Issue Date
December 13, 2005
Audit Report Number
2006-FW-1002
TO: Dan Rodriguez
Program Center Coordinator, Office of Public Housing, 6EPH
FROM:
Frank E. Baca
Regional Inspector General for Audit, 6AGA
SUBJECT: Baytown Housing Authority, Baytown, Texas, Improperly Advanced,
Transferred, and Encumbered Its Public Housing Funds
HIGHLIGHTS
What We Audited and Why
Due to concerns expressed by your office, we audited Baytown Housing
Authority (Authority). Our objectives were to determine whether the
Authority (1) advanced, transferred, or encumbered resources subject to the
annual contributions contract (contract) to the benefit of other entities without
U.S. Department of Housing and Urban Development (HUD) approval and (2)
equitably distributed salary costs between the Authority’s HUD and non-HUD
activities in accordance with federal requirements.
What We Found
The Authority violated its contract with HUD by inappropriately advancing,
transferring, and encumbering public housing funds to support its nonprofit
and related entities. For some of the transfers, the Authority’s executive
director knowingly altered transfer documentation. As of March 31, 2005, the
Authority owed the low-rent and Section 8 programs $792,360, and it could
not support an additional $134,831 in transfers and encumbrances. The
improper conveyances occurred because the Authority ignored its contract
requirements and its board of Commissioners did not establish sufficient
controls.
Further, the Authority cannot demonstrate that it equitably distributed salary
costs between its HUD and non-HUD activities because it did not support
salary payments with required activity reports or equivalent documentation.
The Authority lacked support because its management was not aware of the
federal requirements. As a result, the Authority cannot support $1.1 million in
salary costs allocated to its HUD programs from April 2002 to March 2005.
What We Recommend
We recommend that the program center coordinator, Houston Office of Public
Housing (HUD), require the Authority to (1) repay its HUD programs at least
$792,360 for improper advances, transfers, and encumbrances; (2) repay or
provide support for $134,831 in transfers and encumbrances; (3) repay or
provide documentation to support $1.1 million in salary costs allocated to its
HUD programs from April 2002 to March 2005; and (4) implement
procedures and controls to correct the weaknesses cited in this report. Proper
procedures and controls should help ensure that the Authority puts to better
use the $5,956,761 in HUD funding it will receive next year.
For each recommendation without 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 a draft to the Authority on November 7, 2005. The Authority’s
comments were due when the exit conference was held on November 28,
2005. At the exit conference, the Executive Director verbally asked for an
extension and we provided one until December 9, 2005. At the exit and in its
request for a second extension, the Authority’s Executive Director stated he
disagreed with the conclusions in the audit. The Executive Director refused to
discuss the report and findings at the exit conference. On December 9, 2005,
the Executive Director asked for additional time to respond, in addition to the
extension already granted, and indicated he would be meeting with the fee
accountant in January 2006 to develop a response. We declined the extension
request because we had previously informed the Authority in writing that we
would issue our report if we did not receive written comments on December 9,
2005. The complete text of the Authority’s 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 Conveyed HUD Funds to Its Nonprofit 5
and Related Entities
Finding 2: The Authority Did Not Support Its Allocation of Salary Costs 13
Scope and Methodology 15
Internal Controls 16
Appendixes
A. Schedule of Questioned Costs and Funds to Be Put to Better Use 18
B. Auditee Comments and OIG Evaluation 19
C. Criteria 23
3
BACKGROUND AND OBJECTIVES
The City of Baytown established the Baytown Housing Authority (the Authority) in 1938
under the laws of the State of Texas. Its primary objective is to develop and operate public
housing units and provide housing for qualified individuals in compliance with its annual
contributions contract (contract) and the rules and regulations prescribed by the U.S.
Department of Housing and Urban Development (HUD). The mayor appoints a five-member
board of commissioners (board) to govern the Authority. The board hires an executive
director to manage the Authority’s day-to-day operations. The Authority keeps its records at
its central office at 805 W. Nazaro Street, Baytown, Texas.
