Issue Date
April 8, 2005
Audit Report Number
2005-PH-1009
TO: William D. Tamburrino, Director, Baltimore Public Housing Program Hub,
3BPH
FROM: Daniel G. Temme, Regional Inspector General for Audit, Mid-Atlantic Region,
3AGA
SUBJECT: Richmond Redevelopment and Housing Authority, Richmond, VA, Did Not
Always Properly Use HUD Funds
HIGHLIGHTS
What We Audited and Why
We completed an audit of the operations of the Richmond Redevelopment and
Housing Authority (Authority) in response to a citizen’s complaint. The
complainant alleged program and accounting irregularities at the Authority.
Our audit objective was to determine if the Authority properly used HUD funds in
accordance with its Annual Contributions Contract.
What We Found
The Authority did not always properly use HUD funds in accordance with its
Annual Contributions Contract. Contrary to its Annual Contributions Contract, the
Authority improperly used $6.1 million in Public Housing Low Rent Funds to pay
the administrative expenses of other HUD programs. Additionally, the Authority
improperly used $1.5 million in HUD funds to support its nonfederal entities and
could not support all costs. These problems occurred because the Authority’s
former Executive Director and the Authority’s Board of Commissioners did not
ensure adequate internal controls were in place to prevent them.
What We Recommend
We recommend HUD require the Authority to reconcile funds it owes to its
Public Housing Low Rent Funds by the other HUD Grants and then reduce
funding to the Authority’s Public Housing Low Rent Funds by $6.1 million or the
amount certified during reconciliation. We further recommend that HUD require
the Authority to discontinue the practice of using Public Housing Low Rent Funds
to the pay administrative expenses of its other programs. We further recommend
the Authority recover $1.5 million it provided its nonfederal entities or repay it
from nonfederal sources. Lastly, we recommend the Authority pass a Board
resolution approving procedures requiring it to maintain required supporting
documentation such as cancelled checks, paid bills, payrolls, and time and
attendance records.
Auditee’s Response
We discussed the report with the Authority during the audit and at an exit
conference on March 10, 2005. The Authority provided its written comments to
our draft report on April 4, 2005. The complete text of the Auditee’s 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 1: The Authority Improperly Used $6.1 Million of Low Rent Funds To 5
Support Other HUD Programs
Finding 2: The Authority Improperly Used $1.5 Million To Support Its 8
Nonfederal Entities
Finding 3: The Authority Could Not Adequately Support All of Its Line of 10
Credit Draws From HUD
Scope and Methodology 12
Internal Controls 13
Appendixes
A. Schedule of Questioned Costs and Funds To Be Put to Better Use 14
B. Auditee Comments and OIG’s Evaluation 15
3
BACKGROUND AND OBJECTIVES
The Richmond Redevelopment and Housing Authority (Authority) was established in 1940 to
provide safe and sanitary housing for the low-income citizens of the city of Richmond, Virginia.
The Authority’s mission is to provide affordable housing, promote self-sufficiency, provide
homeownership for its housing residents, and revitalize Richmond neighborhoods to achieve
common goals in partnership with the city. The City Council appoints a seven-member Board of
Commissioners to govern the Authority. The current Board Chairman is Leonard A. Venter. The
current Executive Director is Sheila Hill-Christian. The Authority is located at 901 Chamberlayne
Parkway in Richmond, Virginia.
The Richmond Redevelopment and Housing Authority owns and manages 4,191 public housing
units under its Consolidated Annual Contributions Contract with HUD. The Consolidated
Annual Contributions Contract defines the terms and conditions under which the Authority
agrees to develop and operate all projects under the agreement. HUD authorized the Authority
the following financial assistance from fiscal years 2000 to 2004:
• $51 million Operating Subsidy to operate and maintain its housing developments,
• $35.6 million Capital Fund Program funding to modernize public housing units,
• $53.9 million to provide housing assistance through tenant-based Section 8 certificates
and vouchers, and
• $2 million to the Public Housing Drug Elimination Program funds to eliminate or reduce
drug related crime and other major crime and disorder problems.
Our audit was in response to a citizen’s complaint. The complainant alleged program and
accounting irregularities at the Authority. Our audit objective was to determine if the Authority
properly used HUD funds in accordance with its Annual Contributions Contract.
4
RESULTS OF AUDIT
Finding 1: The Authority Improperly Used $6.1 Million of Low Rent
Funds To Support Other HUD Programs
Contrary to its Annual Contributions Contract, the Authority used $6.1 million from its Public
Housing Low Rent Funds1 to pay administrative expenses of other HUD programs. This occurred
because Authority officials erroneously believed they could use Public Housing Low Rent Funds to
pay for costs exceeding amounts budgeted for other programs.
