oversight

The Youngstown Metropolitan Housing Authority in Youngstown, Ohio, Did Not Use Public Housing Operating Funds Effectively and Efficiently

Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-04-18.

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

               AUDIT REPORT




     YOUNGSTOWN METROPOLITAN HOUSING
                AUTHORITY
         PUBLIC HOUSING PROGRAM

                YOUNGSTOWN, OHIO

The Authority Did Not Use Public Housing Operating Funds
                Effectively and Efficiently

                     2006-CH-1009

                    APRIL 18, 2006
               OFFICE OF AUDIT, REGION V
                   CHICAGO, ILLINOIS
                                                                 Issue Date
                                                                          April 18, 2006
                                                                 Audit Report Number:
                                                                          2006-CH-1009




TO:        Thomas S. Marshall, Director of Public Housing Hub, 5DPH


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

SUBJECT: The Youngstown Metropolitan Housing Authority in Youngstown, Ohio, Did
           Not Use Public Housing Operating Funds Effectively and Efficiently

                                   HIGHLIGHTS

 What We Audited and Why

            We audited the Youngstown Metropolitian Housing Authority’s (Authority)
            public housing housing program. We initiated the audit based on a citizen’s
            complaint to our hotline. The complainant alleged that the Authority’s executive
            director (1) ordered Authority personnel to purchase her a new sport utility
            vehicle for her personal use, (2) failed to follow the U.S. Department of Housing
            and Urban Development’s (HUD) and the Authority’s procurement policies, (3)
            used the Authority’s employees for personal services during duty hours, (4) used
            the Authority’s equipment for her own and others’ personal use, and (5) tampered
            with the Authority’s records. Our objectives were to determine whether the
            complainant’s allegations were substantiated and whether the Authority used
            HUD funds in accordance with applicable requirements.

 What We Found

            The Authority did not follow HUD’s requirements for full and open competition
            and its procurement procedures manual regarding the procurement of legal and
            housing maintenance training services totaling $99,673 from July 2004 through
            January 2006. In addition, it did not follow federal requirements regarding its use
            of $3,632 in public housing operating funds (operating funds) from May 2004
           through September 2005. It used $2,080 to pay entertainment expenses for its
           employees and residents, $1,399 to pay travel expenses, and $153 to pay
           bereavement expenses.

           Based on our review, we did not substantiate the complainant’s allegations that
           the Authority’s executive director: ordered Authority personnel to purchase her a
           new sport utility vehicle for her personal use; used the Authority’s employees to
           perform personal items during duty hours; used the Authority’s equipment for her
           own and others’ personal use; and tampered with the Authority’s records.

           We informed the Authority’s executive director and the director of HUD’s
           Cleveland Public Housing Hub of minor deficiencies through a memorandum,
           dated April 14, 2006.

What We Recommend

           We recommend that the director of HUD’s Cleveland Public Housing Hub require
           the Authority to (1) support that the use of operating funds for legal services was
           reasonable or reimburse its operating fund from non-federal funds for the
           applicable amount, (2) implement procedures and controls to ensure it follows
           HUD’s requirements and/or the Authority’s procurement procedures manual
           when procuring services and using operating funds, (3) submit its legal services
           contracts to HUD for review and approval before disbursing additional HUD
           funds for legal services, and (4) review its use of operating funds to ensure that
           funds were used for allowable expenses. If operating funds were used to pay
           inappropriate expenses, the Authority should reimburse its operating fund from
           nonfederal funds as appropriate.

           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 discussion draft audit report to the Authority’s executive director
           and HUD’s staff during the audit. We held an exit conference with the executive
           director on March 31, 2006.

           We asked the Authority’s executive director to provide comments on our
           discussion draft audit report by April 7, 2006. The executive director provided
           written comments dated April 6, 2006. The executive director generally agreed
           with our findings, and agreed to implement policies and procedures to address our
           findings. The complete text of the written response, except for a one-page



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document that was not necessary to understand the Authority’s comments, along
with our evaluation of that response, can be found in appendix B of this report.
We provided HUD’s director of the Cleveland Public Housing Hub with a
complete copy of the Authority’s written comments plus the one-page document.