The Authority manages 150 dwelling units under its low-rent housing program. In fiscal
year 2004, the Authority received or spent $306,803 in operating subsidies and $442,326 for
its Public Housing Capital Fund program. The Authority also administers a Section 8
Housing Choice Voucher program with a total of 727 units and received $5,251,726 from
HUD in fiscal year 2004.
The Authority has one active affiliated nonprofit corporation created in 1982: Baytown
Properties Management & Development Corporation (Baytown Properties). Baytown
Properties currently owns one project: Forest View Apartments. The Authority owns two
other projects, which are related entities: Sam Houston Courts and Lincoln Courts. The
Authority opted these two low-rent housing projects out of its public housing program and
converted them to market rent when they became debt free in the late 1970s. Additionally,
the Authority administered a Section 8 new construction program for Bay Terrace, a
nonrelated project, until December 2004.
We selected the Authority for audit because of concerns expressed by the Houston HUD
Office of Public Housing. Our objectives were to determine whether the Authority (1)
advanced, transferred, or encumbered resources subject to the contract to the benefit of other
entities without HUD approval and 2) equitably distributed salary costs between the
Authority’s HUD and non-HUD activities in accordance with federal requirements.
4
RESULTS OF AUDIT
Finding 1: The Authority Improperly Conveyed HUD Funds to Its
Nonprofit and Related Entities
The Authority violated its contract with HUD by inappropriately advancing, transferring, and
encumbering public housing funds to support the operations of its nonprofit and related
entities. As of March 31, 2005, the Authority owed its low-rent and Section 8 programs as
much as $927,191 because of the ineligible or unsupported conveyances and encumbrances.
Further, the executive director knowingly altered transfer documentation. This occurred
because the Authority ignored its contract requirements and its board did not establish
sufficient controls. As a result, the Authority had fewer funds available to serve its low-
income residents, and Authority operations and HUD funds are at risk.
Inappropriate Advances of
Public Housing Funds
The Authority violated its contract with HUD by inappropriately advancing
more than $2 million in public housing funds to pay the expenses of its
nonprofit’s and related entities’ activities. The Authority still owes its low-
rent Program $97,360 of the $2 million.
The Authority’s contract allows it to use its general fund to make payment for
other activities but only to the extent that those activities have cash on deposit
in the general fund. 1 The Authority advanced funds from its HUD- funded
low-rent program account to pay the bills for Forest View Apartments,
Lincoln Courts, Sam Houston Courts, and Baytown Properties. Rather than
have cash on deposit in the general fund, the nonprofit and related entities
repaid the HUD-funded advances the following month. However, these
entities did not always fully reimburse the low-rent program account the
following month because they lacked sufficient funds to operate. As a result,
the Authority had outstanding advances every month to its nonprofit and
related entities.
From April 2002 to March 2005, the Authority advanced $2,049,766 to its
nonprofit and related entities, and these entities only reimbursed $1,952,406
of that amount to the Authority. The Authority continued to make advances,
even though in January 2004, its independent auditor informed the Authority
1
Part A, section 10(C), see appendix C.
5
that it should not advance funds to its non-HUD programs. As of March 31,
2005, the Authority's nonprofit and related entities owed the low-rent program
account $97,360 for the advances.
Advances from April 2002 to March 2005
Amount Amount Outstanding
Project or entity low-rent paid for reimbursed to amount
expenses low-rent Mar. 31, 2005
Forest View Apts. $1,224,305 $1,192,171 $32,134
Sam Houston Courts 260,608 200,900 59,708
Lincoln Courts 257,834 252,396 5,438
Baytown Properties 307,019 306,939 80
Totals $2,049,766 $1,952,406 $97,360
Inappropriate Transfers of
HUD Funds
The Authority made ineligible transfers of HUD funds totaling $795,000 to its
nonprofit or related entities, of which $300,000 has been repaid, leaving
$495,000 still owed the Authority. Part of these transfers involved the
executive director altering records documenting the transfers. Further,
unsupported transfers of $34,846 are due to the Authority unless it can
provide evidence to justify the transfers.
