oversight

Utah Non Profit Housing Corporation, Salt Lake City, Utah

Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-07-28.

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

                                                              Issue Date
                                                                           July 28, 2006
                                                              Audit Report Number
                                                                           2006-DE-1005




TO:         Marcia D. LaPorte, Director, Denver Multifamily Hub, 8AHML

            //signed//
FROM:       Ronald J. Hosking, Regional Inspector General for Audit, 7AGA

SUBJECT: Utah Non Profit Housing Corporation, Salt Lake City, Utah, Did Not Ensure
           Properties Generated Sufficient Income and Did Not Comply With Cost
           Allocation and HUD Requirements


                                    HIGHLIGHTS

 What We Audited and Why

             We audited the Utah Non Profit Housing Corporation (Utah Non Profit), a
             management agent for nine properties assisted by the U.S. Department of Housing
             and Urban Development (HUD). We selected Utah Non Profit because it is the
             largest nonprofit organization managing low income, elderly housing in Utah.
             We wanted to determine whether Utah Non Profit ensured projects generated
             sufficient income to meet obligations, appropriately allocated costs to HUD
             assisted properties, and followed HUD requirements when purchasing goods and
             services.

 What We Found


             Utah Non Profit did not ensure seven properties generated sufficient funds to meet
             their financial obligations. It deferred payments to itself so that it could pay the
             projects’ other expenses. As a result, the properties’ financial condition could
             continue to deteriorate, and if Utah Non Profit continues to accrue fees and
             expenses, its ability to manage the properties effectively is in question.
           Utah Non Profit improperly charged salary costs to properties based on an
           arbitrary, unsupported rate and billed properties for a supervisor’s salary that its
           management fee should cover. As a result, HUD assisted properties could be
           paying salary costs for services not performed and Utah Non Profit improperly
           charged six properties over $49,000 for the supervisor’s salary.

           In addition, Utah Non Profit did not comply with HUD requirements when
           purchasing goods and services. It paid more than $21,000 for unnecessary
           expenses and may be paying as much as $30,900 more than necessary for
           services.

What We Recommend


           We recommend the director of Denver multifamily Hub require project owners to
           ensure Utah Non Profit submits rent increases in a timely manner to reduce
           operating deficits and to pay the accrued management fees. The director should
           also require project owners to ensure Utah Non Profit implements an acceptable
           allocation plan, reimburses the properties for ineligible salaries and unnecessary
           costs, and develops and implements adequate management controls to ensure
           compliance with HUD requirements.

           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 of the audit report to Utah Non Profit on July
           13, 2006 and received their written comments on July 20, 2006. Utah Non Profit
           agreed with the findings and recommendations. The complete text of Utah Non
           Profit’s response is in appendix B of this report.




                                             2
                            TABLE OF CONTENTS

Background and Objectives                                                                4

Results of Audit
      Finding 1: Utah Non Profit Did Not Ensure Properties Generated Sufficient Funds    6
                  to Meet Obligations
      Finding 2: Utah Non Profit Improperly Charged Salaries to Properties               8
      Finding 3: Utah Non Profit Did Not Comply With HUD Requirements when              11
                  Purchasing Goods and Services

Scope and Methodology                                                                   15

Internal Controls                                                                       16

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use                    17
   B. Auditee Comments                                                                  18




                                            3
                     BACKGROUND AND OBJECTIVES

Founded in 1967, Utah Non Profit Housing Corporation (Utah Non Profit) is a 501(c) (3)
nonprofit organization and a community housing development organization. It sponsored 40
family, senior, and special needs properties, providing 1,799 affordable housing units to low
income and disabled people. Utah Non Profit is also the management agent for 26 of the
properties of which the U.S. Department of Housing and Urban Development (HUD) assists ten
properties. Although Utah Non Profit has no ownership interest in the ten HUD assisted
properties, Utah Non Profit and the properties’ ownership entities share common board
members.

We reviewed nine properties that Utah Non Profit manages as shown in the table below. We did
not include West Jordan Senior Housing in our review because its initial occupancy began in
November 2005. The table includes the financial risk rating for each property based on the
properties’ financial statements for fiscal year end 2005.

