oversight

Boulder County Housing Authority, Boulder, CO, Did Not Properly Manage or Account for HUD Public Housing and Multifamily Program Funds

Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-03-09.

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

                                                             Issue Date
                                                                    March 9, 2005
                                                             Audit Report Number
                                                                    2005-DE-1002




TO:        Linda J. Camblin, Director, Denver Office of Public Housing, 8APH

           //signed//
FROM:      Ronald J. Hosking, Regional Inspector General for Audit, 8AGA


SUBJECT: Boulder County Housing Authority, Boulder, CO, Did Not Properly Manage or
           Account for HUD Public Housing and Multifamily Program Funds


                                  HIGHLIGHTS

 What We Audited and Why

            We audited Boulder County Housing Authority (Boulder County Housing) and
            Louisville Housing Authority, which Boulder County Housing managed and
            operated. We audited Boulder County Housing because their cash and
            investments declined from $907,211 in 1999 to $46,301 in 2001 and to negative
            $6,850 in 2002. Our audit objectives were: to determine the effectiveness of the
            controls over and accounting for the receipt and use of U. S. Department of
            Housing and Urban Development (HUD) funds; to evaluate the effectiveness of
            the controls over HUD-funded personnel functions; and, to determine the
            effectiveness of HUD-funded tenant eligibility and certification procedures and to
            evaluate controls over tenant rent subsidies.

 What We Found


            Boulder County Housing did not properly use HUD funds, which resulted in at
            least $433,139 of ineligible and $123,784 of unsupported costs. Required
            documentation was not submitted to HUD, which resulted in the suspension of
            $165,570 of HUD funds. The internal controls over and procedures for
            accounting functions were inadequate and utilized inappropriate accounting
            practices. The provided accounting records did not clearly and/or consistently
            identify the receipt and use of HUD funds. Boulder County Housing accounting
            staff inappropriately changed accounting records and 2002 year-end balances,
           without adequately disclosing the changes and without any direct knowledge of
           the accounting activities for 2002 and most of 2003.

           We also determined, based on the scope of our audit, that the Boulder County
           Government provided most of the personnel functions for the Authorities and
           appeared to have effective controls in place. The personnel functions performed
           by Authority staff were effectively completed and documented. Boulder County
           Housing had implemented effective controls over the tenant eligibility,
           certification procedures, and tenant rent subsidy functions. The Occupancy
           department had complete, well-maintained tenant files and rent subsidy
           documentation.

What We Recommend


           We recommended HUD require Boulder County Housing to repay to its
           appropriate HUD programs the ineligible costs and any of the unsupported costs
           for which adequate supporting documentation could not be provided; prepare and
           submit required documentation to release the suspended funds; establish controls
           and procedures to ensure compliance with HUD’s requirements; and, provide full
           explanations for all changes to the 2002 balances involving HUD funds and to
           take the necessary corrective actions for any changes that resulted in inappropriate
           use or misstatement of HUD funds.

           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 Boulder County Housing officials a copy of the draft report on
           December 6, 2004 and requested they provide a response to the audit report. At
           their request, we held a subsequent meeting with them. They provided a written
           response on January 14, 2005. They generally concurred with the audit report and
           10 of the 12 recommendations. They did not provide evidence that warranted
           changing the other two recommendations.

           The complete text of the Boulder County Housing officials’ response, along with
           our evaluation of that response can be found in Appendix B of this report.




                                            2
                             TABLE OF CONTENTS

Background and Objectives                                                              4

Results of Audit
        Finding: Boulder County Housing Authority’s Internal Controls Did Not Ensure   6
        the Proper Use of HUD Funds or the Use of Appropriate Accounting Principles

Scope and Methodology                                                                  13

Internal Controls                                                                      15

Appendices
   A.   Schedule of Questioned Costs                                                   17
   B.   Auditee Comments and OIG’s Evaluation                                          18
   C.   Accounting Procedures Deficiencies Detailed Summary                            38
   D.   Other Matters Related to the Audit                                             49




                                              3
                     BACKGROUND AND OBJECTIVES

The Housing Authority of the County of Boulder, Colorado, commonly referred to as Boulder
County Housing Authority, was established in 1975 for “the purpose of promoting and providing
quality, affordable housing for lower-income families, the elderly, and disabled people.” In
2003, the three Boulder County Commissioners made Boulder County Housing a “blended
component unit and enterprise fund” of the County and assumed the responsibility of Board of
Directors. The original seven-member Boulder County Housing Board of Commissioners
became an advisory committee. Boulder County Housing executed a Section 8 Vouchers Annual
Contributions Contract with HUD in 1980. This Contract was replaced with a Consolidated
Annual Contributions Contract on May 18, 1998, and covered 641 Section 8 Housing Choice
Vouchers. Boulder County Housing also executed a Public Housing Annual Contributions
Contract in 1980. This Contract was replaced with a Consolidated Annual Contributions
Contract on December 1, 1995, that covered 56 Public Housing Low Rent units.

Boulder County Housing administered and operated Louisville Housing Authority. A five-
member Board of Commissioners governed Louisville Housing Authority. The original Section
8 Vouchers Annual Contributions Contract was executed in 1982 and was replaced with a
Consolidated Annual Contributions Contract on April 27, 1998. This Contract covered 27
Section 8 Housing Choice Vouchers. The Public Housing Annual Contributions Contract was
executed in 1982. This Contract was replaced with a Consolidated Annual Contributions
Contract on January 9, 1996, that covered 13 Public Housing Low Rent units.

Boulder County Housing also owned two properties (20 units total) that were not HUD-insured
but received HUD funding for project-based Section 8 units. Louisville Housing Authority also
owned a similar property with 30 units. HUD executed Multifamily Housing Assistance
Payments Contracts for these three properties in 1978 and 1979. These Contracts were updated
in 2000.

Both Housing Authorities owned and operated several other properties that did not receive any
HUD funding. Boulder County Housing maintained a separate master bank account for each
Authority for disbursement of HUD and non-HUD funds for each Authority’s various properties.
Boulder County Housing maintained consolidated accounting records for each Authority’s
properties.

The Executive Director for both Housing Authorities at the start of our audit period was James
Liles. He retired in June 2002 and Michael Reis was appointed Interim Executive Director.
Kevin Marchman was hired as Executive Director in June 2003. He resigned in April 2004.
Frank Alexander was appointed Executive Director in May 2004.

As shown in the finding and Appendix C, during and subsequent to our on-site work we made
repeated requests for documentation needed to effectively complete our audit work. Mr.
Alexander was hired as Executive Director just as we were completing our on-site work. He was
not informed of the problems we had discussed with existing Boulder County Housing staff and
indicated he was not aware of these issues until we contacted him about the draft audit report on
September 2, 2004. We met with him and other representatives on September 10, September 21,
October 1, and October 12, 2004. Mr. Alexander and the Boulder County Housing Accountant



                                               4
provided additional information to address issues discussed in the preliminary draft report and
were very responsive to our requests for other information.

The accounting and administrative records for the Authorities were maintained at 3482 North
Broadway in Boulder, Colorado. The Authorities’ tenant files and other occupancy records were
maintained at 400 East Simpson, Suite 202, in Lafayette, Colorado. Boulder County provided
most of the human resources functions for both Authorities and maintained the official personnel
records at the main Boulder County office.

Our audit work addressed three objectives:

   •   To determine the effectiveness of the controls over and accounting for the receipt and use
       of HUD funds.

   •   To evaluate the effectiveness of the controls over HUD-funded personnel functions.

   •   To determine the effectiveness of HUD-funded tenant eligibility and certification
       procedures and to evaluate controls over tenant rent subsidies.




