
               tenant files, 36 files (92 percent) did not have the proper supporting documentation.
               We noted the following documents was missing: (1) 36 files were missing prior
               tenant information, (2) 28 files did not contain background check information, (3) 15
               files lacked copies of birth certificates, (4) 9 files did not have copies of Social
               Security cards, (5) 8 files did not contain proof of income, (6) 3 files were missing
               citizenship certificates, and (7) 1 file lacked an application.

 Annual Re-examinations

               According to 24 CFR [Code of Federal Regulations] 960.257(a)(1), for families
               who pay an income-based rent, the public housing authority must conduct a re-
               examination of family income and composition at least annually and must make
               appropriate adjustments in the rent after consultation with the family and upon
               verification of the information.

               The Authority did not perform proper re-examinations on 12 of the 39 tenant files
               reviewed. Six of the 12 tenants were zero-income tenants who were required to
               provide non-income affidavits and family expense forms every 60 days in
               accordance with HUD’s Public Housing Occupancy Guidebook and the



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            Authority’s occupancy policy. There was no evidence to show that nonincome
            affidavits or family expense forms were prepared every 60 days for these zero-
            income tenants.

Errors in Calculating Total
Tenant Payments


            The Authority did not calculate total tenant payments accurately for 13 of 39
            tenants. We reviewed 58 re-examinations for the 39 tenants in our audit period
            and found that 18 re-examinations had incorrect total tenant payment calculations.
            We were unable to make a determination of total tenant payments for one of the
            re-examinations due to missing income documentation. Four of the
            miscalculations had no effect on the rental payment because the tenant opted to
            use flat rent. Miscalculation of 14 re-examinations resulted in an under payment
            of rent in the amount of $2,735 and one over payment of $162. The results are
            documented on the following chart:

                                                                 Authority-    Audit-
                                  Authority-          Audit-     Calculated   Calculated
                      Re-exam     Calculated        Calculated    Tenant       Tenant
             Tenant    Year        Income            Income      Payments     Payments       Differences
            0356-07      2003          $6,780         $6,864           $147         $149                  $20
            0356-07      2004           6,780          7,008            147          152                   34
            0333-07      2003           8,478          9,132            202          218                  152
            0333-07      2004           8,478          9,312            202          223                   83
            0256-10      2003          22,048         22,048            140          300                1,918
            0148-03      2003           8,796          8,928            210          213                   38
            0148-03      2004           8,796          9,120            210          218                   80
            0133-03      2003          10,044         10,188            143          147                   45
            0133-03      2004          10,044         10,404            143          152                   54
            0126-07      2003           6,540          6,624            154          156                   25
            0126-07      2004           6,540          6,768            154          159                   40
            0105-05      2003           6,126          6,864            143          162                  223
            0045-02      2003           7,600          7,672            178          180                   22
            0045-02      2004           7,600          6,520            178          151                (162)
                                        Total underpayments                                            $2,735
                                         Total overpayment                                             ($162)

            If we eliminate the highest and lowest differences of $1,918 and ($162), this
            leaves a total rent underpayment of $816 for the 39 tenants in our sample or an
            average of more than $20 per tenant. Projected to our population of 277 tenants,
            this equates to an annual average underpayment of $5,795. This represents funds
            to be put to better use since the Authority’s operating subsidy was overstated
            based on the underreported tenant income.

            Overall, we found that the Authority did not use current supporting
            documentation for calculating annual income for eight tenants. We also
            determined that the Authority failed to take sufficient steps to obtain proof of
            income from the tenants without any exceptions. In addition, the Authority did
            not retroactively adjust the previously calculated total tenant payments once the
            current proof of income was obtained.


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Admission and Occupancy
Standards Were Not Followed

             The Authority did not follow its occupancy standards when determining unit sizes
             for tenants. Applicable size units were not assigned to 4 of the 39 tenants in our
             sample. The Authority did not transfer tenants in a timely manner based on their
             changes in family composition. One tenant was placed in a three-bedroom unit
             because she was in a foster parent program and was anticipating adding additional
             members to her family composition.