     Project        Units          Owner               Date of     Program and      FY 2005
                                                      Regulatory      Type of       Financial
                                                      Agreement      Funding       Risk Rating
Brigham City         30     Brigham City Senior       11/01/2000   Section 202 -
Senior Housing              Housing, Incorporated                  Capital         56 – Potential
                                                                   Advance           Problem
Carl Inoway          41     Carl Inoway Senior        04/10/1998   Section 202 -
Senior Housing              Housing, Incorporated                  Capital         27 – Potential
                                                                   Advance           Problem
Glendale Senior      41     Glendale Senior           08/16/1999   Section 202 -
Housing                     Housing Corporation                    Capital             70 -
                                                                   Advance          Acceptable
Jerald H. Merrill    30     Jerald H. Merrill         03/23/1998   Section 202 -
Senior Housing              Senior Housing                         Capital             86 -
                            Corporation                            Advance          Acceptable
Justin C. Stewart    12     Justin C. Stewart         12/02/1996   Section 811 -
Plaza Housing               Plaza Housing                          Capital         37 - Potential
                            Corporation                            Advance           Problem
Martha’s Terrace     30     Martha’s Terrace          09/26/1990   Section 202 -
Housing                     Housing Corporation                    Direct Loan     48 – Potential
                                                                                     Problem
Hamilton Place       65     Hamilton Place            02/23/1995   Section 202 -
                            Corporation                            Capital         43 – Potential
                                                                   Advance           Problem
Preston Place        65     Multi-Ethnic East         09/25/1991   Section 202 -
                            Housing Corporation                    Direct Loan     58 – Potential
                                                                                     Problem
Multi-Ethnic        142     Multi-Ethnic Senior       07/13/1979   Section 202 -
Senior Citizen              Citizen Housing                        Direct Loan     55 - Potential
Housing                     Corporation                                              Problem


                                                  4
Under Section 202 and Section 811 of the National Housing Act, HUD provides direct loans and
capital advances to fund the development of low income properties. The Section 202 program
helps expand the supply of affordable housing with supportive services for the elderly. It
provides very low-income elderly with options that allow them to live independently but with
support activities such as cleaning, cooking, and transportation. The Section 811 program allows
persons with disabilities to live as independently as possible by increasing the supply of rental
housing with supportive services available. HUD provides rental assistance to cover the
difference between the HUD-approved operating cost for the project and the tenants'
contributions toward rent.

Utah Non Profit’s office is located in Salt Lake City, Utah.

We conducted the audit to determine whether Utah Non Profit ensured projects generated
sufficient income to meet obligations, appropriately allocated costs to HUD assisted properties,
and followed HUD requirements when purchasing goods and services.




                                                 5
                                 RESULTS OF AUDIT

Finding 1: Utah Non Profit Did Not Ensure Properties Generated
             Sufficient Funds to Meet Obligations
Utah Non Profit did not ensure seven of the nine HUD assisted properties generated sufficient
funds to meet their financial obligations. It also deferred payments to itself so that it could pay
the projects’ other expenses. Utah Non Profit not submitting rent increases in a timely manner
and its philosophy to keep rents low and use operating funds rather than reserve funds for capital
expenditures caused the properties’ operating deficits. As a result, the properties’ financial
condition could continue to deteriorate, and if Utah Non Profit keeps accruing its fees and
expenses, its ability to manage the properties effectively is in question.


 Utah Non Profit Was
 Responsible to Keep Properties
 Financially Viable


               Seven of the nine HUD assisted properties had operating deficits. To address the
               deficits, Utah Non Profit deferred payment of invoices due to itself and used those
               funds to pay the properties’ other operating expenses. On average, about one-third
               of the projects’ accrued expenses were payable to Utah Non Profit for management
               fees, payroll costs, and costs allocable to multiple projects. As the management
               agent, Utah Non Profit was responsible for maximizing project income and keeping
               the properties financially viable. It must ensure project income equals or exceeds
               project expenses to keep properties out of financial difficulty. As of April 20, 2006,
               the seven properties owed Utah Non Profit over $350,000. All but one of the
               properties had outstanding payables going back to 2004. The properties owed Utah
               Non Profit the following amounts:

                       Brigham City Senior Housing                    $30,445
                       Carl Inoway Senior Housing                     $62,740
                       Hamilton Place                                 $80,482
                       Justin C. Stewart Plaza                        $38,310
                       Martha’s Terrace Apartments                    $38,948
                       Multi-Ethnic Senior Citizen Highrise           $32,840
                       Preston Place                                  $72,222


 Several Factors Contributed to
 Operating Deficits

               Utah Non Profit took pride in keeping rents low and was reluctant to request rent
               increases from HUD, which resulted in reduced project income. Even though fully

                                                 6
             occupied, the projects did not consistently generate sufficient income to pay down
             outstanding payables. Three of the seven projects had not received rent increases for
             at least three years and one had not received a rent increase since 1997. Within the
             last year, HUD approved rent increases for three of the seven properties. Utah Non
             Profit plans to hire a consultant to review the rents at all of its projects and improve
             the rent increase process and procedures.