                                                5
                               RESULTS OF AUDIT

Finding: Boulder County Housing Authority’s Internal Controls Did
Not Ensure the Proper Use of HUD Funds or the Use of Appropriate
Accounting Principles
Boulder County Housing had not implemented internal controls and procedures that ensured the
proper use of HUD funds or the use of appropriate accounting principles. As a result, HUD
programs incurred at least $433,139 of ineligible costs and $123,784 of unsupported costs.
Boulder County Housing did not submit required HUD documentation, which resulted in the
suspension of $165,570 of HUD funds. These occurred because neither the accounting staff nor
other Boulder County Housing officials had adequate knowledge of HUD requirements to ensure
proper compliance. Moreover, Boulder County Housing management and staff implemented
inappropriate accounting procedures, which resulted in inaccurate accounting records.


 Boulder County Housing’s HUD
 Programs Incurred Ineligible
 Costs of at Least $433,139


              Boulder County Housing incurred ineligible costs of at least $433,139, because
              adequate controls had not been established to ensure the proper use of HUD funds.
              The Consolidated Annual Contributions Contracts required that program funds be
              used only to pay allowable program expenditures. The Public Housing Consolidated
              Annual Contributions Contracts also required that the Authorities shall not in any
              way encumber the Public Housing projects. Boulder County Housing’s procedures
              were to transfer HUD funds to other programs. This practice resulted in loans that
              needed to be repaid to the HUD-funded programs. The totals as of December 31,
              2003, were the ineligible transfer balances:

                          Program                  Due From Other Funds
                                             December 31, 2001 December 31, 2003
                  Section 8 Vouchers                $1,184,835          $250,616
                  Public Housing                       194,583           168,999
                  Family Self Sufficiency                    0            13,524
                  Totals                            $1,379,418          $433,139

              Boulder County Housing did not provide documentation to show the use of the
              funds represented by the balances in the “Due From Other Funds” accounts. We
              determined the transfers to be ineligible uses of HUD funds, since we could not
              determine that the transferred funds were used for expenses allowable under the
              HUD requirements. These balances needed to be repaid to the HUD programs. See
              Appendix C, Section 1, for detailed information on the accounting procedures.




                                              6
Boulder County Housing’s HUD
Programs Incurred Unsupported
Expenses of at Least $123,784

           Boulder County Housing inappropriately charged management fees that resulted in
           at least $123,784 of HUD funds being transferred to the master account to cover
           administrative expenses. Adequate controls had not been established to ensure that
           HUD funds were properly used and fully supported. The Consolidated Annual
           Contributions Contracts required that program funds be used only for program
           expenses. The Section 8 Contracts required that complete and accurate books of
           account and records be maintained. The Public Housing Contracts required the
           maintenance of records that identified the application of funds in such a manner as to
           allow HUD to determine that all funds had been properly expended. Boulder
           County Housing did not provide support to show that the amounts charged to the
           programs as management fees were used for allowable program expenses.

           The following management fees, totaling $123,784, were inappropriately charged to
           HUD-funded programs in 2002 and 2003:

                        Program or Property                         Management Fees
            Section 8 Vouchers                                                 $92,560
            Public Housing                                                      $9,960
            Bloomfield Place (Multifamily Section 8)                            $7,320
            Catamaran Court (Multifamily Section 8)                            $13,897
            Family Self-Sufficiency                                                $47

           See Appendix C, Section 2, for additional information.

           The Director of Finance indicated the management fees were for administrative
           costs recovery; however, this practice did not comply with HUD requirements. The
           Section 8 Vouchers Consolidated Annual Contributions Contract required the
           Authority to establish and maintain an administrative fee reserve fund as a control
           tool for administrative expenses. The accounting records we were provided did not
           contain evidence of the administrative fee reserve fund. Boulder County Housing
           was also required to maintain records for the Public Housing programs in such a
           manner as to allow HUD to determine that all funds were expended in accordance
           with program requirements. According to the Director of Finance and the records
           provided, the Authorities did not meet these requirements.

           Boulder County Housing operated Louisville Housing Authority and executed
           Management Agreements for the Louisville Housing Authority HUD programs.
           The fees paid by Louisville Housing Authority to Boulder County Housing were
           within the terms of the Agreements. However, the Management Agreements
           provided showed that they had not been updated since 1987 for Section 8 Vouchers,
           1990 for the Multifamily Housing property, and 1992 for Public Housing. The
           Agreements were outdated, especially the Public Housing Agreement with a 12-
           year-old set fee amount. In addition, other terms in the Agreements did not



                                             7
            correspond with current procedures. These Agreements should be updated to
            represent the current circumstances.


HUD Suspended $165,570 of
Funding Because Required
Reports Were Not Submitted

            During the audit, Boulder County Housing did not establish adequate controls to
            ensure that all required accounting and other reports were prepared and submitted
            to HUD. As a result, Boulder County Housing lost access to $165,570 of Public
            Housing Capital Funds Program monies. The Consolidated Annual Contributions
            Contracts required that the Authorities prepare and submit all financial and
            program reports and records required by HUD. In October 2003, HUD suspended
            Boulder County Housing’s Capital Funds Program, because the required reports
            and environmental review had not been submitted to HUD. As a result, Boulder
            County Housing did not have access to these funds. Therefore, the ability to
            provide Program benefits to its Public Housing residents was limited.

            In May 2004, the HUD Denver Office of Public Housing staff conducted a site
            visit and obtained the information needed to release the 2002 portion of the funds.
            The 2003 funds had also been released by the time of this report.


Boulder County Housing Did Not
Consistently Record the Receipt
of HUD Funds in the Year-End
Financial Records

            Boulder County Housing did not establish controls to ensure that the financial
            records consistently showed the funds received from HUD. As part of the year-
            end financial records, we were provided a HUD Dollars Received Summary and
            an Operating Statement by Property. Boulder County Housing did not have
            procedures in place to ensure that the funds received from HUD agreed in these
            two records. Therefore, HUD had no assurance that the required books of
            account were complete and accurate. The Boulder County Housing Director of
            Finance was asked to explain differences in receipt amounts in the two financial
            reports. The explanations we were provided did not resolve the discrepancies.
            See Appendix C, Section 3, for further information.


The Accounting Records Did Not
Clearly Show the Use of HUD
Funds

            Boulder County Housing did not establish adequate controls to ensure that the
            accounting staff prepared accounting records that clearly showed the use of HUD
            funds for either Authority. Boulder County Housing made all disbursements from
            a master bank account for each Authority. Funds from HUD-funded and non-


                                             8
            HUD programs were moved from individual program bank accounts to the master
            bank account to pay expenses. The financial records we were provided did not
            consistently record these fund transfers or show the use of all HUD funds. The
            practice was especially ineffective since some of the transfers were done in the
            computer accounting system and others were done outside the system. This
            practice resulted in partial sets of accounting records and created an unnecessary
            risk of error and/or misstatement of the books of account. See Appendix C,
            Section 4, for further information.

Boulder County Housing Director
of Finance Stated They
“Manipulated” the 2003 Trial
Balances
            The Boulder County Housing Director of Finance stated the current accounting
            staff “manipulated” the accounting records. Therefore, HUD had no assurance of
            the accuracy of the accounting for the HUD funds. Boulder County Housing
            provided an Excel spreadsheet that contained the Balance Sheets by Property.
            This spreadsheet included two workbooks containing trial balances labeled
            “03TB” and “03TB (2).” Trial Balance 03TB showed that it was out of balance
            by $(11,862.00). Trial Balance 03TB (2) showed it was out of balance by
            $(24,527.41). The Director of Finance was asked to explain how the balance
            sheets balanced if neither of the trial balances were in balance. Her written
            response was, “The trial balance in this workbook was manipulated for
            Accounting’s purpose and should not be used to tie the BS by Property. This
            ultimately should not have been included in this workbook. If a Trial Balance is
            needed, we can provide one.” The accounting practice of “manipulating” the
            books to the extent that two versions of the trial balance were significantly out of
            balance, put into question the reliability and accuracy of the final books of
            account.