                                3
                            TABLE OF CONTENTS

Background and Objectives                                                    5

Results of Audit

      Finding 1: The Authority’s Procurement Process Was Inadequate          6

      Finding 2: The Authority Inappropriately Used Operating Funds to Pay   8
                 Expenses

Scope and Methodology                                                        10

Internal Controls                                                            11

Appendixes
   A. Schedule of Questioned Costs                                           13
   B. Auditee Comments and OIG’s Evaluation                                  14
   C. Federal and Authority Requirements                                     18




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                     BACKGROUND AND OBJECTIVES

The Youngstown Metropolitan Housing Authority (Authority) was established under Section
3735.27 of the Ohio Revised Code. The Authority contracts with the U.S. Department of
Housing and Urban Development (HUD) to provide low- and moderate-income persons with
decent, safe, and sanitary housing under the United States Housing Act of 1937.

The Authority is governed by a five-member board of commissioners (board) with staggered
five-year terms. Board members are appointed by the Mahoning County Probate Court (one
member), the Mahoning County Court of Common Pleas (one member), the Mahoning County
Board of Commissioners (one member), and the City of Youngstown’s mayor (two members).
The board’s responsibilities include overseeing the Authority’s operations, as well as reviewing
and approving the Authority’s policies as recommended by the executive director. The
Authority’s executive director serves as the secretary for the board. The executive director has
the overall responsibility for fulfilling the goals and objectives established by the board.

As of January 2006, the authority operated seven programs (1) public housing consisting of
1,577 units, (2) Housing Choice Voucher consisting of 2,213 units, (3) capital fund, (4) public
housing development, (5) Resident Opportunity and Self-sufficiency; (6) Youth Build; and (7)
HOPE VI Demolition and Revitalization of Severely Distressed Public Housing.

The Authority’s records are located at 131 West Boardman Street, Youngstown, Ohio. HUD's
Cleveland, Ohio, Office of Public Housing Hub oversees the Authority.

We initiated the audit based on a citizen’s complaint to our hotline. Our objectives were to
determine whether the complainant’s allegations were substantiated and whether the Authority
used HUD funds in accordance with applicable requirements.




                                                5
                               RESULTS OF AUDIT

Finding 1: The Authority’s Procurement Process Was Inadequate
The Authority did not follow HUD’s requirements for full and open competition and its
procurement procedures manual regarding the procurement of legal and housing maintenance
training services totaling $99,673 from July 2004 through January 2006. The problems occurred
because the Authority lacked adequate procedures and controls over its procurement process. As
a result, HUD lacks assurance the Authority used public housing operating funds (operating
funds) effectively and efficiently.


 The Authority Paid for Legal
 Services and Training without
 Full and Open Competition


              Contrary to HUD’s procurement requirements and the Authority’s procurement
              procedures manual, the Authority disbursed $99,673 in operating funds for legal
              and housing maintenance training services without procuring the services through
              full and open competition.

              The Authority awarded Hammond and Hammond, Attorneys at Law (Hammond),
              an open ended contract in July 1984 to provide all legal services involving the
              Authority. Based on this contract, the Authority paid a former Hammond attorney
              $64,968 in operating funds from July 2004 through October 2005 for a monthly
              retainer and legal services associated with evictions. The Authority did not
              receive HUD's approval for the term of the contract to exceed two years. Further,
              the Authority did not procure the former Hammond attorney’s services or enter
              into a contract with the former Hammond attorney for his services. The
              Authority’s executive director said she thought the contract was with the former
              Hammond attorney since he was the Authority’s counsel before she became the
              executive director. In addition, she was not aware that a legal services contract
              needed HUD’s approval for the term of the contract to exceed two years.