             In addition, Utah Non Profit used operating funds to pay capital expenditures in its
             efforts to maintain the projects in good physical condition and build up the reserve
             for replacement accounts. However, using operating funds rather than reserve funds
             to pay for capital expenditures contributed to operating deficits. While increasing
             the reserve account is a worthwhile goal, Utah Non Profit must be diligent when
             procuring goods and services and not use operating funds to pay for capital
             expenditures. Further, it did not procure goods and services at competitive prices
             (finding 3).

             Another factor that increased deficits was that several newly constructed projects
             incurred large deficits during the rent-up phase and had not generated enough
             revenue to erase the deficit. These properties will not significantly reduce
             outstanding payables if they continue having annual operating deficits.

Property Conditions and Utah
Non Profit’s Ability to Effectively
Manage Properties Could Suffer

             Seven HUD assisted properties did not generate sufficient income to meet all
             financial obligations and the properties owed Utah Non Profit more than
             $350,000. If the properties’ financial conditions continue to deteriorate and the
             payables due Utah Non Profit increase, the projects will not generate enough
             revenue to maintain the properties adequately. Utah Non Profit needs this
             revenue to remain solvent. Further, the projects’ nonpayment of the accrued fees
             and expenses will adversely affect Utah Non Profit’s ability to manage the
             properties effectively.

Recommendations

             We recommend the director of Denver multifamily Hub require project owners to
             instruct Utah Non Profit to:

             1A.     Review the projects’ expenses on an annual basis to ensure that it submits
                     rent increase requests to HUD as necessary.

             1B.     Ensure that reserve for replacement funds are used to pay for capital
                     expenditures when prudent.

                                                7
Finding 2: Utah Non Profit Improperly Charged Salaries to Properties
Utah Non Profit improperly charged salary costs to properties based on an arbitrary, unsupported
rate and billed properties for a supervisor’s salary that its management fee should cover. Utah
Non Profit did not understand and incorrectly interpreted HUD requirements. As a result, HUD
assisted properties could be paying salary costs for services not performed and Utah Non Profit
improperly charged six properties more than $49,000 for the supervisor’s salary.



 Utah Non Profit Improperly
 Allocated Salaries

              Utah Non Profit did not allocate the project managers’ salaries based on the
              project managers’ actual time spent at each property; instead, it used an arbitrary
              unsupported rate. Three project managers managed multiple properties. Under
              these circumstances, HUD requires the management agent to allocate their time
              based on actual services provided. Further, Utah Non Profit allocated the project
              managers’ indirect costs, such as cell phone and mileage expenses, to the
              properties on an estimated basis rather using actual costs.


 Utah Non Profit Did Not
 Understand HUD Requirements

              Utah Non Profit did not understand the HUD requirements. It developed and used
              arbitrary, unsupported allocation rates to allocate the project managers’ salaries.
              Utah Non Profit believed the rates were appropriate based on its interpretation of the
              rules and because HUD never questioned the costs.

              When management set up the allocation rates for the project managers’ salaries, it
              concluded the estimates were more appropriate than using a per unit basis because
              smaller properties sometimes required more time to manage. Management stated
              that HUD knew about the allocation rates because Utah Non Profit reported the
              information in the annual budget notes and the rent increase submissions. HUD
              never took exception to the rates so they remained in place.

 Properties Possibly Billed for
 Services Not Performed


              Utah Non Profit might have charged properties for services not performed
              because it did not allocate project managers’ salaries based on actual services to
              the properties. Because Utah Non Profit did not base the allocation of front-line
              salary costs on actual services, the properties requiring fewer resources subsidized
              properties that required more resources.