Boulder County Housing’s
Internal Controls Did Not Ensure
the Use of Appropriate
Accounting Procedures


            Boulder County Housing did not have adequate internal controls to ensure that the
            accounting procedures resulted in accurate financial records and books of
            account. The internal controls also did not ensure compliance with HUD
            requirements or accounting principles. The accounting records did not provide
            sufficient information to show the receipt and use of HUD funds. Deficiencies in
            the accounting controls and procedures included the following:

                •   Boulder County Housing did not have adequate controls to ensure that the
                    accounting procedures resulted in the consistent presentation of the year-
                    end account balances for 2002. See Appendix C, Section 5, for further
                    information.



                                              9
                •   Boulder County Housing did not have adequate controls to ensure the
                    proper preparation of the required Management’s Discussion and Analysis
                    for the 2003 Audited Financial Statements. See Appendix C, Section 6,
                    for further information.

                •   Boulder County Housing did not have adequate controls or accounting
                    procedures to ensure the proper representation of assets and liabilities.
                    See Appendix C, Section 7, for further information.

                •   Boulder County Housing had not implemented effective controls over
                    other accounting functions including: Accounts Payable; Accounts
                    Receivable; transaction recording functions; segregation of duties; use of
                    the computer accounting software; journal entries; and bank
                    reconciliations. See Appendix C, Section 8, for further information.

                •   Boulder County Housing did not have controls and procedures in place to
                    ensure compliance with HUD requirements. See Appendix C, Section 9,
                    for further information.

                •   Boulder County Housing Officials were not consistent in their
                    representation of the financial status and reports. See Appendix C,
                    Section 10, for further information.


Conclusion


             Boulder County Housing’s accounting staff had not implemented adequate
             controls over the accounting functions to ensure the proper use of HUD funds and
             to clearly represent those funds in the accounting records. Accounting staff
             adjusted the accounting records, booked transactions that did not comply with
             HUD requirements, and completed transactions without supporting
             documentation. Account balances for 2002 and account structures were changed
             without disclosure or explanation. Additionally, the accounting staff did not
             provide accounting records that properly disclosed the status of HUD funds.
             These problems occurred because the accounting staff and other Boulder County
             Housing officials did not have adequate knowledge of HUD requirements to
             ensure proper compliance. As such, the accounting staff did not establish
             effective procedures for use of the computer accounting system and other
             accounting activities.

             These actions resulted in non-compliance with HUD requirements and in HUD
             not having assurance that funds were adequately controlled or properly used.




                                             10
HUD’s Management Decision



          We provided HUD with a preliminary copy of the report and asked if they could
          provide management decisions for the recommendations. HUD provided us with
          management decisions for six of the recommendations (Recommendations 1D,
          1E, 1F, 1G, 1I and 1L). We concurred with all six management decisions.

Recommendations



          We recommend that the Denver Office of Public Housing take the following
          actions:

          1A. Require Boulder County Housing to repay from non-Federal funds the
              ineligible costs of $433,139 to appropriate HUD-funded programs.

          1B. Require Boulder County Housing to provide documentation supporting the
              $123,784 of unsupported costs for Boulder County Housing Authority.
              Based on the provided documentation, determine the amounts of questioned
              costs to be repaid to the various HUD-funded programs.

          1C. Require Boulder County Housing to repay from non-Federal funds the
              amounts determined in Recommendation 1B and ensure repayment is made
              to the appropriate HUD-funded programs.

          1D. Require Boulder County Housing to establish and maintain the required
              Administrative Fees Reserve accounts for Boulder County Housing
              Authority and Louisville Housing Authority.

          1E. Require Boulder County Housing to establish and implement policies and
              procedures to ensure the proper maintenance of the Reserve accounts.

          1F. Require Boulder County Housing to implement procedures for determining a
              reasonable, supportable method of allocating indirect costs to the HUD-
              funded programs.

          1G. Require Boulder County Housing to execute the appropriate updated
              Management Agreements for the management of Louisville Housing
              Authority’s Public Housing, Section 8 Vouchers, and Multifamily project-
              based programs.

          1H. Require Boulder County Housing to establish and implement policies and
              procedures that ensure compliance with the Consolidated Annual
              Contributions Contracts, Multifamily Housing Assistance Payments
              Contracts, and other applicable HUD and Federal requirements.


                                         11
1I. Require Boulder County Housing to prepare and submit the documentation
    required for the release of the suspended Capital Funds Program awards.

1J. Require Boulder County Housing to establish and implement policies and
    procedures that will ensure the proper control over and accurate recording of
    the receipts and disbursements of HUD funds in accordance with HUD
    requirements and accounting principles.

1K. Require Boulder County Housing to provide full explanations for all changes
    to the 2002 HUD funds balances. For any changes that resulted in
    inappropriate use or mistatement of HUD funds, require Boulder County
    Housing to take the necessary corrective actions.

1L. Provide the necessary technical assistance to ensure the establishment of
    controls over the receipt and use of HUD funds and the preparation of
    accurate accounting records in compliance with HUD requirements.




                                12
                        SCOPE AND METHODOLOGY

The audit covered procedures and transactions representative of operations at the time of the
audit and included the period January 2002 to December 2003. We expanded the scope of the
audit as necessary to obtain an understanding of the procedures. We performed the audit from
January through July 2004. We performed additional audit work on documentation provided by
Boulder County Housing representatives in September and October 2004.

The scope of our audit of the accounting functions was restricted because Boulder County
Housing did not provide full and complete accounting records that clearly showed the receipt and
use of HUD funds. We also were not provided the final 2003 books of account for Louisville
Housing Authority. However, we were able to obtain enough documentation and a sufficient
understanding of the procedures and practices to support our finding. We were provided
comprehensive records for the occupancy and personnel functions.

Completion of our audit was further delayed because the current Boulder County Housing
Officials requested the opportunity to provide additional information when they were informed
of the contents of the preliminary draft audit report. We held several meetings with them and
evaluated the additional documentation they provided. We made changes to the draft report to
incorporate the pertinent additional information and to focus more fully on accounting
procedures.

To determine whether Boulder County Housing properly accomplished the accounting,
occupancy, and personnel functions we:

   •   Reviewed the applicable criteria, including the HUD Contracts for both Housing
       Authorities;

   •   Reviewed the documentation provided by Boulder County Housing for the accounting,
       occupancy, and personnel functions, including: policies and procedures manuals, reports
       generated from the computer accounting software and from other computer software,
       disbursements records, income records, tenant files, HUD subsidies reports, and
       personnel records and reports;

   •   Reviewed the Audited Financial Statements Reports for 2002 for both Housing
       Authorities and the 2003 Report for Boulder County Housing Authority (the 2003 audit
       for Louisville Housing Authority had not been conducted by the time we completed our
       site work);

   •   Interviewed management and staff responsible for the accounting, occupancy, and
       personnel functions and obtained an understanding of the actual procedures; and

   •   Reviewed HUD’s Denver Offices of Public Housing and Multifamily Housing records
       relating to and interviewed HUD officials and staff involved with the Housing
       Authorities.