             Three other tenants’ family composition was reduced to two, but they were still
             residing in three bedroom units. The Authority had not taken any action on two
             of the tenants for more than a year and for one tenant since March 2004. The
             Authority’s Housing Manager said it could do one transfer for every four new
             move-ins. She also said that the Authority put a hold on these transfers until the
             tenant’s lease was completed.


Conclusion

             When performing the requirements of admission and occupancy, the Authority
             did not always (1) use an alternate source of documentation, such as pay stubs or
             tax returns, and then update the income information when third party verification
             becomes available and has different income information, (2) conduct re-
             examinations in a timely manner, (3) use correct monthly benefits as a
             determination of monthly rental charge, (4) use benefit statements showing gross
             income received, and (5) assign tenants to proper size units. As a result, HUD
             and the Authority lacked assurance that required documentation was complete,
             accurate, and completed in a timely manner.

Recommendations

             We recommend that HUD’s Director of Public Housing Hub, Chicago Regional
             Office, assure that the Authority

             3A. Implements procedures and controls to ensure the admission and occupancy
                 requirements are followed, such as (1) maintaining all required documentation
                 on tenants, (2) ensuring all re-examinations are conducted in a timely manner,
                 (3) ensuring the accuracy of total tenant payments, and (4) ensuring tenants
                 are placed in appropriate size units. These procedures and controls will help
                 ensure the Authority does not receive $5,795 in excessive operating
                 subsidies in the future.

             3B. Reduces its Low-Rent Performance Funding Operating Subsidy by $2,573
                 due to improperly calculated tenant rental payments cited in this finding.




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Finding 4: The Authority’s Personnel Policies Were Not Adequately
                              Followed
The Authority did not follow the requirements of its personnel policies. Proper documentation
was not maintained in personnel files, performance appraisals were not conducted in a timely
manner, and weaknesses in benefit administration were noted. These conditions occurred
because the Authority’s staff did not receive adequate training to develop and carry out assigned
responsibilities. As a result, HUD and the Authority were not assured that only qualified
individuals were in place and raises and promotions were equitable. In addition, $5,184 in health
insurance premiums were erroneously paid for a terminated employee.



 Documentation in Personnel
 Files

              The Authority did not properly maintain employee files in accordance with its
              Personnel Policy. The Authority’s Personnel Policy, Collective Bargaining
              Agreement, Article XV, Section 3, “Personnel File Contents,” states that documents
              kept in the personnel file shall be those that are statutorily required or work related.
              At no time shall any material positive or negative be removed from a personnel file
              by staff or employees. The Authority’s Personnel Policy, Chapter 3-2,
              “Employment Procedures,” states the Authority strives to hire the most qualified
              candidates, abiding by the Equal Employment Opportunity Policy. Reference
              checks, previous employment verifications, substance abuse test results, and
              criminal background checks will be performed, documented, and retained in
              personnel files.

              From our review of 31 personnel files, 20 files did not contain proper
              documentation; 16 files did not have background check information; 11 files lacked
              drug test information; 5 files did not have proper hiring information (resume,
              application, Board approval letter, and offer letter); and 7 files lacked wage, position,
              and dates of employment information. As a result, HUD lacked assurance that the
              Authority hired its employees in accordance with its approved hiring policy.

              The Authority’s January 2004 Memorandum of Agreement with HUD included a
              strategy to establish and maintain employee records in accordance with the
              Authority’s Personnel Policy. The Authority’s monthly progress report to HUD for
              the period ending October 31, 2004, showed that the Authority had established the
              required personnel files as of June 2004.

 Performance Appraisals


              The Authority did not adequately evaluate and document the performance of its
              employees during the audit period in accordance with its Personnel Policy. The
              Authority’s Personnel Policy, “Performance Evaluations,” states that all
              employees who are newly hired, transferred, promoted, or demoted to a new



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           position will receive a performance evaluation annually with an interim
           evaluation semiannually. We did not find any evidence that performance
           evaluations were completed for 17 of 31 employee files reviewed. Five of the 31
           employees began with the Authority in 2004 and were not due performance
           evaluations by the end of our audit period. Nine of 26 employees were terminated
           before the completion of 1 year. Seventeen of the 31 employee files lacked
           performance evaluation documentation. Therefore, either performance
           evaluations were not conducted for these employees or the evaluations were not
           documented. Performance evaluation reports existed for 5 of 12 maintenance
           employees’ files between 1995 and 1999. This indicated that the Authority
           conducted performance evaluations before 1999, but did not have evidence of any
           after that point. Without evidence of performance evaluations, it is difficult for
           the Authority to justify promotion actions.