The Authority Improperly Used
$6.1 Million of Low Rent Funds
To Pay Administrative
Expenses of Other HUD
Programs
We obtained an automated download of the Authority’s general ledger and used
audit software to analyze the Authority’s various fund transfers. Using computer
assisted audit techniques we determined that as of September 30, 2003, other
Authority programs owed the Authority’s Public Housing Low Rent Funds $6.1
million. The Authority used a due-from/due-to accounting system to account for
transactions directly between other funds and/or other entities included within its
general ledger. A program or entity's due-to balance represents amounts it owes
(payable) another fund or entity for disbursements and/or advances made in its
behalf. Conversely, a due-from balance (receivable) represents an amount owed
the entity.
Since the Authority’s general ledger did not identify what specific programs are
owed money to its Public Housing Low Rent Funds, we reviewed the Authority’s
financial statements and other documentation the Authority provided to try to
determine what the other programs owed the funds. We found:
1
Represents public housing operating subsidy and rent revenues. In fiscal year 2003 operating subsidies totaled
$15.3 million and rental revenues $8.2 million.
5
Due Low
Program Rent Funds
New Construction $ 41,432
Community Development Block Grant $2,177,984
Homeownership for People Everywhere $3,612,497
Homeownership for Public Housing Section 5H $ 10,214
Homeownership Made Easy $ 175,999
Resident Opportunity Self Sufficiency $ 50,566
Capital Fund Program $ 540,379
Drug Elimination Drug Grants $ 253,532
Total $6,862,603
As shown above, eight different Authority programs owed $6.9 million to the
Public Housing Low Rent Fund. However, the Authority did not reconcile its
accounts to verify the amounts owed to the fund from other programs. Authority
officials informed us that most of these programs did not have enough
administrative funds available to cover administrative expenses. Therefore,
officials transferred Public Housing Low Rent Funds or other low rent funds to
cover existing funding shortfalls. For example, as of September 30, 2003, the
Authority’s Homeownership for People Everywhere Program owed other
Authority programs $3.6 million. HUD previously provided this program $2.1
million to cover the program’s administrative expenses.
The aforementioned practice violates the Authority’s Annual Contributions
Contract. Part A, Section 9(C) of the contract states the Authority may withdraw
funds from the General Fund only for the payment of the costs of development
and operation of the projects under the Annual Contributions Contract with HUD;
the purchase of investment securities as approved by HUD; and such purposes as
may be specifically approved by HUD. It further states that program funds are
not fungible and that withdrawals shall not be made for a specific program in
excess of the funds available for the program.
The Authority’s New
Leadership Is Attempting To
Address the Problems
In February 2004, the Board of Commissioners appointed a new Executive
Director who inherited major challenges. The new Executive Director has
attempted to address the Authority’s problems. For example, during the audit, the
Executive Director tasked the Internal Audit Manager and the Management
6
Information Systems Director to develop a Strategic Plan to address problems
associated with the Authority’s accounting system. In addition, the Authority
needed to reconcile its accounts to verify the amounts owed to its Public Housing
Low Rent Fund from other programs. Although more needs to be done, we are
encouraged that the Authority has taken some initial steps to correct its problems.
Recommendations
We recommend that HUD:
1A. Require the Authority to reconcile funds owed to its Public Housing Low
Rent Funds from the other HUD programs. Reduce funding to the
Authority’s Public Housing Low Rent Funds by $6,053,499 or the amount
certified during reconciliation.
1B. Require the Authority to discontinue the practice of using Public Housing
Low Rent Funds to the pay administrative expenses of its other programs.
7
Finding 2: The Authority Improperly Used $1.5 Million To Support Its
Nonfederal Entities
The Authority improperly used $1.5 million in HUD funds to support its affiliated nonfederal
entities. This occurred because Authority officials erroneously believed that the use of HUD
funds to support its affiliated nonfederal entities was in line with their mission to serve public
housing residents. Our audit showed the Authority improperly provided $1.3 million to its
nonfederal entities and improperly paid salaries, rent and administrative expenses totaling
$182,868 from federal funds from January 2001 to December 2003. We also estimated the
Authority will annually put $60,956 to better use by properly accounting for and allocating work
and office space of its employees supporting its nonfederal entities.
The Authority Improperly
Provided Nonfederal Entities
$1.3 Million
Our review showed the Authority improperly provided its nonfederal entities $1.3
million. Specifically, during fiscal year 2004 the Authority forgave a debt of
$813,000 of a nonfederal entity and gave the same entity another $102,544.