                                              13
We used the following sampling techniques during the completion of our audit:

   •   For the Public Housing and Multifamily Housing tenant files, we used a combination of a
       non-representative sample and a representative nonstatistical sample. We used the non-
       representative sample to select a sample of tenants with negative rents. We used the
       representative nonstatistical sample to randomly select tenant files from the various
       properties.

   •   For the Section 8 Vouchers tenant files, we used a representative nonstatistical sample to
       randomly select tenant files using the Section 8 Vouchers rent roll.

   •   For the Multifamily Housing Section 8 Voucher Requests and the Section 8 Housing
       Choice Voucher subsidies documentation, a 100 percent review was done.

   •   For the disbursements review, we used a combination of a non-representative sample and
       a representative nonstatistical sample. From the available disbursements reports for the
       HUD properties and programs, we selected the largest disbursements. We also randomly
       selected vendor files for 2002 and 2003 for each Authority to test the disbursements
       procedures.

   •   For the income review, we reviewed 100 percent of the receipts of HUD funds by both
       Authorities for 2002 and 2003.

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




                                               14
                             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:

              •   Establishing effective accounting procedures and maintaining complete and
                  accurate accounting records that clearly and accurately show the receipt and
                  use of HUD funds and compliance with HUD requirements;

              •   Establishing effective occupancy procedures and maintaining accurate records
                  in compliance with HUD requirements;

              •   Establishing effective personnel procedures and maintaining accurate records
                  for HUD-funded employees; and

              •   Maintaining complete and accurate accounting records to facilitate timely and
                  effective audits in accordance with the Authorities’ Consolidated Annual
                  Contributions Contracts with HUD.

              We assessed the relevant controls identified above.

              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 determined the following items were significant
              weaknesses (see Finding):

              •   Boulder County Housing’s accounting procedures allowed for the incurrence
                  of at least $556,923 of ineligible and unsupported costs;


                                               15
•   Boulder County Housing’s accounting procedures were not sufficient to
    provide complete and accurate books of account and supporting accounting
    documentation and records;

•   Boulder County Housing’s procedures did not ensure all required
    documentation was prepared and submitted to HUD; and

•   Boulder County Housing’s procedures did not produce complete and accurate
    books to facilitate timely and effective audits in accordance with the
    Consolidated Annual Contributions Contracts with HUD.




                               16
                                   APPENDICES

Appendix A

                SCHEDULE OF QUESTIONED COSTS

              Recommendation            Ineligible 1/        Unsupported 2/
                  Number
                     1A                        $433,139
                     1B                                               $123,784


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 where we cannot determine eligibility at the time of audit. Unsupported costs
     require a future decision by HUD program officials. This decision, in addition to
     obtaining supporting documentation, might involve a legal interpretation or clarification
     of Departmental policies and procedures.




                                             17
Appendix B

        AUDITEE COMMENTS AND OIG'S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         18
Appendix B

        AUDITEE COMMENTS AND OIG'S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 2




                         19
Appendix B

        AUDITEE COMMENTS AND OIG'S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 3




                         20
Appendix B

        AUDITEE COMMENTS AND OIG'S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 4




                         21
Appendix B

        AUDITEE COMMENTS AND OIG'S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 5




Comment 6




                         22
Appendix B

        AUDITEE COMMENTS AND OIG'S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 7




                         23
Appendix B

        AUDITEE COMMENTS AND OIG'S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 8




Comment 9




                         24
Appendix B

        AUDITEE COMMENTS AND OIG'S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         25
Appendix B

        AUDITEE COMMENTS AND OIG'S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 10




                         26
Appendix B

        AUDITEE COMMENTS AND OIG'S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 11




Comment 12




                         27
Appendix B

        AUDITEE COMMENTS AND OIG'S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         28
Appendix B

        AUDITEE COMMENTS AND OIG'S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         29
Appendix B

        AUDITEE COMMENTS AND OIG'S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         30
Appendix B

        AUDITEE COMMENTS AND OIG'S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 13




                         31
Appendix B

        AUDITEE COMMENTS AND OIG'S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 14




Comment 15




                         32
Appendix B

        AUDITEE COMMENTS AND OIG'S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         33
Appendix B

        AUDITEE COMMENTS AND OIG'S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         34
                           OIG Evaluation of Auditee Comments

Boulder County Housing officials generally agreed with most of the report and with 10 of the 12
recommendations. We reviewed their written comments and determined that they did not
provide additional evidence that warranted changing the other two recommendations.

Comment 1     Pages 13 through 16 of the Boulder County Housing officials’ response show that
              they generally concurred with 10 of the 12 recommendations. Statements of
              concurrence with the audit report also appeared throughout the responses to the
              finding “subparts.” For the two recommendations with which they did not fully
              concur, the Housing Authority officials did not provide evidence to show the
              recommendations or supporting evidence were inaccurate.

Comment 2     Pages 1 and 2 of the response contain a historical overview, which repeats, but
              does not correct, some information in the audit report Background and Objectives
              section.

Comment 3     Boulder County Housing has started implementing corrective actions that should
              help resolve the issues in this report.

Comment 4     Boulder County Housing acknowledges that the accounting system was not
              sufficient to allow HUD-OIG to determine that the transfers from these funds
              were adequately tracked to HUD-funded programs or HUD-approved activities,
              but then states that HUD-OIG did not present evidence that the funds were used
              for inappropriate purposes. Boulder County Housing officials believe that the
              funds were used for permitted purposes, but did not provide additional evidence
              to support that belief. Therefore, we did not change our conclusion.

Comment 5     Boulder County Housing did not provide any additional evidence that the funds
              used should have been in its Section 8 reserve account, or that the funds were
              used for purposes that would have qualified as allowable uses of reserve funds.
              Therefore, we did not change our conclusions.

Comment 6     Our audit report didn’t question the use of a master account nor recommend
              discontinuation of the account. The report concludes that the accounting records
              did not provide a clear determination of the use of the funds transferred into the
              master bank account. We did not change our conclusions.

Comment 7     Boulder County Housing states that if they had adequately tracked expenses
              recorded in the payment register and had instituted an approved cost allocation
              plan, HUD-OIG would have been able to see that all expenses were allowable.
              Since, Boulder County Housing did not implement these accounting
              functions/controls, OIG must stand by their conclusion that these ineligible funds
              represent loans from the HUD programs.

Comment 8     The situation during the audit period was that all HUD funds were transferred to
              the master bank account and were available for use in paying all expenses
              including indirect costs. Therefore, the management fees were additional


                                              35
              expenses incurred by the HUD-funded programs, not funds used to help cover
              indirect costs incurred by Boulder County Housing. There is no evidence to show
              that HUD funds in the master bank account were not used to pay indirect costs.
              In addition, Boulder County Housing provided us a copy of an indirect cost
              allocation. The schedule included not only indirect cost items, but also direct cost
              and capital expenditure items. The indirect cost plan identified that the Section 8
              program would be charged deprecation for fixed assets. However, HUD provides
              the Housing Authority an administrative fee for operating the Section 8 program.
              As such, the Housing Authority may not charge Section 8 Program for any
              indirect costs.

Comment 9     Boulder County Housing correctly states that all funds have now been released.
              However, we still maintain that Boulder County Housing cannot operate its
              programs as effectively if it experiences significant delays in funding. We have
              revised the finding to recognize that all funds have now been released.

Comment 10 Boulder County Housing acknowledges that it did not clearly show the receipt of
           HUD funds on the statements of Revenue, Expenses and Changes in Net Assets.
           Since the records lump all dollars together, HUD-OIG cannot make a
           determination that all HUD funds were correctly recorded or that the HUD funds
           were used for allowable activities.