The Authority Made $795,000 in Ineligible Transfers and Knowingly
Altered Documentation
The Authority improperly transferred $795,000 to its nonprofit and related
entities. The transfers included $640,000 from its low-rent program (of which
$200,000 was repaid) and two transfers from its Section 8 Housing Choice
Voucher program of $100,000 (which was repaid) and $55,000.
Transfer of $640,000 from the low-rent program. In violation of HUD’s
Section 8 Housing Choice Voucher program regulations and the Authority’s
administrative plan, 2 the Authority transferred $560,000 to its low-rent
program account in March 2002: $320,000 from its Section 8 administrative
fee reserve and $240,000 from Bay Terrace's Section 8 administrative fee
reserve. That same month, the Authority transferred $640,000 from the low-
rent program account to its nonprofit, Baytown Properties.
2
24 CFR [Code of Federal Regulations] 982.153 and 982.155 and The Baytown Housing Authority,
Administrative Plan for Section 8 Housing Programs, chapter 1.Q. See appendix C.
6
The Authority falsely recorded the transfers to and from the low-rent program
account in its financial records. According to the bank statements, the
transfers occurred in March 2002, when the transfer to the Baytown Properties
was made. However, the executive director backdated the transfers in the
Authority’s books and records. The checks, which he signed, and the entries
in the general ledger were recorded as occurring in December 2001, which
was before he was hired as the interim executive director in January 2002.
The transfers violated the Section 8 program regulations and the Authority’s
administrative plan because neither the Authority’s board nor HUD approved
them. In addition, the Authority did not establish the maximum amount that
may be charged against the administrative fee reserves without specific board
approval as required by HUD’s regulations and the Authority’s Section 8
administrative plan.
Baytown Properties repaid the Authority $200,000 in May 2002. 3 Therefore,
the Authority needs to repay the remaining amount of $440,000 to its low-rent
program account and/or Section 8 Housing Choice Voucher program.
Loan of $100,000 from Section 8 program to nonprofit. On April 22, 2005,
after we started the audit of the Authority’s nonprofit activities, the Authority
transferred $100,000 from its Section 8 Housing Choice Voucher program
funds to Baytown Properties to purchase the San Jacinto Methodist Hospital.
The Authority plans to convert the hospital into a center for senior citizens.
Section 8 program funds must be used for Section 8 program purposes only.
Later, the Authority borrowed $100,000 and repaid the Section 8 program.
Inappropriate transfer of $55,000 from the Section 8 program. The Authority
transferred $55,000 from its Section 8 Housing Choice Voucher program to
Baytown Properties in March 2003. In February 2004, the executive director
wrote off the $55,000 transfer without approval from the board or HUD.
Since Section 8 program funds must be used for Section 8 program purposes
only, the Authority needs to repay its Section 8 Housing Choice Voucher
program $55,000.
3
See “Inappropriate Encumbrance of HUD Funds” below for additional details concerning this $200,000
repayment.
7
The Authority Had No Evidence to Support Transfers of $34,846
The Authority had no evidence to support $24,846 owed to its nonprofit, nor
could it support a $10,000 transfer to a related entity. These funds need to be
repaid to the Authority’s low-rent program unless it can provide evidence to
justify the transfers.
Incorrectly recorded low-rent program liability of $24,846. The Authority’s
general ledgers showed its low-rent program owed Baytown Properties
$24,846 in November 2002. However, the Authority’s records do not reflect
that a payment of that amount was ever made to the low-rent program account
from Baytown Properties or its project, Forest View. The Authority also
incorrectly recorded the transaction as an accounts receivable from its low-
rent program. Therefore, the Authority needs to repay its low-rent program
account $24,846 unless it can provide evidence showing Baytown Properties
or its project transferred $24,846 to the low-rent program account.
Unsupported transfer of $10,000 from low-rent program to related entity.
The Authority transferred $10,000 from its low-rent program account to Sam
Houston and recorded the transfer as "Reimbursement of Benefits and
Salaries" and not as an interprogram accounts receivable/payable. The
Authority could not provide supporting documentation for the transfer and
needs to repay its low-rent program account $10,000 unless it can provide
supporting documentation to justify the transfer.