              The Authority awarded Sabre Facilities Management (Sabre) a $24,500 contract
              to provide housing maintenance training to the Authority’s staff. It awarded the
              contract to Sabre in June 2005 without competition. The Authority paid Sabre
              $24,235 in operating funds from July 2005 through January 2006. Its executive
              director stated the Authority did not competitively award the contract to Sabre
              because it had already contracted with Sabre to evaluate its maintenance
              operations. However, the Authority’s files did not contain documentation to
              support that a noncompetitive award was justified. In addition, the Authority did
              not obtain HUD’s approval to noncompetitively award the contract to Sabre.



                                               6
           The Authority paid Roth, Blair, Roberts, Strasfeld, and Lodge (Roth) $10,470 in
           operating funds from August 2004 through June 2005 for legal services regarding
           labor and employment law. It did not competitively procure the legal services or
           enter into a contract with Roth for the legal services. The Authority’s executive
           director said the Authority used Roth based on its reputation regarding human
           resources.

The Executive Director Agreed
the Authority Did Not Follow
Proper Procurement and
Contracting Procedures


           The Authority’s executive director agreed that the Authority disbursed operating
           funds for legal services and housing maintenance training without procuring the
           services through full and open competition. As a result, HUD lacks assurance
           that the Authority used operating funds effectively and efficiently. The executive
           director said the Authority will implement procedures and controls to ensure that
           it follows HUD’s requirements and the Authority’s procurement procedures
           manual when procuring services.

           As of February 28, 2006, the Authority’s general ledger showed $98,374 in non-
           federal funds.

Recommendations

           We recommend that the director of HUD’s Cleveland Public Housing Hub require
           the Authority to

           1A. Support that the use of $99,673 ($64,968 to the former Hammond attorney,
               $24,235 to Sabre, and $10,470 to Roth) in operating funds for legal services
               and housing maintenance training was reasonable or reimburse its operating
               funds from nonfederal funds for the applicable amount.

           1B. Implement procedures and controls to ensure that it follows HUD’s
               requirements and the Authority’s procurement procedures manual when
               procuring professional services.

           1C. Submit future legal services contracts to HUD for review and approval
               before disbursing additional HUD funds for the services.




                                            7
Finding 2: The Authority Inappropriately Used Operating Funds to
                            Pay Expenses
The Authority did not follow federal requirements regarding its use of $3,632 in operating funds
from May 2004 through September 2005. It improperly used $2,080 to pay entertainment
expenses for its employees and residents, $1,399 to pay travel expenses, and $153 to pay
bereavement expenses. The problems occurred because the Authority lacked adequate
procedures and controls over its use of operating funds. As a result, HUD funds were not used
efficiently and effectively. The Authority’s executive director and the Authority reimbursed its
operating funds as of April 6, 2006, for the $3,632 of inappropriate expenses.


 The Authority Improperly Paid
 Expenses with Operating Funds

              Contrary to federal requirements, the Authority inappropriately paid $3,632 in
              expenses with operating funds from May 2004 though September 2005. It did not
              obtain approval from HUD for the expenses. It used $2,080 to pay entertainment
              expenses for its employees and residents from November 2004 through
              September 2005. The entertainment expenses included an annual award
              sponsorship dinner, a registration fee to sponsor the Authority’s employees and
              their spouses in a community athletic competition, banquet tickets to a fund-
              raising dinner, and an annual community organization dinner.

              The Authority also inappropriately used $1,399 from May 2004 through May
              2005 to pay travel expenses. The travel expenses included an airline ticket and
              the registration fee for the chairman of the board’s spouse to attend a conference
              for the Authority, a duplicate payment to the executive director, an airline ticket
              for the executive director’s spouse to attend a conference for the Authority, hotel
              costs for its HOPE VI coordinator to attend HOPE VI training, and mileage for a
              Section 8 inspection.

              In addition, the Authority used $153 to pay bereavement expenses from July 2004
              through March 2005. The bereavement expenses included flowers and food for
              the Authority’s employees.

