Issue Date
June 30, 2006
Audit Report Number
2006-NY-1008
TO: Mirza Negron Morales, Director, Office of Public Housing, 2APH
FROM: Edgar Moore, Regional Inspector General for Audit, 2AGA
SUBJECT: The Freeport Housing Authority, Freeport, New York
Has Financial and Management Control Weaknesses
HIGHLIGHTS
What We Audited and Why
We audited the Freeport Housing Authority (Authority) because of its fiscal year
2004 Public Housing Assessment System designation as “substandard financial.”
The audit objectives were to determine whether the Authority (1) implemented
admission policies that complied with U.S. Department of Housing and Urban
Development (HUD) requirements, (2) ensured Section 8 program units met
housing quality standards, (3) maintained a financial management system that
adequately safeguarded funds, and (4) operated its not-for-profit entity in
accordance with HUD regulations.
What We Found
The Authority generally implemented admissions policies in accordance with
HUD requirements; however, it improperly issued housing choice vouchers to 22
tenants, and erroneously disbursed $49,483 in housing assistance payments. In
addition, the Authority was unable to use all its vouchers.
The Authority lacked a system to monitor the results of housing quality standards
inspections to ensure that housing assistance payments were abated when needed,
and failed to document that it conducted quality control inspections as required by
HUD regulations. In addition, three Section 8 units inspected failed to meet
housing quality standards.
While the Authority’s financial management system generally safeguarded funds,
weaknesses in the system allowed the disbursement of $588,166 for questionable
and ineligible costs, and led to the Authority incorrectly calculating Section 8
administrative fees.
Further, although the Authority generally operated the activities of its not-for-
profit entity in accordance with HUD regulations, it did not obtain a partial
release of declaration of trust 1 from HUD to transfer six of seven scattered-site
properties to the not-for-profit entity as required by HUD regulations.
What We Recommend
We recommend that the director, Office of Public Housing, New York Hub,
reallocate the Authority’s unused housing choice vouchers and require the
Authority to (1) seek a HUD waiver to allow tenants who were improperly issued
vouchers to retain them, (2) seek reimbursement of ineligible housing assistance
payments, (3) establish a system to track housing quality inspection activities, (4)
develop and implement financial controls to ensure proper allocation and
disbursement of funds, and (5) obtain properly approved partial release of
declaration of trust documents for property transferred for sale under the
homeownership program.
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 a copy of the draft report to the auditee on June 5, 2006, and
discussed its contents with the auditee during the audit and at the exit conference
on June 16, 2006. The auditee provided written comments on June 22, 2006, and
generally agreed with our findings and has initiated corrective actions in response
to our recommendations.
The complete text of the auditee’s response, along with our evaluation of that
response, can be found in appendix B of this report.
1
A partial release of declaration of trust ensures that ownership of the properties is transferred to the not-for-profit
with clear title for sale under the Section 5(h) homeownership program.
2
TABLE OF CONTENTS
Background and Objectives 4
Results of Audit
Finding 1: The Authority Issued Housing Vouchers and Assistance Payments 5
Contrary to HUD Regulations
Finding 2: The Authority Did Not Adequately Document its Inspection Process 8
or Ensure that All Units Met Housing Quality Standards
Finding 3: The Authority Has Control Weakness in its Financial Management 11
System
Finding 4: The Authority Transferred Properties to the Not-for-Profit Entity 14
without Clear Title
Scope and Methodology 16
Internal Controls 17
Appendixes
A. Schedule of Questioned Costs and Funds to Be Put to Better Use 19
B. Auditee Comments and OIG’s Evaluation 20
3
BACKGROUND AND OBJECTIVES
The Freeport Housing Authority (Authority) is governed by a seven-member board of
commissioners and was established in l951 as a not-for-profit public corporation to provide
affordable housing for low-income families. The executive director, who supervises the day-to-
day program operations of the Authority, was appointed in 1998. The Authority’s main office is
located at 3 Buffalo Avenue, Freeport, New York.
The Authority owns and operates 354 low-rent housing units, which are contained in four
scattered-site properties and three developments: (1) Moxey A. Rigby, a 100-unit family
development; (2) Rev. E. Mitchell Mallette, a 100-unit senior citizen development; and (3) Rev.
John J. Madden, a 150-unit senior citizen development. The Authority also administers 211
Section 8 housing choice vouchers. Total U.S. Department of Housing and Urban Development
(HUD) funding in fiscal year 2005 was $3.3 million.