Inappropriate Encumbrance
of HUD Funds
Without HUD’s approval and in violation of its contract, 4 the Authority
inappropriately encumbered $200,000 of HUD’s funds in a certificate of
deposit used as collateral for a November 2000 bank loan to purchase Forest
View Apartments, a Baytown Properties project. The Authority secured the
bank loan with two certificates of deposit, which were both in the Authority’s
name: one for $200,000 and another for $99,985. The Authority’s records
showed funds for the $200,000 certificate of deposit came from the low-rent
program account. The Authority could not provide documentation showing
the source of funds for the $99,985 certificate of deposit, even though its
contract required it to maintain records identifying the source and allocation
of federal funds. 5
4
Part A, section 7, see appendix C.
5
Part A, section 9(C), see appendix C.
8
The Authority later extended and modified the loan and also combined the
two certificates of deposit into one. As of March 31, 2005, the principal of the
certificate of deposit was $233,492. According to the Authority’s executive
director, the original principal of the certificates of deposit was reduced
annually to correspond to the current outstanding loan balance. The Authority
deposited the $66,493 in principal reductions and the investment income from
the certificate of deposit into its nonprofit’s bank account rather than its HUD
program accounts as required. The Authority improperly used the HUD funds
as collateral and deposited HUD funds and investment income into its
nonprofit bank account because its board did not establish sufficient controls
to monitor the nonprofit and ensure transactions followed federal regulations.
The Authority’s records show Baytown Properties repaid the Authority’s low-
rent program $200,000 from May to August 2002 to correct the improper
encumbrance of the certificate of deposit. The executive director claimed that
the funds to repay the $200,000 came from nonfederal funds: the proceeds of
the sale of mortgages. However, shortly before the Authority made
repayment, it improperly transferred $640,000 in low-rent program funds to
Baytown Properties in March 2002 (see discussion under transfers section).
Also, Baytown Properties commingled advances from the Authority’s low-
rent and Section 8 program accounts with funds from its other activities.
Since Baytown Properties commingled federal and nonfederal funds, the
Authority could not provide evidence to show that the nonprofit repaid the
certificate of deposit with nonfederal funds. Further, this transfer merely
reduced the amount inappropriately transferred from the low-rent program
account. 6 Thus, Baytown Properties still needs to repay the Authority
$200,000 for the certificate of deposit and provide evidence that it used
nonfederal funds for the $99,985 certificate of deposit.
Authority Operations and HUD
Funds at Risk
Apart from having fewer funds available to serve its low-income residents, the
Authority’s improper advances, transfers, and encumbrances put its operations
and HUD funds at risk of loss.
According to its financial statement, the nonprofit and related entities are
considered component units within the Authority’ reporting entity. The
component units are reported as if they were part of the Authority because
their sole purpose is to work in conjunction with the Authority to provide
housing for low- and moderate-income individuals. Part of the criteria for
including organizations as component units within the Authority’s reporting
entity is whether the organization has the potential to impose a financial
6
See “Inappropriate Transfers of HUD Funds” above, in which the $640,000 amount of transfers to be
repaid was reduced by the $200,000 transferred to the low-rent program account.
9
benefit/burden on the Authority or whether there is a fiscal dependency by the
organization on the Authority.
The Authority regularly conveyed funds to its nonprofit and related entities
because they did not have sufficient funds to operate. The following table
shows that just taking into account advances, excluding transfers and
encumbrances, the nonprofit and related entities owed the low-rent program
account more than they had in their combined bank accounts.
As of March 31, 2005
Lincoln Sam Forest Baytown
Courts Houston View Properties Totals
Funds available in bank
accounts 554 5,395 3,311 34,673 43,933
Advances owed to low-
rent 5,438 59,707 32,134 80 97,360
Insufficient funds -4,884 -54,313 -28,823 34,593 -53,427
Additionally,
• As of July 31, 2005, Baytown Properties’ project, Forest View, was
seven months delinquent in paying its mortgage.