Adequate Training


           The Authority did not provide training to employees to develop and carry out
           their responsibilities. The Authority’s Personnel Policy, “Employee Training,”
           states that all employees are encouraged to update their skills by attending
           professional development training seminars and continuing education directly
           related to the Authority’s operations, activities, and objectives that will place
           employees in a position to improve their job performance. We found that the
           Authority did not identify training needs, what level of employees receive
           training, and the effectiveness of the training. Based on our interviews with
           maintenance personnel, the Authority had not provided training for the
           maintenance staff since 1998. Overall, in 27 of the 31 employee files we
           reviewed, either the employees did not receive training, or there was inadequate
           documentation to show what training employees may have received.

           The lack of training was also cited as a weakness by HUD’s Cleveland Field
           Office of Recovery and Prevention Corps’ assessment of the Authority’s Low-
           Rent Housing program. The Recovery and Prevention Corps’ assessment stated
           there were no overall training plans for the staff and no individual plans. The
           Corps also cited the lack of training for the maintenance staff, reported during
           interviews with employees.


Insurance Contributions Were
Not Discontinued in a Timely
Manner

           The Authority did not properly discontinue its contributions toward one
           employee’s insurance plan upon termination of employment. Office of
           Management and Budget Circular A-133 8(3), page 7, states that a questioned
           cost is a cost that is unreasonable and does not reflect the actions a prudent person
           would take in the circumstances. The Authority continued to pay the health
           insurance costs after its former Executive Director’s employment was terminated,
           but did not send the necessary paperwork to continue health insurance coverage


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          even after the Board requested it. When the current Executive Director came on
          board, he had to reinstate the former Executive Director’s insurance, send in the
          paperwork for continued coverage, and then cancel after 60 days to avoid legal
          sanctions that could have been imposed for improper notification of insurance
          termination under existing laws. As a result, the Authority erroneously paid
          $5,184 for 8 months of health insurance costs from November 2003 to June 2004.


Recommendations

          We recommend that HUD’s Director of Public Housing Hub, Chicago Regional
          Office, assure that the Authority

          4A. Implements procedures and controls to ensure all hired personnel are the most
              qualified candidates and reference checks, previous employment verifications,
              substance abuse test results, and criminal background checks are performed,
              documented, and retained in personnel files.

          4B. Implements individual and overall training plans to ensure all employees are
              properly trained for their positions.

          4C. Reduces its Low-Rent Performance Funding Operating Subsidy by $5,184
              for failing to discontinue health insurance payments for a terminated
              employee.




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Finding 5: The Authority Did Not Properly Manage Its Turnkey III
                              Program
     The Authority did not properly manage its Turnkey III program. The Authority allowed
     a non-income tenant to be housed in a Turnkey III unit when the Authority had a Turnkey
     III waiting list with eligible applicants. The Authority did not provide its Turnkey III
     occupants with annual statements specifying the balance of their earned home payment
     accounts, the balance in their non-routine maintenance reserve accounts, and amounts
     charged to their earned home payment accounts and/or non-routine maintenance reserve
     accounts. These conditions occurred because the Authority’s staff did not receive
     training to properly manage the program. As a result, eligible tenants may be at risk of
     not receiving the full benefits of the program since they were not made aware of their
     outstanding balance of payments to obtain homeownership.



 Mismanagement of Turnkey III
 Program


            The Authority did not properly manage its Turnkey III program. The Authority
            allowed a non-income tenant to be housed in a Turnkey III unit when it had a valid
            Turnkey III waiting list with eligible applicants.