                                                8
            For example, Utah Non Profit charged 70 percent of a project manager's salary to
            a 41-unit project and 30 percent to a 12-unit project. However, the manager’s
            timesheet showed that he spent 90 percent of his time at the 41-unit property. In
            another case, Utah Non Profit allocated a project manager’s time and cell phone
            costs equally among three properties, consisting of 41, 30, and 15 units. It also
            split the manager’s mileage costs equally between two properties but did not
            allocate anything to the 41-unit property. In a one-month period, the project
            manager’s mileage sheet showed that he traveled once a week to the 41-unit
            property. He spent the rest of his time at the other two properties. Although the
            manager spent 20 percent of his time at the 41-unit property, Utah Non Profit
            allocated 34 percent of the manager’s salary and no mileage costs to the property.


Utah Non Profit Improperly Billed
Projects for Supervisor’s Salary

            Utah Non Profit improperly billed six HUD assisted properties for a maintenance
            supervisor’s salary that its management fee should cover. HUD rules specify that
            the management agent may not use project funds to pay salaries of its supervisory
            staff. The management agent’s fees should pay these salaries.


Utah Non Profit Incorrectly Interpreted HUD
Requirements Regarding Supervisor’s Salary

            Utah Non Profit incorrectly believed it could pay the maintenance supervisor’s
            salary with project funds because the supervisor spent time performing front line
            duties. It hired the maintenance supervisor to perform two duties within one
            position. The maintenance supervisor spent several hours in the morning planning
            and performing supervisory duties and the rest of the day performing maintenance
            repairs at the properties. Utah Non Profit allocated his salary costs between fifteen
            properties on a per unit basis but agreed it was a mistake not to allocate the costs
            based on the actual time spent doing the repairs.

Properties Improperly Billed Six Properties
More Than $49,000 in Supervisor’s Salaries

            From January 2004 to February 2006, Utah Non Profit improperly billed more
            than $49,000 to six HUD assisted properties for the maintenance supervisor’s
            salary costs. Utah Non Profit charged the properties the following amounts

                           •   Hamilton Place                              $13,136
                           •   Preston Place                               $13,136
                           •   Glendale Senior Housing                     $ 8,304

                                               9
                            •   Jerald H. Merrill Senior Housing          $ 6,063
                            •   Martha’s Terrace Apartments               $ 6,063
                            •   Justin C. Stewart Plaza                   $ 2,425

             Although the maintenance supervisor performed repairs at the properties, HUD
             requires that the management agent pay supervisory costs only from the
             management fee.

Improvement in Allocation of Salaries

             During the review, we discussed the deficiencies with Utah Non Profit’s
             executive director and operations manager. They agreed to take corrective action.
             Utah Non Profit will base allocations of project managers’ salaries who manage
             more than one property on actual time spent providing services. Utah Non Profit
             also changed the maintenance supervisor’s role to strictly that of a supervisor and
             agreed to pay all of his salary and not charge the properties.

Conclusion

             Utah Non Profit did not establish a salary cost allocation rate based on project
             managers actual time providing services to the properties. In addition, it charged
             properties for supervisory costs it should have paid from the management fee.
             Using actual time as the basis to allocate salary costs ensures projects do not pay
             improper expenses. Similarly, paying the maintenance supervisor’s salary from
             the management fee would help projects decrease operating deficits.

Recommendations
             We recommend the director of Denver multifamily Hub require project owners to
             instruct Utah Non Profit to:

             2A.    Allocate all salaries for project managers working at multiple properties
                    based on the actual time providing services at each project.

             2B.    Reimburse the six HUD assisted properties their respective share of the
                    $49,127 in maintenance supervisor’s salary.

             2C.    Reimburse the six HUD assisted properties any additional salary costs for
                    the maintenance supervisor billed to the properties after February 2006 and
                    discontinue billing HUD assisted properties for the maintenance supervisor’s
                    salary.




                                              10
Finding 3: Utah Non Profit Did Not Comply with HUD Requirements
             When Purchasing Goods and Services

Utah Non Profit did not follow HUD requirements when purchasing goods and services. It did
not implement adequate policies and procedures to ensure it purchased goods and services in
accordance with requirements. As a result, it paid more than $21,000 in project funds for
unnecessary expenses, and may pay as much as $30,900 more than necessary for services.