• Forest View has a balloon note with a final payment amount of
$298,186 due on June 5, 2006, unless it refinances or modifies it
before it matures.
• The Authority’s outstanding advances from the low-rent program
account to Forest View were steadily increasing over the audit period.
The precarious position of the nonprofit and related entities in turn affects the
Authority and related HUD funding. For example, Authority operations
showed a $524,692 net income in fiscal year 2002, a $60,862 net loss in fiscal
year 2003, and a $287,874 net loss in fiscal year 2004. We question whether
the Authority will be able to meet its delinquent and current obligations and
repay the $927,191 questioned in this report. The Authority’s board needs to
exercise more control over its operations, including implementing more
financial and procedural controls. Further, HUD should perform additional
monitoring and technical assistance to ensure that the Authority’s nonfederal
operations do not have a negative impact on its HUD-funded programs.
10
Conclusion
The Authority violated its contract with HUD when it advanced, transferred,
and encumbered public housing funds to support its nonprofit and related
entities. The Authority owes its low-rent and Section 8 programs up to
$927,191 for the improper conveyances. This resulted in fewer HUD funds
being available to serve the Authority’s low-income residents and put
Authority operations and HUD funds at risk. The improper conveyances
indicate the Authority often ignored HUD’s requirements prohibiting the use
of HUD funds for non-HUD activities and did not have adequate controls to
prevent these violations from occurring.
Recommendations
We recommend that the program center coordinator, Houston Office of Public
Housing (HUD), require the Authority to
1A. Repay from nonfederal funds $97,360 or the current amount of advances
to the low-rent program for improper advances, and $495,000 to its
Section 8 and low-rent programs for improper transfers made to its
nonprofit and related entities.
1B. Provide documentation to support $34,846 transferred to its nonprofit or
related entities or repay its public housing program from nonfederal
funds.
1C. Repay its public housing program from nonfederal sources $200,000 for
a certificate of deposit used to encumber HUD funds, repay its low-rent
program from nonfederal sources $99,985 for a second certificate of
deposit unless the Authority can provide evidence that it purchased the
certificate of deposit with non-HUD funds, and repay its low-rent
program account for any interest income from the certificates of deposit
improperly paid to the nonprofit.
1D. Transfer ownership of the certificate of deposit to Baytown Properties
once the Authority’s low-rent program has been repaid.
1E. Provide assurance that it will make no further advances, transfers, or
encumbrances of HUD funds on behalf of its nonfederal activities
without prior HUD approval. HUD should take sanctions against the
Authority if the transfers continue.
11
We also recommend that the program center coordinator, Houston Office of
Public Housing (HUD),
1F. Take appropriate sanctions against the executive director for altering the
books and records of the Authority.
1G. Require the Authority’s board to exercise control over the Authority’s
operations, including implementing more financial and procedural
controls, which will ensure that the $5,956,761 the Authority receives
from HUD next year will be put to better use.
1H. Perform additional monitoring and provide technical assistance to the
Authority to ensure that its nonfederal programs do not have a negative
financial impact on its HUD-funded programs.
12
Finding 2: The Authority Did Not Support Its Allocation of Salary
Costs
The Authority did not support its allocation of administrative and maintenance salaries and
benefits with activity reports or equivalent documentation as required. The Authority lacked
support because its management was not aware that its salary had to be based on activity or
other supporting reports. As a result, HUD has no assurance that the Authority used $1.1
million in salary costs charged to its federal programs for HUD-funded activities.
The Authority Did Not Keep
Activity Reports
The Authority had a salary cost allocation plan as required by federal
regulations. However, it did not support its allocation of $2.04 million in
administrative and maintenance salaries and benefits with activity reports or
equivalent documentation as required. 7 In addition, the Authority’s
distribution of salaries to programs or entities did not coincide with the salary
allocation plan. Therefore, some programs may have paid a disproportionate
share of the salary costs.