            According to 24 CFR [Code of Federal Regulations] 904.104(b)(2)(e)(2), in order to
            be considered for selection, a family must be determined to meet at least all of the
            following standards of potential for homeownership: (i) income sufficient to result in
            a required monthly payment which is not less than the sum of the amounts necessary
            to pay the earned home payment account, the non-routine maintenance reserve, and
            the estimated average monthly cost of utilities attributable to the home; (ii) ability to
            meet all the obligations of a homebuyer under the Homebuyers Ownership
            Opportunity Agreement; and (iii) at least one member gainfully employed, or having
            an established source of continuing income.

            The Authority’s Executive Director said that a non-income tenant was housed in a
            Turnkey III unit because at the time, the Authority was only concerned with
            occupying vacant units with tenants. Further, the Director said he was unfamiliar
            with the guidelines of the Turnkey III program and did not receive adequate
            assistance from HUD. The non-income tenant was not considered for the Turnkey
            III program, but the Authority used a Turnkey III unit to house the tenant. We
            estimated that $2,639 in housing assistance was furnished for the ineligible tenant.

            According to 24 CFR [Code of Federal Regulations] 904.104(c), the local housing
            authority, without participation of a recommending committee, shall determine the
            eligibility of each applicant family in respect to the income limits for the
            development and shall then assign each eligible applicant his appropriate place on a
            waiting list for the development in sequence, based upon the date of the application,




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           suitable type or size of unit, and factors affecting preference or priority established
           by the local housing authority’s regulations.

           The Authority’s Executive Director did not use the Turnkey III waiting list initially
           because of the length of time it took to receive applicable regulations from HUD.
           The Authority was in the process of updating its Turnkey III waiting list for
           available units.

Annual Statements

           The Authority had not provided its Turnkey III occupants with their annual
           statements specifying the balance of their earned home payment account, the
           balance in their non-routine maintenance reserve account, and amount charged to
           their earned home payment account or non-rountine maintenance reserve account
           accounted for through a work order.

           According to 24 CFR [Code of Federal Regulations] 904.110(h), the local
           housing authority shall provide an annual statement to each homebuyer specifying
           at least the following: (1) the amount of his earned home payment account, and
           (2) the amount of his non-routine maitenance reserve. During the year, any
           maintenance or repair done on the dwelling by the local housing authority that is
           chargeable to the earned home payment account or the non-routine maintenance
           reserve shall be accounted for through a work order. A homebuyer shall receive a
           copy of such work order for his home.

           The Authority’s Executive Director said he could not say why the previous
           administration did not provide annual statements to the Turnkey III participants,
           but said the current administration will follow proper protocol for any participant
           that the Authority accepts to its Turnkey III program.

Mismanagement of Turnkey III
Program

           The mismanagement of the Turnkey III program kept eligible tenants from fully
           benefiting from the program. Since the eligible tenants did not receive their
           annual statements documenting the payments applied to their earned home
           payment account, they had no indication of their outstanding balance of payments
           to obtain homeownership.

Recommendations

           We recommend that HUD’s Director of Public Housing Hub, Chicago Regional
           Office, assure that the Authority




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       5A. Reduces its Low-Rent Performance Funding Operating Subsidy by $2,639,
           which represents the costs associated with housing an ineligible tenant in a
           Turnkey III unit.

       5B. Implements procedures and controls to ensure the Turnkey III program
           requirements are met and the program is run efficiently and effectively.

       5C. Implements procedures and controls to ensure that participants receive (a) their
           annual statements specifying the amount of their earned home payment
           account and the amount of their non-routine maintenance reserve, and (b)
           documentation of any maintenance or repairs done on the dwelling by the
           Authority that is chargeable to the earned home payment account or the non-
           routine maintenance reserve account.




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                         SCOPE AND METHODOLOGY

We conducted the audit at HUD’s Chicago Regional Office and the Authority’s office. We
performed our on-site work between July and December 2004.

To accomplish our audit objectives, we interviewed HUD’s staff, the Authority’s current staff, and
the Authority’s Board of Commissioners.