 Utah Non Profit Did Not Comply
 with HUD Requirements


              In its management agreements with project owners, Utah Non Profit agreed to
              ensure all project expenses were reasonable and necessary. However, Utah Non
              Profit spent project funds for catering expenses at nine HUD assisted properties,
              which were not necessary for project operations. Utah Non Profit also paid a
              vendor for services that it did not provide.

              In addition, Utah Non Profit did not comply with HUD’s procurement
              requirements when obtaining goods and services to ensure prices were reasonable.
              It allowed contracts to continue month-to-month for years rather than periodically
              bidding out the work to ensure that vendors provided goods and services at
              competitive prices. HUD requires

                     •   Cost analyses to determine whether it is more advantageous to (1)
                         lease rather than purchase equipment and (2) pay for services monthly
                         rather than as needed.

                     •   Obtaining the necessary verbal or written cost estimates when
                         procuring goods and services.

              In 56 procurements, Utah Non Profit did not comply with these requirements. It
              also did not maintain procurement documentation such as contracts, invitations to
              solicit bids, bids from more than one vendor, or bid analyses. Only five of the 56
              procurements had more than one bid on file.


 Management Was Not Aware of
 Requirements

              Management was not aware of the requirements in its management agreements
              and did not establish adequate policies and procedures to ensure it purchased
              goods and services in accordance with requirements. In addition, Utah Non Profit


                                              11
            did not follow its own purchasing policies and establish procedures to ensure that
            it retained appropriate procurement documentation.


Utah Non Profit Paid More Than
$21,000 for Unnecessary Expenses

            Over three holiday seasons, Utah Non Profit used project funds to pay nearly
            $17,000 in unnecessary catering costs for holiday events at nine HUD assisted
            properties. The cost per event ranged from $193 to $1,681 with an average cost of
            $650 per event. The catering costs charged to each property were as follows:

                           •   Brigham City Senior Housing              $1,159
                           •   Carl Inoway Senior Housing               $1,236
                           •   Glendale Senior Housing                  $1,854
                           •   Jerald H. Merrill Senior Housing         $ 849
                           •   Justin C. Stewart Plaza                  $1,109
                           •   Martha’s Terrace Apartments              $ 849
                           •   Hamilton Place                           $2,491
                           •   Preston Place                            $2,528
                           •   Multi-Ethnic Senior Housing              $4,832

            In addition, Utah Non Profit paid a vendor more than $4,700 when the vendor
            provided no services at two properties. Brigham City Senior Housing paid $2,056,
            and Carl Inoway Senior Housing paid $2,665. While the vendor contracted to
            provide services to the two properties for eight months per year, Utah Non Profit
            paid the vendor for 12 months.

Utah Non Profit May Pay More
Than Necessary for Services


            Utah Non Profit may pay as much as $30,900 more than necessary for services:

                •   $16,700 for leasing rather than purchasing copy machines and accessories
                    for two properties,
                •   $10,600 for grounds maintenance, and
                •   $3,600 for elevator maintenance.

            Two properties leased the same model copier as Utah Non Profit. Each lease was
            for 63 months. Based on the property managers’ use, the copiers are more
            complex and costly than needed. If Utah Non Profit purchased, rather than
            leased, less expensive copiers, the two properties could save more than $16,700.

            For at least the past three years, Utah Non Profit has used the same two vendors to
            provide grounds maintenance at six properties on a month-to-month basis. In
                                            12
             September 2005, three vendors submitted bids to provide grounds maintenance at
             these properties. A comparison of current costs with the lowest bid showed a
             savings of more than $10,600 annually.

             Utah Non Profit entered into noncancelable seven- and five-year contracts with a
             vendor for elevator maintenance at two properties. Under contracts that were at
             least 8 years old, Utah Non Profit paid the same vendor for elevator maintenance
             at three other properties. Four of the five properties have one elevator for either
             two or three floors. Another vendor provided elevator maintenance to three
             similar properties at a lower cost. If the lower cost vendor provided service to all
             the properties with two or three floors, the properties could save an estimated
             $3,600 annually.

Utah Non Profit Agreed to
Improve its Purchasing Process

             We discussed the deficiencies with Utah Non Profit’s executive director and
             operations manager, and they agreed to take corrective action. Management
             agreed to stop paying catering costs with project funds and designated the
             maintenance supervisor as the person to solicit bids for contract work and
             maintain the documentation and contracts. In addition, Utah Non Profit agreed to
             reevaluate vendor performance every two years to ensure that properties get the
             best service for a competitive price.