The Executive Director’s
Estimate Was Used to Allocate
Salary Costs
The Authority’s executive director determined how salary costs were
allocated among the Authority’s programs and entities, including conventional
public housing, Public Housing Capital Fund, Section 8, a nonprofit
corporation and related entities. However, he was unaware the Authority’s
salary costs had to be based on activity or other supporting reports. The
executive director did not ask the employees how much time they were
spending on various programs and projects. Instead, he based the salary
allocation plan on how much time he thought the staff spent on various
programs or other entities.
7
Circular A-87, attachment B, paragraph 11h(4), see appendix C.
13
The Authority May Have Paid a
Disproportionate Share of Salary Costs
Since the Authority lacked support, some programs may have paid a
disproportionate share of the salary costs. From April 2002 to March 2005,
the Authority paid $2.04 million in salary costs, excluding benefits. The
Authority allocated $1.38 of the $2.04 million to its federal programs. Some
of the Authority’s employees worked exclusively on HUD-funded programs,
and their salaries totaling $279,705 are supported. However, the Authority
cannot support the remaining $1,103,042 in salary costs for employees who
were dividing their time between federal and nonfederal programs. The
Authority needs to have a justifiable method of supporting allocated salary
costs, including daily activity reports or equivalent documentation. Without
an acceptable method of charging salary costs, the Authority will annually pay
an estimated $367,681 in unsupported salary costs.
Recommendations
We recommend that the program center coordinator, Houston Office of Public
Housing (HUD), require the Authority to
2A. Provide documentation to justify the $1,103,042 in unsupported salary
costs allocated to HUD’s programs from April 1, 2002, to March 31,
2005, and for later periods and reimburse HUD programs for any
misallocated salary costs.
2B. Develop a reasonable method for allocating its future costs, including
daily activity reports or equivalent documentation for services
performed by its staff.
2C. Implement controls to prevent future unsupported salary costs from
being charged to the federal programs, which we estimate to be about
$367,681 per year.
14
SCOPE AND METHODOLOGY
To accomplish our audit objective, we reviewed the following:
• Applicable laws, regulations, and other HUD program requirements;
• The Authority’s contracts; and
• HUD’s and the Authority’s program files.
We reviewed various documents, including financial statements, general ledgers, bank
statements, minutes from board meetings, check vouchers, invoices, loan documents, and
reports from the independent public accountant. We also reviewed all related nonprofit
entities’ bylaws and incorporation documents. In addition, we obtained an understanding of
the Authority’s accounting system as it related to our review objective.
We reviewed the cost allocation plans and all of the salary records available for the period
from April 2002 through March 2005 to determine whether salary costs charged to HUD
programs were supported. We also interviewed the Houston Office of Public Housing’s
program officials, and the Authority’s management and staff.
We assessed the reliability of the computer-processed data in the Authority’s electronic
check registers. We determined that the data were unreliable because we were unable to
trace and confirm all of the transactions in the registers to the bank statements for March
2005. Therefore, we did not rely on the check registers. Instead, we reviewed bank
statements, canceled checks, and general ledgers for the improper disbursements.
We performed the audit from April through August 2005. Our audit covered the period from
April 1, 2002, through March 31, 2005, but we expanded our review of the nonprofit’s
general ledgers and bank statements back to October 1, 2001, because we identified a
significant amount of transfers occurring to and from the bank accounts during that time.
We performed our audit 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 the following objectives are being achieved:
• Effectiveness and efficiency of operations,
• Reliability of financial reporting, and
• Compliance with applicable laws and regulations.
Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. Internal controls include the processes and procedures for
planning, organizing, directing, and controlling program operations. They include the
systems for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined the following internal controls were relevant to our audit
objectives:
• 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 of resources - Policies and procedures that management has
implemented to reasonably ensure that resources are safeguarded against
waste, loss, and misuse.
We assessed 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.
Significant Weaknesses
Based on our review, we believe the following items are significant
weaknesses:
16
• The Authority did not have a system to ensure that federal funds were
properly used and not put at risk (finding 1).