Authority officials informed us that it provided the $915,544 to a non-profit
organization it set up to provide education and other approved programs and
assistance to residents of the Authority’s public housing units. They stated the
entity’s fundraising activities were not adequate to pay its expenses, and therefore
the Authority provided it with needed financial assistance. The Authority’s
books also showed that it advanced $401,070 to a nonfederal housing project to
cover that entity’s expenses. Officials believed that using HUD funds in this way
addressed its mission to serve public housing residents and therefore they
believed HUD sanctioned it. However, this practice violated Part A, Section 9(C)
of the Annual Contributions Contract, which states that the Authority may
withdraw funds from the General Fund only for the payment of costs of
development and operation of the projects under the Annual Contributions
Contract with HUD.
The Authority Improperly Used
$182,868 To Support
Nonfederal Entities
The Authority improperly paid expenses totaling $182,868 from federal funds
from January 2001 to December 2003 for work and office space of its employees
supporting its nonfederal entities. Specifically, our audit showed the Authority
8
did not properly allocate $137,062 in salaries, fringe benefits, and other
administrative expenses associated with at least 30 employees who performed
work for its affiliated nonfederal entities. Another $45,806 should have been
allocated for the office space used by one of its nonfederal entities. The 30
employees performed a variety of duties for the nonfederal entities such as
administrative, accounting, and management duties. Authority officials told us
that in their opinion the time the employees spent on the nonfederal entities was
insignificant and not worth the time to allocate the expenses. We disagree.
Part A, Section 9(C) of the Authority’s Annual Contributions Contract with HUD
requires it to maintain records identifying the source and allocation of federal
funds. Further, the contract specifies that the Authority can only withdraw federal
funds for the payment of costs associated with the development and operation of
projects under its Annual Contributions Contract or other projects specifically
approved by HUD. Thus, when employees work on multiple programs, a
distribution of their salaries should be supported by personnel reports or
equivalent documentation. Office of Management and Budget Circular A-87 also
requires the Authority to assign costs to benefited activities on a reasonable and
consistent basis. Formal accounting and other records should support all costs
and other data used to distribute the costs included in its cost allocation plan,
including the support needed to establish the propriety of the costs assigned to the
federal awards.
We estimated the Authority will be able to use $60,9562 more effectively on an
annual basis by properly accounting for the work of its employees in accordance
with the aforementioned guidance.
Recommendations
We recommend that HUD:
2A. Require the Authority to recover $1,499,482 from its nonfederal entities for
funds it improperly provided the entities ($1,316,614) and expenses not
properly allocated to the entities ($182,868) or repay it from nonfederal funds.
2B. Require the Authority to develop a reasonable method for allocating its
future costs to its nonfederal entities, thereby putting $60,956 to better use.
2
$182,868/36 months reviewed x 12 months = $60,956
9
Finding 3: The Authority Could Not Adequately Support All of Its Line
of Credit Draws From HUD
The Authority could not support payments it drew down from HUD’s computerized cash
management system known as the Line of Credit Control System. This occurred because the
Authority’s former Executive Director did not ensure costs were supported and the Authority’s
Board of Commissioners did not ensure adequate internal controls were in place to prevent these
problems from occurring. As a result, we question whether the Authority used these HUD funds
properly.
The Authority Could Not
Adequately Support All Line of
Credit Draws
In performing our audit, we wanted to determine if the Authority could support its
draw of funds from HUD’s computerized cash management system known as the
Line of Credit Control System. To do this we nonstatistically selected 15 of 114
draw downs, totaling $9.7 million, out of $21.3 million the Authority drew down
from 2002 to 2004. We reviewed the accounting records, cancelled checks,
payrolls, and time and attendance records the Authority provided us to support its
draw down payments, and found the Authority could not adequately support 10 of
the draws totaling $6.33 million of $9.7 million (64 percent). As a result, we have
no assurance that the Authority used those HUD funds properly.
The Authority’s Annual Contributions Contract4 with HUD requires it to maintain
complete and accurate books to facilitate timely and effective audits. Federal
regulations5 also require the Authority to maintain complete and accurate records
identifying the source and application of grant funds such as cancelled checks,
paid bills, payrolls, and time and attendance records. Office of Management and
Budget Circular A-876 further requires the Authority to adequately document its
costs under federal awards.
3
Some of these costs are included in the $6.1 million questioned costs reported in Finding 1. Since the Authority
lacked adequate support, we could not determine the duplicate costs reported in Finding 1 and thus could not
quantify these questioned costs in Appendix A.