 The Executive Director Agreed
 the Authority Inappropriately
 Used Operating Funds


              The executive director agreed the Authority inappropriately used operating funds
              to pay the expenses. The executive director reimbursed the Authority’s operating
              fund $557. Further, the Authority reimbursed its operating fund $2,649 from



                                                8
          nonfederal funds; $227 from HOPE VI grant funds; and $199 from Section 8
          program funds.

          The Authority’s executive director said the finance director erred in allocating
          operating funds to pay the expenses. In addition, the Authority did not review the
          finance director’s allocation of operating funds. As a result, HUD funds were not
          used efficiently and effectively. The executive director said the Authority will
          implement procedures and controls to ensure it follows federal requirements
          regarding the use of operating funds.


Recommendations

          We recommend that the director of HUD’s Cleveland Public Housing Hub require
          the Authority to

          2A. Review its use of operating funds to ensure that funds were used to pay
              allowable expenses. If operating funds were used for inappropriate
              expenses, the Authority should reimburse its operating fund as appropriate.

          2B. Implement adequate procedures and controls to ensure its use of operating
              funds is appropriate.




                                           9
                        SCOPE AND METHODOLOGY

We performed the audit at HUD’s Cleveland Office of Public Housing Hub, located at 1350
Euclid Avenue, Cleveland, Ohio, and the Authority from November 2005 through February
2006. To accomplish our objectives, we interviewed HUD’s staff, the Authority’s board
members and employees, and the complainant.

To determine whether the complainant’s allegations were substantiated and whether the
Authority used HUD funds in accordance with applicable requirements, we reviewed: 24 CFR
[Code of Federal Regulations] 85 and 941; Office of Management and Budget Circulars A-87
and A-133; HUD Handbook 7460.8 REV-1; and HUD’s Cleveland Office of Public Housing
Hub’s files and reports for the Authority’s public housing program. We also reviewed the
Authority’s consolidated annual contributions contract and annual contributions contract with
HUD, procurement procedures manual, financial data, by-laws, audited financial statements for
the fiscal year ending June 30, 2004, and board meeting minutes.

We used a non-representative sample selection to choose specific disbursements from the
Authority’s operating fund and capital fund from July 1, 2004, through October 31, 2005. The
Authority made 7,751 (7,409 from operating fund and 342 from capital fund) disbursements
totaling $11,145,792 ($9,123,047 from operating fund and $2,022,745 from capital fund) during
this period. The non-representative selection allowed us to choose disbursements relating to the
complainant’s allegations.

We selected 138 disbursements totaling $44,935 from operating funds with an emphasis on
large, small, and unusual expenses for emergency items; items under $200; dues and
subscriptions; donations; filing fees; eviction fees; summons fees; travel advance and expense
reimbursements; training and seminar registrations; and telephone expenses. The Authority’s
procurement procedures manual stated that these expenses could be authorized with a check
request.

In addition, we selected 34 (31 from operating fund and 3 from capital fund) disbursements
totaling $267,582 ($26,685 from operating fund and $240,897 from capital fund) for equipment,
materials, services, staff training, and sundry items costing more than $200. The Authority’s
procurement procedures manual stated that these expenses required a purchase order.

The audit covered the period from July 1, 2004, through October 31, 2005. This period was
adjusted as determined necessary. We performed our audit in accordance with generally
accepted government auditing standards.




                                               10
                              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,
   •   Compliance with applicable laws and regulations, and
   •   Safeguarding resources.

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



 Relevant Internal Controls

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

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

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

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

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

              We assessed all of the relevant controls identified above.

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




                                                11
Significant Weakness


           Based on our audit, we believe the following item is a significant weakness:

               •   The Authority lacked adequate procedures and controls to ensure it
                   followed HUD’s requirements and/or its procurement procedures manual
                   when procuring professional services and using operating funds (see
                   findings 1 and 2).




