oversight

The Housing Authority of the County of Salt Lake, Utah Adequately Controlled Occupancy Functions, but Inappropriately Loaned Funds

Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-09-16.

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

                                                                 Issue Date:
                                                                           September 16, 2005
                                                                 Audit Report Number:
                                                                           2005-DE-1005




TO:         Ann Roman, Acting Director, Office of Public Housing, 8APH

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

SUBJECT: The Housing Authority of the County of Salt Lake, Utah Adequately Controlled
           Occupancy Functions, but Inappropriately Loaned Funds


                                   HIGHLIGHTS

 What We Audited and Why

             We reviewed the Housing Authority of the County of Salt Lake’s (Authority)
             internal controls over its Housing Choice Voucher Program (Section 8) and
             Public Housing Operating and Capital Funds (Public Housing) to determine
             whether the controls provided reasonable assurance that the Authority’s programs
             complied with U. S. Department of Housing and Urban Development (HUD)
             requirements. We selected the Authority for review based on an Office of
             Inspector General’s (OIG) risk assessment of the larger housing authorities in
             Region VIII.

 What We Found
             The Authority’s controls provided reasonable assurance that its staff properly
             assessed tenant eligibility, verified tenant income, calculated Section 8 subsidy
             payments, calculated Public Housing tenant rents, and used Section 8 housing
             choice vouchers. In addition, the Authority’s controls over Section 8 and Public
             Housing inspections provided reasonable assurance of timely and well-
             documented inspections, and enforcement of corrective actions for identified
             violations.
           However, the Authority inappropriately loaned HUD funds to the Housing
           Authority of Salt Lake City.

What We Recommend


           We recommend that HUD require the Authority establish a policy concerning
           proper documentation of any future loans and to use the funds repaid by the
           Housing Authority of Salt Lake City for HUD-related housing activities.

           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 draft report to the Authority on August 18, 2005. Authority
           Officials issued a written response on August 23, 2005, in which they concurred
           with the audit report. The complete text of the auditee’s response can be found in
           appendix B of this report.




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                            TABLE OF CONTENTS

Background and Objectives                                                    4

Results of Audit
      Finding: The Authority Loaned HUD Funds to Another Housing Authority   5

Scope and Methodology                                                        7

Internal Controls                                                            8

Appendixes
   A. Schedule of Funds to Be Put to Better Use                               9
   B. Auditee Comments                                                       10




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                     BACKGROUND AND OBJECTIVES

The Housing Authority of the County of Salt Lake (Authority) began operations in 1970. The
Authority’s stated purpose included providing affordable housing to individuals living in Salt
Lake County. The Authority originally entered into an annual contributions contract with the
U. S. Department of Housing and Urban Development (HUD) for public housing in 1972 and for
Section 8 in 1981. HUD converted these to consolidated annual contributions contracts in 1996
and 1997, respectively.

For the fiscal year ending June 30, 2004, the Authority received $1,027,930 to administer 619
public housing units and $15,702,242 to administer 2,278 units under the Housing Choice
Voucher Program, under the terms and conditions of the consolidated annual contributions
contracts.

A seven-member board of commissioners governed the Authority. An executive director
managed the day-to-day operations. The Authority’s records were maintained at 3595 South
Main Street, Salt Lake City, Utah.

HUD’s Denver Office of Public Housing conducted an on-site monitoring review of the
Authority in 2003, which resulted in a report containing 9 findings, 1 concern, and 15
observations. HUD conducted another on-site review in 2004, which resulted in a report
containing six findings, one concern, and four observations. The Authority staff took actions to
effectively correct the deficiencies identified in the HUD reports and was committed to
improving internal controls over the occupancy functions and Authority operations. The board
of commissioners was actively governing the Authority. Consequently, the Authority was
meeting the programs’ requirements of providing affordable, satisfactory housing to the
residents.

The objectives of our review were to determine whether the Authority’s internal controls
provided reasonable assurance that the Authority properly accomplished the occupancy functions
of determining family eligibility, calculating rent subsidies, ensuring the accuracy of subsidy
payments, and ensuring the proper use of Housing Choice Vouchers Program vouchers; and that
it ensured the housing units met decent, safe, and sanitary housing standards.




                                                4
                               RESULTS OF AUDIT

Finding: The Authority Loaned HUD Funds to Another Housing
Authority
Authority officials loaned $375,000 in HUD funds to the Housing Authority of Salt Lake City in
1995. They did not have documentation showing the program under which HUD provided the
funds; therefore, they could not determine that the loans were an allowable use of HUD funds.
They also could not show that the intended purpose for the funds was met or that the intended
benefit to the residents was realized.