In 1999, the Authority created an identity-of-interest not-for-profit entity, Nautilus Development
Corporation, to acquire, rehabilitate, and sell the Authority’s 11 scattered-site properties to first-
time, low-income homebuyers in accordance with the Authority’s Section 5(h) homeownership
program. 2 The not-for-profit has an identity-of-interest relationship with the Authority because
its governing board consists of five members, three of whom are also on the board of the
Authority, and the Authority’s executive director serves as the president/chief operating officer.
HUD designated the Authority “financially troubled” because its operating expenses exceeded its
revenue and tenant accounts receivable were increasing. The HUD field office has actively
worked to improve the Authority’s financial condition, and the Authority has taken corrective
actions to reduce its operating expenses and has increased its revenue due to the sale of several
scattered-site properties.
The audit objectives were to determine whether the Authority (1) implemented admission
policies that complied with U.S. Department of Housing and Urban Development (HUD)
requirements, (2) ensured Section 8 program units met housing quality standards, (3) maintained
a financial management system that adequately safeguarded funds, and (4) operated its not-for-
profit entity in accordance with HUD regulations.
2
The Section 5(h) homeownership program offers authorities a flexible way to sell public housing units to low-
income families.
4
RESULTS OF AUDIT
Finding 1: The Authority Issued Housing Vouchers and Assistance
Payments Contrary to HUD Regulations
While the Authority generally implemented admissions policies, in accordance with HUD
requirements, it issued housing choice vouchers to 22 tenants contrary to HUD regulations and
erroneously disbursed $49,483 in housing assistance payments. In addition, the Authority was
unable to use all its vouchers. These deficiencies occurred because the Authority wanted to
increase its utilization rate to prevent HUD from recapturing its unused vouchers and it lacked
controls to ensure that all vouchers were distributed in accordance with HUD regulations.
Vouchers Issued Improperly
The Authority issued 22 Section 8 housing choice vouchers to families that
resided in a privatized development outside its jurisdiction. Voucher portability
under 24 CFR (Code of Federal Regulations) 982.353(b) provides that a voucher
holder or participant family has the right to receive tenant-based voucher
assistance to lease a unit outside the initial authority’s jurisdiction, but in the
jurisdiction of an authority with a tenant-based program. However, the
jurisdiction where these 22 vouchers were used does not manage a voucher
program, and therefore the distribution of these vouchers does not comply with
the regulations. Further, while these tenants met program eligibility for vouchers,
there was no evidence that the Authority distributed the vouchers to tenants on its
waiting list as required, or obtained a waiver from HUD to use alternative
distribution procedures.
The executive director explained that in 2002 when he learned that a previous
New York State development managed by another authority was privatized, he
decided to issue 21 of the Authority’s unused vouchers to residents of the
development. An additional voucher was issued to a resident in this development
in 2004. The executive director further noted that since the 1998 Quality Housing
and Work Responsibility Act, which replaced federal preferences with local
preferences, was intended to make it easier for authorities to lease up, he believed
that HUD approval was not needed to issue these vouchers. Because the
jurisdiction in which the privatized development is located does not administer a
voucher program, the Authority administers the vouchers and conducts all tenant
recertifications and housing quality standards inspections for these vouchers.
During the period November 1, 2002, through March 31, 2006, the Authority paid
$674,857 in housing assistance payments for these 22 vouchers. As of March
2006, the Authority provides vouchers to 16 families residing in the development,
for whom $14,115 in monthly housing assistance payments is disbursed.
5
Improper Payments Made
The Authority erroneously disbursed $49,483 in housing assistance payments. In
one instance, it paid $49,020 in housing assistance payments during the period May
2002 through March 2006 for a unit that was owned by the grandparent of an
assisted family member who was not disabled. 24 CFR (Code of Federal
Regulations) 982.306(d) prohibits approving a unit when the owner is the parent,
child, grandparent, grandchild, sister, or brother of any member of the assisted
family, unless approving such a tenancy would provide reasonable accommodations
for a disabled family member.
Authority officials advised that they were unaware of the owner-family relationship.
They stated that when they inquired of the tenant, as part of the tenancy approval
process, whether there was any relationship to the unit’s owner, the tenant gave no
indication that the owner was an in-law and her child’s grandparent. Additionally,
the owner certified on the housing assistance payment contract that a prohibited
owner-family relationship did not exist. Terminating this ineligible unit would make
available $11,460 paid annually on behalf of the unit.