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                                   APPENDIXES


Appendix A

                SCHEDULE OF QUESTIONED COSTS


                           Recommendation
                               number             Unsupported 1/
                                  1A                 $99,673
                                 Totals              $99,673


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




                                             13
Appendix B
        AUDITEE COMMENTS AND OIG'S EVALUATION

Ref to OIG Evaluation   Auditee Comments




                         14
Ref to OIG Evaluation   Auditee Comments




Comment 1




                         15
Ref to OIG Evaluation   Auditee Comments




Comment 1




                         16
                         OIG Evaluation of Auditee Comments

Comment 1   We revised our report by stating the Authority reimbursed its operating fund
            $2,649 from nonfederal funds. We removed the statement that the Authority had
            not reimbursed its operating fund $416 for the airline ticket and registration fee
            for the chairman of the board’s spouse to attend the conference and as of March 9,
            2006, the Authority is reviewing the expense for possible repayment. We also
            deleted the recommendation for the Authority to reimburse its operating fund
            $416 from nonfederal funds for the expenses associated with the chairman of the
            board's spouse attending a conference for the Authority and the applicable cost in
            appendix A of this report.




                                            17
Appendix C

            FEDERAL AND AUTHORITY REQUIREMENTS


Regulations at 24 CFR [Code of Federal Regulations] 85.20(b)(3) require grantees to maintain
effective control and accountability to adequately safeguard cash and real and personal property
to assure that assets are used solely for authorized purposes.

Regulations at 24 CFR [Code of Federal Regulations] 85.36(b)(9) require grantees to maintain
records sufficient to detail the significant history of procurement, such as the rationale for the
method of procurement and the basis for the contract price. Section 85.36(c)(1) requires that all
procurement transactions be conducted in a manner providing full and open competition.
Section 85.36(d)(1) states that price or rate quotations shall be obtained from an adequate
number of sources when using small purchase procedures. Section 85.36(d)(4) states that
procurement by noncompetitive proposals may be used only when the award of a contract is not
feasible under small purchase procedures, sealed bids, or competitive proposals. Further,
noncompetitive proposals may only be used after solicitation of a number of sources and
competition is determined to be insufficient.

Section 9(C) of the Authority’s consolidated annual contributions contract with HUD states that
the Authority may withdraw funds from its general fund only for (1) the payment of the costs of
development and operation of the projects under an annual contributions contract with HUD, (2)
the purchase of investment securities as approved by HUD, and (3) such other purposes as may
be specifically approved by HUD.

HUD Handbook 7460.8, REV-1, “Procurement Handbook for Public and Indian Housing
Authorities,” chapter 2, section 1, states that a housing authority is required to promote full and
open competition for all procurement contracts. Section 3 states that a housing authority should
use the simplified small purchase procedures for needed items under the housing authority’s
applicable dollar ceiling. Chapter 4, section 27(B)(2) requires housing authorities to obtain HUD
approval for any agreement or contract for legal services with any person or firm when the term
of the agreement or contract exceeds two years.

Office of Management and Budget Circular A-87, attachment A, paragraph C(3)(a), states that a
cost is allocable to a particular cost objective if the goods or services involved are chargeable or
assignable to such cost objective in accordance with relative benefits received. Attachment B,
paragraph 12, states that contributions and donations, including cash, property, and services, by
governmental units to others, regardless of the recipient, are not allowable. Paragraph 17 states
that costs of organized fund raising are not allowable. Paragraph 18 states that costs of
entertainment, including meals associated with social activities, are not allowable.

Office of Management and Budget Circular A-87, attachment A, paragraph C(1)(j), states that to
be allowable under federal awards, costs must be adequately documented.



                                                 18
The March 2004 Compliance Supplement to Office of Management and Budget Circular A-133
states that control activities, including an adequate segregation of duties in review and
authorization of costs, are the policies and procedures that help ensure that management’s
directives are carried out.

Section 10 of the Authority’s procurement procedures manual requires that noncompetitive
proposals may only be used when the item is available only from a single source, there is an
emergency, competition is determined inadequate, or HUD authorizes the noncompetitive
proposal.




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