Comment 11 OIG agrees that the use of the word “manipulated” may have been a poor choice
           by the prior Director of Finance. However, the current Executive Director was
           aware of prior Director’s description and did not attempt to retract or correct the
           statement until we issued the draft report. We believe the finding accurately
           describes the two different trial balances and supporting documents provided to
           us.

Comment 12 Boulder County Housing disagrees that the Housing Authority’s internal controls
           did not ensure the use of appropriate accounting procedures. However,
           throughout their response they also acknowledge that accounting controls did not
           exist for us to clearly track the use of HUD funds. These are contradictory
           assertions. The Housing Authority did not provide any additional evidence that
           would change our conclusion that the accounting records and the internal controls
           used to produce the accounting records were not adequate.

              The Housing Authority states that GASB 34 allowed for many of the differences
              in account balances in the financial statements. This assurance is supported by
              the Housing Authority’s Independent Public Accountant. However, we believe
              they have misinterpreted GASB 34 and have referred the Independent Public
              Account and this issue to the Real Estate Assessment Center for further review
              (see Appendix D).

Comment 13 Boulder County Housing states that they have confidence in the 2002 year-end
           audited figures and the 2003 books of account and annual audited financial
           statements. However, this conflicts with many other statements in the response
           acknowledging that the accounting procedures: did not adequately track the



                                               36
              expenditures, did not ensure the proper allocation of costs, did not clearly show
              the receipt of funds, and did not clearly track the use of funds.

Comment 14 The preliminary draft audit report did contain unsupported costs for Louisville
           Housing Authority. Boulder County Housing subsequently provided
           documentation that was sufficient to resolve the unsupported costs for Louisville
           Housing Authority. Therefore, we removed the references from
           Recommendations 1B and 1C.

Comment 15 Boulder County Housing acknowledges that implementation of accounting
           controls and outdated management agreements were long overdue. Moreover,
           these changes should provide HUD sufficient documentation to support the
           expenditure of HUD funds from 2004 forward. Since many of these changes took
           place after our site work, we cannot comment on their effectiveness or the
           reliability of the accounting records produced.




                                               37
Appendix C

            ACCOUNTING PROCEDURES DEFICIENCIES
                    DETAILED SUMMARY

During the audit, we identified significant deficiencies in the accounting procedures and
practices used by Boulder County Housing to prepare the financial records. These deficiencies
were mentioned in the finding. Detailed descriptions of these deficiencies were prepared to
provide additional information about the situations.

1. Boulder County Housing Incurred Ineligible Costs

Boulder County Housing incurred ineligible costs of at least $433,139, because adequate controls
had not been established to ensure the proper use of HUD funds. Boulder County Housing’s
procedure was to routinely transfer money from HUD programs to other programs, including an
“Administrative Department,” and these transactions were recorded in “Due From Other Funds”
accounts. Boulder County Housing had separate bank accounts for most of the HUD and non-HUD
programs. The funds from these accounts were consistently transferred to the Master Bank
Account, from which all disbursements for all programs and projects were made. Boulder County
Housing provided documentation that showed the balances in the HUD programs’ “Due From
Other Funds” accounts carried forward and were continuous from before the 2002 start of the audit
period. They did not provide documentation to show that the balances in the HUD programs’ “Due
From Other Funds” accounts were used for allowable HUD expenses. Therefore, these transfer
balances were loans that needed to be repaid to HUD programs.

We made several verbal and written requests to the prior Boulder County Housing Management
for detailed accounting records that clearly itemized the use of HUD funds. However, we were
not provided complete, detailed records. During a meeting on September 21, 2004, the current
Boulder County Housing Management provided information that resolved the amounts showed
for the two Multifamily Housing properties, which we had initially included. The documentation
also showed that account balances had not cleared for years. The documentation showed the
balance as of December 31, 2001, the transfer activity for 2002 and for 2003 and the ending
balance for each year for each HUD program. As shown by the 2001 balance, extensive
transfers of Section 8 Voucher funds had occurred prior to the start of the audit period, and
transfers to and from the program continued throughout the next 2 years. The same type of
consistent transfers occurred for the Public Housing program.

2. Boulder County Housing Incurred Unsupported Costs

Boulder County Housing inappropriately charged management fees that resulted in at least
$123,784 of HUD funds being transferred to the Master Bank Account to cover administrative
expenses. The table in the finding showed the amount for each HUD-funded program. Boulder
County Housing recorded management fees income for all programs totaling $302,858 in 2002
and $230,912 in 2003.

Boulder County Housing used different methods to determine the amount of fees charged to each
program, without support for any of the methods. Some of the fees were set at monthly amounts,


                                               38
such as $415 per month charged to the Public Housing Program. The Section 8 Vouchers fees
varied each month, with no explanation, through May 2003. From June through December 2003,
the Fee was a monthly amount of $3,316.50. The fees for other programs were calculated as
percentages of total monthly rental incomes.

The Director of Finance’s written explanation, in part, stated, “The Boulder County Housing
Authority (BCHA) has assessed a management fee to all properties it owns, as a mechanism for
administrative cost recovery for property management…” The explanation listed most of the
percentages and set amounts, but did not include any explanation for the Section 8 Vouchers
fees. The explanation also stated that “even though no formal documentation was found to
support these percentages and set amounts, management determined that it was appropriate to
continue assessing these amounts in 2003.”

Administrative costs consisted of direct and indirect costs. Direct costs were expenses that applied
to a specific program. Indirect costs were expenses, such as office utilities or telephones, which
were shared by all programs. To comply with HUD requirements, Boulder County Housing needed
to establish a reasonable, supportable method for allocating indirect costs among the programs and
properly represent in the financial records the expenses for which each program was being charged.

3. Boulder County Housing Did Not Consistently Record the Receipt of HUD Funds

Boulder County Housing did not establish controls to ensure that the financial records
consistently showed the funds received from HUD. For example, the HUD Section 8 Vouchers
funds total for 2003 in the HUD Dollars Received Summary showed $5,825,760; however, the
Operating Statement by Property showed $5,793,824 for a difference of $31,936.

The Director of Finance was asked to explain the $31,936 difference in the HUD Section 8
Vouchers amounts in the two financial records. She provided a schedule that she called a
reconciliation. However, the calculation included $68,236 of funds that she indicated were from
programs other than HUD Section 8 Vouchers and was still out of balance by $34.28.

Boulder County Housing Management provided further explanation on October 4, 2004, stating
that the $68,236 consisted of two amounts. The first was an accounts payable of $18,133 for
Section 8 Vouchers funds due back to HUD at 2003 year-end. The second was $50,103 of
Family Self-Sufficiency money that was deposited in the Section 8 Vouchers bank account and
included in the Section 8 Vouchers year-end settlement report, but was recorded in Grants and
Donations in the “PSS” program in the financial records. Therefore, the procedures used to
maintain the accounting records did not ensure the records consistently showed the actual
amount of HUD funds provided by program.

Neither the HUD Dollars Received Summary nor the Operating Statement by Property showed
any HUD project-based Section 8 income for the two Multifamily Housing properties. Subsidy
reports obtained from HUD agreed with the Schedule of Expenditures and Federal Awards in the
2003 Audited Financial Statements Report, which showed HUD funding of $34,594 for
Bloomfield Place and $93,165 for Catamaran Court. However, the Combining Statements of
Revenue, Expenses, and Changes in Net Assets showed no HUD funding for either property.
The Director of Finance’s written explanation stated, “These were booked in Rental Subsidy and
roll-up to Rental Income on Statement of Revenue, Expenses and Changes in Net Assets.”
Therefore, the accounting staff used procedures to prepare the accounting records that did not


                                                39
accurately identify the HUD funding. These procedures did not comply with the Multifamily
Housing Assistance Payments Contracts, which required accounting records that allow for the
verification of information pertinent to the housing assistance payments.