In another instance, while the housing assistance payments to the landlord had
been suspended, effective January 31, 2004, the Authority incorrectly made a
$463 payment for February 2004. This occurred because the receiving authority
did not notify the Authority in a timely manner of the payment suspension.
However, the Authority has not yet billed to recapture the overpayment.
All Vouchers Not Used
As noted previously, the Authority has not used all of its vouchers. In 2002, the
Authority averaged 57 unused vouchers and achieved a 73 percent utilization3 rate.
During 2005, the Authority achieved a 92 percent utilization rate. HUD expects a
standard performing authority to maintain an average utilization rate at or above 95
percent. As of March 31, 2006, the Authority had 18 unused vouchers. Based upon
the average value of the Authority’s vouchers, reallocation of these vouchers to
ensure their use would result in approximately $210,704 annually in cost efficiencies
or funds to be put to better use. The executive director attributed the inability to use
all vouchers to a shortage of available units within the Authority’s jurisdiction.
Conclusion
The Authority did not distribute all vouchers in accordance with HUD regulations.
In an effort to prevent the vouchers from being recaptured, the Authority improperly
issued 22 vouchers. Obtaining a HUD waiver or redistributing the improperly
3
Utilization is measured by dividing the average number of units leased during the year by the number of units
under contract.
6
issued vouchers when the recipients leave the program would ensure that these
vouchers are administered in accordance with HUD regulations. The Authority also
made $49,483 in erroneous housing assistance payments, and has not used all its
vouchers. Reissuance of the voucher used for an ineligible unit would result in
annual cost savings of $11,460 and redistribution of the Authority’s unused
vouchers would result in cost efficiencies or funds to be put to better use of
$210,704.
Recommendations
We recommend that the director, Office of Public Housing, New York Hub,
1A Recapture the Authority’s unused vouchers so that they may be used in
another voucher program, or alternatively, assist the auditee to fully utilize
its vouchers, resulting in approximately $210,704 in cost efficiencies or
funds to be put to better use.
In addition, we recommend that the director, Office of Public Housing, New York
Hub, instruct the Authority to
1B Seek a waiver from HUD for the approval of the 16 improperly distributed
Section 8 vouchers currently issued to tenants residing outside of the
Authority’s jurisdiction and return these vouchers to the program for
proper distribution as the participants leave the program.
1C Seek repayment of the $49,483 in ineligible and erroneous housing
assistance payments.
1D Terminate the housing assistance contract for the ineligible unit, after
providing for opportunity for a proper hearing, resulting in $11,460 in cost
savings or funds to be put to better use annually.
1E Implement controls to ensure that all voucher distributions are in
compliance with HUD regulations.
7
Finding 2: The Authority Did Not Adequately Document its Inspection
Process or Ensure that All Units Met Housing Quality
Standards
While the Authority ensured that its low-rent units were decent, safe, and sanitary, it lacked
adequate controls to document and track inspection activities performed to ensure that Section 8
units met housing quality standards, housing assistance payments were abated for
noncompliance, and quality control inspections were conducted. In addition, our inspection of
10 Section 8 units found that three failed to meet housing quality standards. These deficiencies
occurred because the Authority did not implement adequate controls over the housing quality
standards inspection process. Consequently, it lacked assurance that housing assistance
payments were made for decent, safe, and sanitary units and housing quality standards
inspections were conducted properly.
Inspections and Corrective
Action Not Adequately
Documented
The Authority lacked an adequate system to record and track housing quality
standards inspections. Housing Choice Voucher Program Handbook 7420.10g,
chapter 10, section 10.6, requires that the results of inspections be recorded on the
form HUD 52580-A or 52580. Our review of 31 tenant files disclosed that the
Authority documented inspections on the required form in eight cases and used an
inspection letter in seven cases. In the remaining 16 cases, the Authority did not
document the inspection results.
The Authority also lacked adequate controls to track the results of inspections and
ensure that housing assistance payments were abated when necessary. HUD’s
Housing Choice Voucher Program Guidebook 7420.10g, chapter 10, sections 10.7
and 10.9, require that a system be established to monitor whether inspections
occur within the required 12-month period and that deadlines for correction of
housing quality standards violations, reinspection to ensure compliance, and
abatements be tracked. The Authority’s administrative plan requires that
landlords notify the Authority that repairs have been completed and that the
Authority conduct reinspections to confirm that corrections were made. While the
Authority maintained a system to provide its contract inspector a list of the units
requiring inspection 90 to 120 days in advance, it did not track completed
inspections, reinspections, or abatements.