We analyzed the Authority’s tenant files, Board meeting minutes, audited financial statements,
policies and procedures, general ledgers, bank statements and canceled checks, organizational
chart, Admission and Occupancy Policy, and Annual Contributions Contract for the Low-Rent
Housing program. We also reviewed HUD’s files for the Authority, its Memorandum of
Agreement with the Authority, Office of Management and Budget A-133, and CFR [Code of
Federal Regulations] Parts 901, 902, 904, 960, and 990.

We used computer assisted auditing techniques to analyze the Authority’s Low-Rent Housing
unit information obtained from its automated accounting system.

As a basis for selecting the sample, we used the total population of 277 occupied Low-Rent
Housing units as of July 31, 2004, to determine the sample size of tenant files to review. We set
the confidence level at 90 percent, the upper error limit at 10 percent, and the expected error rate
at 21 percent. The sampling software determined that our sample size should be 39 tenant files.

The sample method chosen was Simple Random Sampling. Simple Random Sampling is the
basic sampling technique in which each item is chosen entirely by chance and each item of the
population has an equal chance of being included in the sample.

This audit was part of our ongoing comprehensive audit of the Authority. The audit was
conducted in response to a citizen’s complaint to our office.

The audit covered the period July 1, 2002, through June 30, 2004. This period was adjusted as
necessary. We conducted the audit in accordance with generally accepted government auditing
standards.




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                                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:

              •       Program Operations – Policies and procedures that management has
                      implemented to reasonably ensure that a program meets its objectives.

              •       Validity and Reliability of Data – Policies and procedures that management
                      has implemented to reasonably ensure that valid and reliable data are
                      obtained, maintained, and fairly disclosed in reports.

              •       Compliance with Laws and Regulations – Policies and procedures that
                      management has implemented to reasonably ensure that resource use is
                      consistent with laws and regulations.

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

              We assessed all of the relevant controls identified above during our audit of the
              Authority’s Low-Rent Housing program.

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

 Significant Weaknesses


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



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       •      Program Operations

       The Authority needed improvements to its Low-Rent Housing and its Turnkey III
       programs to ensure that program objectives are being met (see findings 1, 2, 3, 4,
       and 5).

       •      Validity and Reliability of Data

       The Authority failed to ensure that valid and reliable data were being used to
       calculate its Performance Funding System Operating Subsidy (see finding 1).

       •      Compliance with Laws and Regulations

       The Authority failed to comply with HUD’s regulations regarding its operating
       subsidy, preventive maintenance, admission and occupancy, and the Turnkey III
       program (see findings 1, 2, 3, and 5).

       •      Safeguarding Resources

       The Authority failed to ensure that its HUD funding was appropriately received and
       used (see findings 1, 3, 4, and 5).




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                        FOLLOW UP ON PRIOR AUDITS

This is the first audit of the Authority’s Low-Rent program by HUD’s Office of Inspector General
(OIG). The latest single audit report for the Authority covered the period ending June 30, 2003.
The report contained 13 findings. Four of the findings related to issues reported in this audit report.

         Independent Auditor’s Report                              This Report
       Reports Submitted To HUD Were Not
       Properly Completed and the Housing
       Authority Could Not Provide                  The Authority Claimed Excess Operating
       Documentation for Information                Subsidies for Its Low-Rent Housing
       Submitted to HUD                             Program
       Review of Tenant Selection Procedures
       Revealed No Documentation Was                The Authority Did Not Properly Manage
       Available in the Selection Process           Its Turnkey III Program
                                                    The Authority Did Not Meet HUD
       Review of Tenant Files Revealed              Requirements in Managing Its Low-Rent
       Documentation Deficiencies                   Admission and Occupancy Process
       Employee Files Do Not Contain Proper         The Authority’s Personnel Policies Were
       Documentation                                Not Adequately Followed




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                                        APPENDICES

Appendix A

                   SCHEDULE OF INELIGIBLE COST
                 AND FUNDS TO BE PUT TO BETTER USE

                     Recommendation          Ineligible 1/     Funds To Be Put
                         Number                                to Better Use 2/

                         1A                        $119,376
                         2D                                             $69,601
                         3A                                               5,795
                         3B                           2,573
                         4C                           5,184
                         5A                           2,639
                        Totals                     $129,772             $75,396