4. The Accounting Records Did Not Clearly Show the Use of HUD Funds

Boulder County Housing did not establish adequate controls to ensure that the accounting staff
prepared accounting records that clearly showed the use of HUD funds for either Authority.
Funds from HUD-funded and non-HUD programs were moved from individual program bank
accounts to the master bank account to pay expenses. Both an Administration line item (number
800) and a “Master A/P” line item (number 900) were used to record these transfers in the
accounting records.

We made several verbal and written requests to Boulder County Housing’s accounting staff for
detailed disbursements registers for all HUD-funded programs, but we were not provided
complete records. The detailed records we were provided did not show the transfers. The only
records we were provided that showed transfer information were trial balances, which did not
balance, and which showed only year-end cumulative totals. Therefore, we were not able to
determine the actual flow of transfers from HUD-funded programs or the actual use of HUD
funds.

The Director of Finance provided the following written explanation:

   The Due to-from totals…along with object account 9117 (Transfers) are included in the Due
   from Other Governments line item on the individual balance sheets. We have separated them
   out for clarity on the latest version of the combining balance sheets as due to/from other
   departments. Because the former general ledger did not utilize true fund accounting, we had to
   calculate the amount that should have been included in the transfers between “departments’ in
   order for the trial balance and balance sheets to balance.

   The due to/from balances represent transfers to/from the admin department. However, the
   transfer account on the general ledger was not set up to automatically post between
   departments, so they are not reflected on the trial balance. Transfers that were manually
   entered are reflected in the 9117 account.

The accounting practice of transferring funds between individual “departments” and two general
accounts did not result in accounting records that clearly showed the disbursements of funds by
“department.” The practice was especially ineffective since some of the transfers were done in
the computer accounting system and others were done outside the system. This practice resulted
in partial sets of accounting records and created an unnecessary risk of error and/or misstatement
of the books of account.

We made several verbal and written requests for detailed accounting records for Louisville
Housing Authority for 2002 and 2003, but Boulder County Housing’s accounting staff provided
only portions of the detailed records. We also requested the 2003 final books of account for
Louisville Housing Authority and the 2003 Audited Financial Statements Report. Boulder
County Housing accounting staff provided the Report on September 21, 2004, but did not
provide the final books. Therefore, we were not provided the information needed to fully



                                                40
complete our audit of Louisville Housing Authority.1 However, the Director of Finance wrote
the following statement, concerning the books and procedures for Louisville Housing Authority:2

    The entire state of the BCHA records, including all trends the lack of process and procedures,
    directly applied to these entities as well. All financial records for these entities had not been
    closed since May of 2003, and the HUD reporting requirements were behind. They were in
    the exact same state as BCHA.

5. Boulder County Housing Did Not Consistently Present the 2002 Year-End Cash
   Account Balances

Boulder County Housing did not have adequate controls to ensure that the accounting procedures
resulted in the consistent presentation of the year-end cash accounts balances for 2002. We
asked for the justifications, with applicable criteria, for the changes to the 2002 balances. The
Director of Finance wrote, “The justification for re-classification of amounts for 2002 was to be
able to present the financials in a format required by GASB 34 and to have comparative data
against 2003.” The Governmental Accounting Standards Board Statement 34, Basic Financial
Statements – and Management’s Discussion and Analysis – for State and Local Governments
(Statement 34), did not change the classifications for accounts such as cash.

During our on-site work, we were not provided information to support this. In September 2004,
the Boulder County Housing Accountant provided spreadsheets that showed the line items
included in each account in the financial statements plus cash reconciliation schedules for 2002
and 2003. These schedules contained year-end totals by property for Cash and Cash Equivalents,
Restricted Cash – Security Deposits, and Restricted Cash – Other.

A comparison of the 2002 cash reconciliation schedules to the cash balances by department in
the 2002 Audited Financial Statements Report showed that several of the department amounts
and the account totals were changed. These schedules did not support the explanation provided.
For example, a comparison of the 2002 cash reconciliation totals by department to the
corresponding information in the Report showed that the security deposit amounts for four
departments, including Public Housing, were moved to Restricted Cash – Others in the
reconciliations. However, in the 2003 reconciliations, those same departments were in the
Restricted Cash – Security Deposits account. Therefore, moving those four department amounts
changed the 2002 balances from being comparable to not being comparable to the 2003 restricted
cash accounts composition. Additionally, the Public Housing security deposit balance was
changed from $20,488 to $16,377.

The year-end unrestricted cash balance was $(6,850) in the 2002 Audited Financial Statements
Report and $246,596 in the 2002 Cash and Cash Equivalents Reconciliation Schedule. A
comparison of the two documents showed the following changes in the 2002 unrestricted cash
balances for HUD-funded programs:

           Program                    Financial Report               Reconciliation
     Section 8 Vouchers                          $214,247                              $0

1
 See scope limitation in the Scope and Methodology section.
2
 The quote referred to two entities: Louisville Housing Authority and another Authority administered by Boulder
County Housing, which did not receive HUD funding.


                                                       41
    Public Housing                           $243,348                   $4,111
    Bloomfield Place                          $(3,237)                      $0
    Catamaran Court                          $(96,721)                      $0

The 2002 individual program balances for the unrestricted cash account differed between the
Cash and Cash Equivalents Reconciliation Schedule and the Audited Financial Statements
Report even though the individual programs remained the same in 2002 and 2003. Similar
changes to account balance composition were made to most other accounts that remained
constant between 2002 and 2003.

Additionally, Boulder County Housing added and/or changed some accounting line items
without explanation, including the following examples:

   •   The original amount for Accounts Payable was $441,858. The adjusted amount of this
       line item was $3,776, with the addition of a new line item-Other Accrued Liabilities-with
       a total of $438,082.

   •   The original line item named “Tenant Prepaid Rent” was renamed “Deferred Revenue.”

   •   On the Statement of Cash Flows, Grant Proceeds originally showed a total of $1,077,100.
       This was changed to Capital Funds Grants with a total of $1,007,216 and a new Grants
       and Donations line item was added with a total of $253,373.

All of the changes to the 2002 balances were made without either of the key accounting staff
members having first hand knowledge of the activities in 2002. The Director of Finance did not
start employment with Boulder County Housing until October 2003 and the Accountant started
in December 2003. The person who was the equivalent of the current Director of Finance
resigned on August 6, 2003, and the prior Accountant resigned about 1 week after the current
Director of Finance was hired. Consequently, the current Director of Finance and Accountant
made extensive changes to the accounting records without having access to direct knowledge of
the activities of 2002 and with very limited direct knowledge of the 2003 accounting activities.
Therefore, neither Boulder County Housing nor HUD had assurance that the HUD funds were
accurately and correctly accounted for in the financial records.

6. Boulder County Housing Did Not Properly Complete the Management’s Discussion and
   Analysis

Boulder County Housing did not have adequate controls to ensure the proper preparation of the
required Management’s Discussion and Analysis for the 2003 Audited Financial Statements.
Statement 34, paragraphs 8 through 11, contained the requirements for the Management’s
Discussion and Analysis, which included the following:

   •   Financial information from the financial statements, comparing the current year to the
       prior year, needed to support the analysis of financial position and results of operations.

   •   An analysis of the financial position and results of operations to assist users in assessing
       whether financial position improved or deteriorated as a result of the year’s operations.
       This should include reasons for significant changes from the prior year, not simply the
       amounts or percentages of change.


                                                42
   •   An analysis of balances and transactions of individual funds, including reasons for
       significant changes in fund balances.