4
Part A, Section 15(A)
5
Title 24 Code of Federal Regulations 84.20
6
Attachment A, Paragraph C, Subparagraph 1.j
10
Recommendation
We recommend that HUD:
3A. Require the Authority’s Board of Commissioners to pass a Board
resolution approving procedures requiring it to maintain required
supporting documentation such as cancelled checks, paid bills, payrolls,
and time and attendance records.
11
SCOPE AND METHODOLOGY
We performed the audit:
• From May 2004 through December 2004.
• In accordance with generally accepted government auditing standards, which included tests
of management controls that we considered necessary under the circumstances.
• At the Richmond Redevelopment and Housing Authority located in Richmond, Virginia.
The audit covered transactions representative of operations current at the time of the audit and
included the period January 2001 through April 2004. We expanded the scope of the audit as
necessary. We reviewed applicable guidance and discussed operations with management and
staff personnel at the Richmond Redevelopment and Housing Authority, and with key officials
from HUD’s Virginia State Office.
To determine if the Authority properly managed HUD funds in accordance with its Annual
Contributions Contract we reviewed:
• The Authority’s general ledger using audit software to determine funds owed to the
Public Housing Low Rent Funds from other programs.
• Funds owed by related parties and the Authority’s other Grant Programs and compared
them to information contained in the Authority’s General Ledgers, audited financial
statements, and with Authority officials.
• The Authority’s available Independent Auditors’ Reports for fiscal years 2001, 2002, and
2003.
• HUD’s and the Authority’s correspondence related to the audit and results of the
monitoring reviews HUD’s Virginia State Office conducted.
• Documentation provided by the Authority to support its draw down of funds from HUD’s
computerized cash management system known as the Line of Credit Control System.
12
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 objective.
Ensuring the Authority:
• Only withdrew funds from its General Fund for the payment of the costs of
the projects under the Annual Contributions Contract with HUD.
• Properly allocated applicable costs to its affiliated nonfederal entities.
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 believe the following items are significant weaknesses:
The Authority did not:
• Withdraw funds from its General Fund for the payment of the costs of the
projects under the Annual Contributions Contract with HUD.
• Properly allocate applicable costs to its affiliated nonfederal entities.
13
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Recommendation Ineligible 1/ Funds To Be Put
Number to Better Use 2/
1A $6,053,499
2A $1,499,482
2B $60,956
Total $7,552,981 $60,956
1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
that the auditor believes are not allowable by law; contract; or Federal, State, or local
polices or regulations.
2/ “Funds to be put to better use” are quantifiable savings that are anticipated to occur if an
Office of Inspector General (OIG) recommendation is implemented, resulting in reduced
expenditures at a later time for the activities in question. This includes costs not incurred,
de-obligation of funds, withdrawal of interest, reductions in outlays, avoidance of
unnecessary expenditures, loans and guarantees not made, and other savings.
14
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 1
“
“
Comment 2
“
15
Comment 2
Comment 2
Comment 1
16
OIG Evaluation of Auditee Comments
Comment 1 Although the Authority had initiated some action prior to the audit to correct its
accounting problems, it had not adequately addressed the majority of the
problems the audit identified.
Comment 2 We are encouraged the Authority now understands it is not appropriate to use
federal funds to support its nonfederal entities, and is now taking steps to recover
the funds it improperly provided the entities.
However, the report does not state the Authority acted inappropriately in
establishing its nonfederal entities. Rather, the report dealt solely with the
Authority’s use of HUD funds to support its nonfederal entities. In our exit
conference with the Authority on March 10, 2005, the Authority explained that it
originally created the entities to obtain private money to fund additional projects
and programs, which it typically would have funded solely with public funds.
The Authority stated that initially the venture was very successful. However, over
time the Authority gradually replaced the private funding with HUD funds as
evidenced by large account receivable balances the nonfederal entities owed the
Authority.
Since the Authority’s nonfederal entities are not covered by its Annual
Contributions Contract with HUD, we did not audit the entities or their activities.
However, the Authority’s practice of providing HUD funds to its nonfederal
entities clearly violated Part A, Section 9(C) of its Annual Contributions Contract,
which states that the Authority may withdraw funds from the General Fund only
for the payment of costs of development and operation of the projects under its
Annual Contributions Contract with HUD. This longstanding provision of the
Annual Contributions Contract is intended to ensure housing authorities use HUD
funds only in accordance with HUD requirements.
17
Richmond Redevelopment and Housing Authority, Richmond, VA, Did Not Always Properly Use HUD Funds
Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-04-08.
Below is a raw (and likely hideous) rendition of the original report. (PDF)