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




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Appendix B

         AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation    Auditee Comments




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         AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation    Auditee Comments




Comment 1




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         AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation    Auditee Comments




Comment 2




Comment 3



Comment 4


Comment 5




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         AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation    Auditee Comments




Comment 6




Comment 7




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         AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation    Auditee Comments




Comment 8




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                   OIG Evaluation of Auditee Comments


Comment 1   Although the Authority submitted an Operating Budget revision to HUD on
            August 27, 2004, to correct the subsidy figures originally requested, its
            Calculation of Performance Funding System Operating Subsidy form for
            fiscal year 2005 is incorrect. It shows the Authority’s number of housing
            units to be 308 when it should be 292 due to the long-term vacant units.
            Long-term vacant units should not be included in the calculation of unit
            months available at 100 percent. The Authority is only entitled to 20 percent
            of allowable expenses on those units. The Authority’s procedures regarding
            the number of units used in its subsidy calculation needs to ensure that long-
            term vacant units are appropriately accounted. The Authority also needs to
            reduce its Low-Rent Performance Funding Operating Subsidy by $119,376 for
            the excessive operating subsidy received.

Comment 2   The Authority has adopted a maintenance plan as stated in this report;
            however, the plan must be implemented in its entirety. The Authority’s
            planned actions for its maintenance plan, if fully implemented, should
            improve its control over operations. According to the Authority’s February
            2005 monthly progress report for its Memorandum of Agreement with HUD,
            the Authority’s maintenance plan was still being discussed with HUD’s
            Recovery and Prevention Corps and changes were being incorporated. The
            monthly progress report states the revisions will be incorporated in 90 days,
            which is May 2005.

Comment 3   The Authority’s February 2005 monthly progress report for its Memorandum
            of Agreement with HUD shows the Authority has scheduled training for its
            maintenance supervisor for April 2005. However, the February 2005 monthly
            progress report shows the Authority is still working with a community college
            to identify available training that would benefit its remaining maintenance
            staff.

Comment 4   The Authority claimed in its written comments that it had an effective work
            order quality control system in place since December 2004. However, the
            Authority’s October 2004 monthly progress report for its Memorandum of
            Agreement with HUD shows the Authority’s quality control program was
            implemented in August 2004. The Authority failed to provide sufficient
            documentation to show when it implemented its quality control system.
            Therefore, the Authority needs to provide sufficient documentation or
            implement an effective quality control system.




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                     OIG Evaluation of Auditee Comments


Comment 5   The Authority claims it has 12 of the 16 long-term vacant units under its
            modernization program and is evaluating plans to renovate and/or dispose of
            the units. The Authority did not address the remaining 4 units.

Comment 6   The Authority has stated how it plans to implement a quality control review of
            tenant files to ensure compliance with HUD’s regulations for both
            documentation and rental calculations. The Authority will need to outline
            how it intends to implement the controls and establish specific target dates for
            completing the process. In addition, the Authority will need to address how it
            intends to improve its procedures and controls to ensure the admission and
            occupancy requirements are followed. The Authority also did not address how
            it plans to reduce its Low-Rent Performance Funding Operating Subsidy by
            $2,573 due to improperly calculated tenant rental payments.

Comment 7   As of June 30, 2004, we reviewed 31 employee files and found that 16 files
            did not contain the required background check information. The Authority
            indicated that background checks are now performed on all new hires, but it
            needs to consider its previously hired employees as well. In addition, the
            Authority did not address how it intends to reduce its Low-Rent Performance
            Funding Operating Subsidy by $5,184 for failing to discontinue health insurance
            payments for a terminated employee.

Comment 8   The Authority did not address how it intends to reduce its Low-Rent
            Performance Funding Operating Subsidy by $2,639, which represents the
            costs associated with housing an ineligible tenant in a Turnkey III unit.
            Although HUD provided the Authority with the requirements and regulations
            of the Turnkey III Homeownership Opportunity program, the Authority must
            implement the requirements and establish timeframes for updating its waiting
            list and evaluating eligible tenants for the program.




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