   •   An analysis of significant variations between original and final budget amounts and
       between final budget amounts and actual budget results for the general fund.

   •   A description of currently known facts, decisions, or conditions that are expected to have
       a significant effect on financial position (net assets) or results of operations (revenues,
       expenses, and other changes in net assets).

The Management’s Discussion and Analysis contained financial information showing the change
between the 2002 and 2003 balances for general account groupings, but there was limited
narrative analysis of changes and the resulting financial position. The narrative information that
was provided did not clearly develop whether the financial position improved or deteriorated in
2003. There were no analysis of balances and transactions of individual funds or departments;
therefore, there was not an analysis of HUD-funded programs. The only description of currently
known facts was, “There are no currently existing conditions that are expected to have a negative
impact on Boulder County Housing’s future obligations.”

The $983,089 payroll obligation to Boulder County was not mentioned anywhere in the
Management’s Discussion and Analysis. Therefore, the fact that Boulder County Housing was
not able to meet a significant amount of financial obligations in 2003 was not discussed, the
impact on operations in 2004 was not analyzed, and the amount of HUD funds involved in this
obligation was not specified. We were told by the prior Executive Director that Boulder County
Housing had committed to repay this obligation in full by the end of 2004, which would have a
significant impact on the operations during the year. Boulder County Housing Management
stated that as of September 2004, the balance was $722,861 and that Boulder County Housing
was working with the County on payment options. Boulder County had allocated $200,000 to
Boulder County Housing in 2004 for development and that amount was instead applied to the
payroll obligation. Consequently, Boulder County Housing’s ability to do development
activities was negatively impacted. Boulder County committed to further assist Boulder County
Housing by allocating an additional $400,000 to be applied to the debt in 2004.

The Management’s Discussion and Analysis did not contain any information on or analysis of
the original and final organizational budget or the HUD program budgets. Additionally,
paragraphs 130 and 131 of Statement 34 contained the requirements for the Required
Supplementary Budgetary Comparison Schedules. These required schedules were not included
in the Audited Financial Statements Report. Therefore, Boulder County Housing did not have
procedures to ensure full compliance with the Statement 34 requirements. Boulder County
Housing did not designate between HUD-funded and non-HUD programs in the Management’s
Discussion and Analysis; therefore, HUD did not have the intended benefit of an analysis of the
status of the HUD-funded programs.

7. Boulder County Housing Did Not Properly Record Assets and Liabilities

Boulder County Housing did not have adequate controls or accounting procedures to ensure the
proper representation of assets and liabilities. Under generally accepted accounting principles,
money owed to an Authority program, called a receivable, was an asset. Money owed to another


                                               43
entity, called a payable, was a liability. Instead of following this principle, Boulder County
Housing’s accounting records showed negative balances in receivables accounts for some
departments. This accounting practice did not comply with the Consolidated Annual
Contributions Contracts requirement that complete and accurate books of account and records
must be maintained.

The following, which totaled $2,837,342, were the negative balances shown in receivables
accounts:

   •   Due From Other Departments $1,855,475

   •   Accounts Receivable – Other $979,620

   •   Accounts Receivable – Tenants $2,247

When asked to explain the negative balances in the receivables, the Director of Finance wrote,
“These are really Due To Other Governments on the Balance Sheets, but we did not classify as
such on the combining balance sheets since the total of all entities totals the 72,000 receivable on
the Balance Sheet.”

The books of account we were provided did not support this explanation. Boulder County
Housing’s balance sheet showed the $72,000 total in Due From Other Governments. The
Audited Financial Statements Report Note stated that this $72,000 receivable was “for
Management and Maintenance fees due from other local government entities.” The individual
program receivables and negative receivables were in Due from Other Departments, which
showed a cumulative total of zero. The explanation did not address the negative amounts in
Accounts Receivable – Other or Accounts Receivable – Tenants.

During a meeting with Boulder County Housing representatives on September 21, 2004, we were
told that the decision had been made to pool all of Boulder County Housing’s departments into
one entity. Therefore, they combined the Due To and Due From Other Departments in the Due
From Other Departments line. They cited paragraph 58 of Statement 34 as support. Paragraph
58 stated that eliminations should be made in the statement of net assets to minimize the
“grossing-up” effect of assets and liabilities within the governmental and business-type columns
of the primary government.

This decision did not comply with HUD requirements. The Consolidated Annual Contributions
Contracts state that program funds will be used only for program expenses. Therefore, transfers
to the primary government or other departments were not appropriate transactions and
constituted loans that must be repaid to the lending HUD programs. Paragraph 112 of Statement
34 stated, “Interfund loans-amounts provided with a requirement for repayment. Interfund loans
should be reported as interfund receivables in lender funds and interfund payables in borrower
funds.” The paragraph also stated that interfund transfers were flow of funds without the
requirement of repayment. Therefore, Boulder County Housing did not follow procedures that
ensured the inappropriate loans of HUD funds were properly recorded.

Boulder County Housing Management provided information in September 2004 that showed the
majority of the Accounts Receivable – Other balances was comprised of required reserve
account balances for the properties included in the 1998 Bond funding. The books of account


                                                44
would be more accurate if these were shown as restricted reserve accounts. Explanations of the
negative Accounts Receivable – Tenants were not provided. Consequently, neither Boulder
County Housing nor HUD had access to records that provided a clear representation of the
accounts receivables and accounts payables for the HUD-funded programs.

8. Boulder County Housing Had Other Weak Accounting Procedures

Boulder County Housing had not implemented effective controls over other accounting functions
including Accounts Payable, Accounts Receivable, and transaction recording functions. The
Consolidated Annual Contributions Contracts requirement that complete and accurate books of
accounts and records be maintained was not met. Because of these weaknesses, HUD funds
were vulnerable to misuse and the accounting records were subject to error or inaccuracy.

The Authorities bank accounts’ sets of check stock were individual, standard-size sheets of paper
on which were preprinted and numbered check blanks. The check stock was stored in a locked
cabinet in the Accounts Payable Clerk’s workstation. The printer used to complete the checks
was also in that workstation. There was a check-signing machine attached to the printer, which
was key activated. The Boulder County Housing Accountant and Accounts Payable Clerk had
the only keys to both the cabinet in which the check stock was stored and to the check-signing
machine. The Accountant also had full authority over disbursements approval and financial
recording functions. Therefore, one employee had full access to and authority over the check
issuance and recording procedures. Boulder County Housing had sufficient staff to allow for
segregation of duties for the custodians of the keys and the check issuance and disbursements
recording functions.

The computer accounting system was either not being properly used or was insufficient for the
accounting needs of both Authorities. Posting of transactions and preparation of the accounting
records were done partially in the computer accounting system and partially with other computer
software, usually Excel. For the transactions recorded initially outside the accounting system,
journal entries were used to enter the data into the computer accounting system. For example,
parts of the Accounts Receivable functions were done in the computer accounting system and the
Accounts Receivable Clerk recorded other parts in Excel spreadsheets. The Accountant prepared
journal entries for the data recorded in the spreadsheets. The double entry of data in two
different softwares was not an effective use of staff resources and increased the probability of
entry errors.

Extensive amounts of the data in the computer accounting system were generated through
journal entries. The system allowed for long journal entries involving numerous accounts;
therefore, it was not easy to determine what was being recorded. As stated above, the final
books of account were prepared in Excel rather than being generated from the computer
accounting system. As stated by the Director of Finance, these procedures allowed for
“manipulation” of accounting information. The procedures also did not result in books of
account and accounting records that permitted a speedy and effective audit, as required by the
Consolidated Annual Contributions Contracts.