 The Authority Loaned HUD
 Funds to Another Housing
 Authority


              The Authority officials made two loans of HUD funds to the Housing Authority
              of Salt Lake City in 1995. They did not have documentation showing the HUD
              source of funds or that the loans were an allowable use of these funds.
              Consequently, the Authority could not show that the residents received the
              intended HUD benefits from the funds.

              The original loan amounts were $125,000 and $250,000. The promissory notes
              for the loans established annual principal and interest payments with simple
              interest rates of 3 and 4 percent, respectively. However, the promissory notes did
              not identify the HUD source of funds or establish restrictions on the use of the
              funds. The Housing Authority of Salt Lake City was making the required annual
              principal and interest payments. As of March 2005, the outstanding principal
              balances of the loans totaled $255,562 ($77,740 and $177,822, respectively). The
              total loan amount of $375,000 represented funds that could be put to better use for
              HUD-related housing activities by the Authority.

              The Authority’s financial records showed these loans as notes receivable under its
              “locally owned units” cost center. Authority officials recorded the annual
              payments from the Housing Authority of Salt Lake City as interest income and
              principal. Authority officials stated that they deposited the annual payments in a
              special bank account and had not spent the funds. The financial records showed a
              reserve balance of $222,782 ($75,618 and $147,164 respectively) as of May 31,
              2005. Therefore, this balance is available for HUD-related activities.

              The Authority did not have documentation showing the HUD program under which
              the funds were originally provided. Authority officials searched for the grant



                                               5
          agreements or other applicable documentation but did not locate anything except the
          promissory notes. HUD’s Denver Offices of Public Housing and Community
          Planning and Development did not have a record of the loans.

          Authority officials believed the funds were appropriated for them by one of Utah’s
          senators in 1992. The understanding of both housing authorities’ officials was that
          the funds were unrestricted; however, they said they used the funds for housing
          purposes. The Authority’s records supported this assertion. For example, 12
          Section 8 residents lived in the housing project named in the documentation for one
          loan.

          Authority officials contacted a Utah senator’s office and requested assistance in
          resolving the matter. Representatives of the senator’s office in turn contacted HUD
          Headquarters. HUD Headquarters officials were able to provide the grant number
          for a $250,000 special purpose grant in 1993; however, they stated that since the
          grant closed in 1994, they no longer had a hard copy of the grant agreement. HUD
          officials did not provide information relating to the $125,000 loan.

          The Office of Inspector General (OIG) Counsel researched appropriations
          documentation for 1991 through 1995. The appropriations documentation did not
          show a possible match for the $125,000 loan. For the fiscal year ending September
          30, 1992, the appropriations provided a special purpose grant of $250,000 for a
          “low- and moderate-income housing assistance demonstration project cooperatively
          funded by the city and county of Salt Lake, Utah.” However, this did not establish a
          definite connection between the grant and the loan.

          Since the original grant agreements were not available, it was not possible to
          determine whether the loans were appropriate uses of the funds. Authority officials
          consider the loan repayments to be unrestricted assets. Considering that there is little
          documentation available to define the required use of the funds, it is reasonable for
          HUD to obtain a commitment from the Authority to restrict the use of those funds to
          HUD housing-related activities.

Recommendations

          We recommend that HUD

          1A. Require the Authority to establish a policy requiring that any future loans of
              HUD funds be properly documented as allowable under the terms and
              conditions of the applicable grant.

          1B. Obtain a commitment from the Authority that the reserve balance and all
              future loan payments ($375,000 total amount of loans) will be used for HUD-
              related housing activities.




                                             6
                        SCOPE AND METHODOLOGY


To accomplish our objective, we reviewed applicable HUD and Authority criteria and contracts.
We interviewed appropriate Authority staff. We reviewed pertinent Authority documentation
maintained by HUD. We also reviewed records maintained by the Authority and tested the
control structure. We inspected a sample of Section 8 and public housing units. We used
random sample selections for the tenant file reviews and unit inspections.

Our review period was January 1, 2003, through December 31, 2004, but was extended as
needed. We conducted our survey work from March through May 2005.

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




                                              7
                             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 survey objective:

              •       Controls over determining family eligibility
              •       Controls over calculating rent subsidies
              •       Controls over ensuring the accuracy of subsidy payments
              •       Controls over ensuring the proper use of Section 8 housing choice
                      vouchers
              •       Controls over inspecting the Section 8 and public housing units

              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


              We did not identify any significant weaknesses in the controls over the occupancy
              and inspection functions.




                                                8
                                    APPENDIXES

Appendix A

     SCHEDULE OF FUNDS TO BE PUT TO BETTER USE

                            Recommendation         Funds to be put
                                number             to better use 1/
                                    1B                $375,000

1/   “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


                Auditee Comments




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