• The Authority did not have a system to ensure that costs charged among
its various programs were properly supported (finding 2).
17
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Recommendatio Funds to be put
n number Ineligible 1/ Unsupported2/ to better use 3/
1A $592,360
1B $34,846
1C $200,000 $99,985
1G $5,589,080 8
2A $1,103,042
2C $367,681
1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or
activity that auditor believes are not allowable by law; contract; or federal, state, or
local policies or regulations.
2/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured
program or activity 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 classification of departmental policies and procedures.
3/ "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 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.
8
Represents $5,956,761 in annual HUD funds the Authority will receive in the next year less the $367,681
claimed in recommendation 2C.
18
Appendix B
AUDITEE COMMENTS AND OIG'S EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 1
19
Comment 1
Comment 2
Comment 3
Comment 1
20
Comment 1
21
OIG Evaluation of Auditee Comments
Comment 1 The Authority asked for additional time to respond. The Authority’s response
did not indicate when its response would be complete but stated that it would
begin developing it in January 2006. Since we had already granted the
Authority an extension to formulate its response and informed it that we
would issue the report if we did not have its comments by December 9, 2005,
we have declined the Authority’s request for an extension. As the Authority
accurately states, it can respond to the final report to the director of the HUD
Houston Public Housing Office.
Comment 2 The Authority indicated it has provided sufficient backup for every question
asked during the audit. We reviewed all of the information provided by the
Authority and reached our conclusions based on the information provided and
the criteria for the various programs.
Comment 3 The Authority indicated it was in total disagreement with the conclusions in
the audit. However, the Authority was not able to provide evidence during the
audit or in this response to refute the conclusions and findings.
22
Appendix C
CRITERIA
Consolidated Annual Contributions Contract between HUD and the Authority, Part A
Section 7 of the contract between the Authority and HUD states that the Authority shall not
in any way encumber any project or portion thereof without prior HUD approval. Section 7
of the contract further prohibits the Authority from pledging assets of any project covered
under the contract as collateral for a loan.
Section 9(C) of the contract states in part that the Authority shall maintain records that
identify the source and application of funds in such a manner as to allow HUD to determine
that all funds are and have been expended in accordance with each specific program
regulation and requirement. Funds may only be withdrawn from the general fund for (1) the
payment of the costs of development and operation of the projects under 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.
Section 10(C) of the contract states that the Authority shall not withdraw from any of the
funds or accounts authorized under this section amounts for the projects under the contract,
or for the other projects or enterprises, in excess of the amount then on deposit in respect
thereto.
24 CFR [Code of Federal Regulations] 982.153,"HUD – Chapter IX Public and Indian
Housing,” requires that “The PHA [public housing authority] must comply with the
consolidated ACC [contract], the application, HUD regulations and other requirements, and
the PHA administrative plan."
24 CFR [Code of Federal Regulations] 982.155, “Chapter IX Public and Indian Housing”
requires the Authority to determine that all existing reserves are not needed to cover public
housing authority administrative expense. Only then can reserves be classed as "excess"
reserves eligible for other uses. Once excess reserves are established, the public housing
authority board must determine the amount of excess reserves that management can disburse
without specific board approval. Section 982.155 (b)(3) states that "The PHA [public housing
authority] Board of Commissioners or other authorized officials must establish the maximum
amount that may be charged against the administrative fee reserve without specific
approval."
The Baytown Housing Authority, Administrative Plan for Section 8 Housing Programs,
chapter 1.Q, “Operating Reserves of the Administrative Plan,” states that the board shall set a
minimum balance for operating reserve and set a maximum amount management can
disburse without specific board approval annually.
23
Office of Management Budget Circular A-87, attachment B, paragraph 11 h (4), states, in
part, when employees work on multiple activities or costs objectives, a distribution of their
salaries or wages will be supported by personnel activity reports or equivalent
documentation.
24
Baytown Housing Authority, Baytown, TX, Improperly Advanced, Transferred and Encumbered Its Public Housing Funds
Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-12-13.
Below is a raw (and likely hideous) rendition of the original report. (PDF)