The accounting staff provided a July through December 2003 consolidated bank reconciliation
for Boulder County Housing’s Master Bank Account, which we were told was the final
reconciliation. This reconciliation contained a long list of outstanding checks, which included
$144,460.20 of outstanding checks, dated January or February 2004. When we asked about this


                                               45
on March 12, 2004, an accounting staff member explained that these checks were for purchases
which occurred and were booked in December 2003, but for which the statements were received
and the disbursements made in January or February 2004. This procedure was a mixture of cash
and accrual accounting, which was not an appropriate accounting practice. During a meeting on
March 22, 2004, accounting staff members informed us that they had prepared a journal entry
that changed these checks from cash to accrued liabilities. We were subsequently provided a
copy of the journal entry and the revised bank reconciliation.

9. Authority Procedures Did Not Comply with the Consolidated Annual Contributions
   Contracts

Boulder County Housing did not have controls and procedures in place to ensure compliance
with HUD requirements. Key staff did not have knowledge of or ensure compliance with the
terms of the Consolidated Annual Contributions Contracts. We started our site work with an
entrance conference on February 17, 2004. During that conference and on several subsequent
occasions, we requested copies of the Consolidated Annual Contributions Contracts. Six weeks
after our initial request, Boulder County Housing officials finally provided a copy of their
Consolidated Annual Contributions Contract. Boulder County Housing had to obtain the
Contract for Louisville Housing Authority from HUD. Since responsible Authority staff
members did not have ready access to copies of the Contracts, they could not have knowledge of
or ensure compliance with the terms and conditions of the Contracts.

The Consolidated Annual Contributions Contracts required that complete and accurate books of
account and records be maintained in compliance with HUD requirements and must permit a
speedy and effective audit. Boulder County Housing was not maintaining complete and accurate
accounting records that complied with HUD requirements. The delays we experienced in
obtaining records and the condition of the records we were provided did not permit a speedy and
effective audit.

As shown above, we submitted numerous verbal and written requests for various accounting
records and books of account between February and July 2004. We made verbal requests for
documentation during the first part of our site work. When several of the requested items were
not provided after repeated verbal requests, we prepared a written list of requested documents.
This was presented to and discussed with the prior Executive Director and then the accounting
staff on March 22, 2004. We submitted to and discussed with the Director of Finance a second
written request list on March 25, 2004. On April 12, 2004, we submitted to and discussed with
the Director of Finance a third written request list, which included items from the other lists that
had not been provided.

We had not received all requested documentation before we left the site on May 18, 2004. On
May 21, 2004, we sent an e-mail with another request for the outstanding documentation and a
list of additional questions. No response was received so a second e-mail request, with a request
for the Audited Financial Statements Report, was sent on May 27, 2004. Later that day, we
received an e-mail with most of the requested information. We received a second e-mail on June
2, 2004, with the remaining information. However, neither e-mail mentioned the Audited
Financial Statements Report. We called the Director of Finance on June 15, 2004, and were told
it was at the printers and would be sent to us by the end of that week or the first of the next week.
We received the Report on July 1, 2004.



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On May 18, 2004, we met with the Director of Finance and verbally requested the 2003
Management Representation Letter. She said she had it and would provide a copy. We did not
receive it then or with the Audited Financial Statement Report on July 1, 2004. On July 9, 2004,
we sent an e-mail to the Director of Finance repeating the request. She sent an e-mail the
evening of July 19, 2004, stating that the Management Representation Letter had been faxed.
However, the fax contained the Audit Engagement Letter. We sent an e-mail the morning of
July 20, 2004, explaining the situation and repeating the request. The Management
Representation Letter was finally faxed that afternoon.

Throughout the audit we made specific requests, including repeated requests for detailed
accounting records that clearly showed the receipt and expenditure of HUD funds for both
Authorities. Boulder County Housing accounting staff provided some documentation, but it was
not complete. The final books of account for Boulder County Housing did not clearly identify
the receipt and expenditure of HUD funds, mainly because of the transfers to and from other
programs. Additionally, as shown above, we identified significant deficiencies and inaccuracies
in the final books of account.

We contacted the current Executive Director on September 2, 2004, to set up the exit conference.
During that telephone conversation, we discussed the content of the preliminary draft audit
report. The Executive Director was concerned about the statements regarding the lack of
responsiveness to our requests for documentation. We met with the Executive Director and other
representatives on September 10, September 21, October 1, and October 12, 2004. We also had
telephone, written, and e-mail communications during this period. We considered all the
additional documentation they provided. We received very timely responses to the requests for
information made during this time. However, as shown throughout this appendix, the additional
documentation further supported rather than resolved issues addressed in the draft audit report.

10. Boulder County Housing Officials Were Not Consistent in Their Actions and
    Representations of the Financial Status

Boulder County Housing Officials were not consistent in their representation of the financial
status and reports. The individual who was Executive Director during most of our site work
requested a meeting with the OIG Audit team, two members of the Independent Auditor team,
and the two key Boulder County Housing Accounting staff members. During this meeting, the
Executive Director instructed the Accounting staff to provide to both Audit teams copies of any
documentation requested by either Audit team. However, we were not provided documentation
that fully agreed with the data contained in the Audited Financial Statements Report.

During this March 31, 2004, meeting, the Executive Director also stated that he and the
Accounting staff could not certify to the reliability or accuracy of the 2002 and 2003 accounting
records. In a meeting with OIG on March 29, 2004, he said that he and his immediate supervisor
had no assurance of the accuracy of the 2002 accounting records and only about an 85 percent
certainty about the 2003 records. Yet on April 2, 2004, the Executive Director and Director of
Finance signed the Management Representation Letter which included the following statements:

   We confirm to the best of our knowledge and belief, as of April 2, 2004, the following
   representations made to you during your audit.




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   1. The financial statements referred to above are fairly presented in conformity with
      accounting principles generally accepted in the United States of America.

   5. The following have been properly recorded and/or disclosed in the financial statements:
      a. Related party transactions and related amounts receivable or payable including sales,
         purchases loans, transfers, leasing arrangements and guarantees, all of which have
         been recorded in accordance with the economic substance of the transactions.

However, on May 14, 2004, we received an e-mail from the Accountant containing copies of
revised financial statements. The e-mail stated, “We also made a last minute journal entry
yesterday and a copy of that is attached.” However, the journal entry was not attached. We also
received an e-mail on May 17, 2004, which was also sent to the Independent Auditor, containing
a copy of the Schedule of Federal Awards. Therefore, it appeared that the Management
Representation Letter was dated before the books of account were finalized.




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Appendix D

            OTHER MATTERS RELATED TO THE AUDIT

          Independent Auditors Are Being Referred to the Real Estate
                             Assessment Center
One Independent Auditor prepared the 2002 Audited Financial Statements Reports for Boulder
County Housing Authority and Louisville Housing Authority. This Independent Auditor was
scheduled to perform the 2003 audit for Louisville Housing Authority after we completed our
site work. A different Independent Auditor prepared the 2003 Audited Financial Statements
Report for Boulder County Housing Authority.

The three Audited Financial Statements Reports we reviewed did not identify any control
weaknesses or deficiencies with the financial reports. Even though Boulder County Housing
Authority had very extensive mortgage debt for the non-HUD properties and was not able to
meet almost $1 million of current financial obligations in 2003, neither Independent Auditor
questioned Boulder County Housing’s ability to continue as a going concern. The Independent
Auditor for the 2003 Boulder County Housing Authority audit did not identify the inappropriate
changes to the 2002 balances or the liabilities booked as assets.

Because of these deficiencies in the audits, we are referring both Independent Auditors to HUD’s
Real Estate Assessment Center.




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