Conclusion


             Utah Non Profit did not have an adequate process or documentation to comply
             with HUD requirements. Hence, it paid more than $21,000 in project funds for
             unnecessary expenses and may unnecessarily pay as much as $30,900 each year
             for services. Lowering project expenses with good purchasing policies will help
             the projects stay within their operating budgets.

Recommendations

             We recommend that the director of Denver multifamily Hub require project owners
             to instruct Utah Non Profit to:

             3A.    Reimburse the nine HUD assisted properties their respective share of the
                    $16,907 in unnecessary catering costs.

             3B.    Reimburse the two HUD assisted properties their respective share of $4,721
                    for vendor nonperformance.


                                              13
3C.   Develop and implement adequate management controls to ensure
      compliance with requirements when purchasing goods and services.

3D.   Evaluate contracts with vendors annually to ensure that properties are
      receiving necessary services at a reasonable price.




                               14
                         SCOPE AND METHODOLOGY

Our review covered the period from October 1, 2003 through December 31, 2005.

To accomplish our objectives, we reviewed the following documents for the nine HUD assisted
properties Utah Non Profit manages:
   • Management certifications, regulatory agreements, and audited financial statements
   • HUD property files
   • Paid invoice files and vendor contracts
   • Cost allocations, accounting and payroll records

In addition, we interviewed Utah Non Profit’s executive director, operations manager, staff, and
HUD personnel.

We selected 56 procurements from the nine properties’ vendor detail reports focusing on vendors
receiving high dollar amounts or regular monthly payments. We obtained contracts, leases, and
proposals from vendors. We scheduled the disbursements and reviewed the related contracts to
determine what goods and services vendors provided and for how long. We reviewed the
auditee’s computerized accounting and payroll records for the properties to identify allocations
of payroll and property expenses. We did not rely on computerized data but instead traced all
data to source documents.

We classified $30,900 as funds put to better use. If Utah Non Profit complied with HUD
requirements, the properties would pay competitive prices for goods and services and have more
funds available for operations. For elevator maintenance, we determined the amounts each
vendor charged the properties, compared the vendor charges for similar projects, and calculated
the cost savings if Utah Non Profit selected the vendor with the lowest cost. For leased copiers,
we obtained product and cost information on copier models and accessories, contacted project
managers to determine copying needs, compared copier models and usage to determine if a less
expensive model would meet project needs, and calculated any cost savings. For grounds
maintenance, we obtained the operations manager’s spreadsheet comparing bids from three
vendors with current charges, calculated the differences in the projects' monthly costs, and
estimated annual savings if Utah Non Profit selected the low bidder.

We performed our audit work from March through May 2006. We conducted our fieldwork at
Utah Non Profit’s office at 223 West 700 South, Suite 200, Salt Lake City, Utah.

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




                                               15
                             INTERNAL CONTROLS

Internal control is an integral component of an organization’s management that provides
reasonable assurance that it achieves the following objectives:

   •   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:

              •       Controls management implemented to ensure proper allocation of expenses
                      and salaries to the properties and
              •       Policies and procedures management implemented to ensure purchasing
                      goods and services for the properties complied with requirements.

              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 auditee did not have controls to ensure it properly allocated expenses
                      and salaries to the properties (finding 2).
              •       The auditee did not implement adequate policies and procedures to ensure it
                      purchased goods and services in accordance with requirements (finding 3).




                                               16
                                    APPENDIXES

Appendix A

               SCHEDULE OF QUESTIONED COSTS
              AND FUNDS TO BE PUT TO BETTER USE


                Recommendation          Unreasonable or     Funds to be put to
                       number            unnecessary 1/          better use 2/

                       2B                        $49,127
                       3A                        $16,907
                       3B                         $4,721
                       3D                                              $30,900


1/   Unreasonable/unnecessary costs are those costs not generally recognized as ordinary,
     prudent, relevant, and/or necessary within established practices. Unreasonable costs
     exceed the costs that a prudent person would incur in conducting a competitive business.

2/   “Funds to be put to better use” are quantifiable savings that are anticipated to occur if an
     Office of Inspector General 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. The
     $30,900 is our calculation of savings Utah Non Profit would have incurred for the
     properties if it had complied with HUD requirements and used prudent business
     practices.




                                              17
Appendix B

             AUDITEE COMMENTS




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