The files related to 22 units, which the Authority’s contract inspector failed
during the period January 2005 through December 2005, disclosed that in 18
cases, there was neither documentation that the deficiencies had been corrected
8
nor that the housing assistance payments had been abated.4 Further, in one
case, for which the Authority had abated housing assistance payments, it
resumed payments without documentation that the deficiencies had been
corrected. Consequently, there is no assurance that these units were in
compliance with housing quality standards. If the units were not in compliance,
the housing assistance payments should continue to be abated. As a result, we
question the $343,854, pending evidence that the units passed inspection.
The Authority stated that due to heavy workload, monitoring of completed
inspection reports is difficult to accomplish. In response to our audit, in January
2006, the Authority implemented a tracking system to record the dates of initial
inspections, annual inspections, reinspections, inspection results, and the date of
any letters sent to landlords, requesting that deficiencies be corrected. However,
this system does not track landlord responses or whether abatements were made
as required by the HUD guidebook.
Quality Control Inspections Not
Documented
Housing Choice Voucher Program Guidebook 7420.10g, chapter 10, section 10.7,
requires quality control inspections to ensure that contracted inspections are being
performed adequately. The Authority did not document any quality control
inspections. The executive director stated that quality control inspections are
performed but not documented. As a result, we could not independently verify that
the Authority performs the HUD-required quality control inspections.
Noncompliance with Housing
Quality Standards
The Authority did not always ensure that Section 8 units complied with
housing quality standards. Our inspection of 10 units found that three failed
to meet housing quality standards. Housing Choice Voucher Program
Guidebook 7420.10(G), chapter 10, section 10.3, requires, among other
conditions, that the electrical system be free of hazardous conditions,
including exposed and frayed wires, and that there be at least one battery-
operated or hard-wired smoke detector in operating condition. Two units had
electrical hazards, and one of those, as well as another unit, had inoperable
smoke detectors.
These deficiencies occurred because the Authority did not have adequate
controls over the housing quality standards inspection process. As a result, it
lacks assurance that Section 8 tenants are residing in decent, safe, and sanitary
4
Authorities must abate housing assistance payments to owners who do not comply with notifications to correct
deficiencies within 24 hours for life-threatening conditions and 30 days for other deficiencies.
9
housing. Upon learning of these conditions, the Authority inspected the three
units, at which time two passed, thus ensuring that the units were decent, safe,
and sanitary. The third unit failed re-inspection, and the housing assistance
payments were abated on May 1, 2006. Further, because the unit still does
not meet standards, it will be terminated from the program. This action
ensures that the $19,716 that would have been paid for the new contract term
will result in a cost savings or funds to be put to better use.
Conclusion
The Authority did not adequately document and track the results of inspections,
needed follow-up actions, and quality control inspections. In addition, the
Authority did not always ensure that units were in compliance with HUD’s
housing quality standards. Consequently, the Authority lacked assurance that
housing assistance payments were always made for units that met housing quality
standards.
Recommendations
We recommend that the director, Office of Public Housing, New York Hub,
require the Authority to
2A. Inspect the 18 units that failed to meet housing quality standards and the one
unit for which housing assistance payments were resumed to verify that the
landlords took appropriate action to correct deficiencies, thus ensuring that
$343,854 in housing assistance payments was properly paid. If appropriate
actions were not taken, the Authority should abate the associated housing
assistance payments and require that corrective action be taken.
2B. Establish and maintain a system to document and track housing quality
standards inspections and related actions in accordance with HUD
regulations.
2C. Establish a system to document that quality control inspections were
conducted in accordance with HUD regulations.
2D. Provide assurance that re-inspected units meet housing quality standards and
that the contract for the failed unit is terminated, thus ensuring that $19,716
in funds is appropriately put to better use.
10
Finding 3: The Authority Has Control Weaknesses in its Financial
Management System
The Authority implemented a financial management system that generally safeguarded funds.
However, control weaknesses caused $588,166 in disbursements for questionable and ineligible
costs. Contrary to regulations, the Authority did not properly document the allocation of
$471,166 in salaries among its various programs and $54,500 in shared services with its not-for-
profit entity, settle a lawsuit for $12,500 with HUD approval, make $50,000 in loans with proper
authorization, and calculate Section 8 administrative fees. These deficiencies occurred because
the Authority did not have policies and procedures to ensure that all disbursements were
allowable and that administrative fee calculations were properly supported. As a result, the
Authority was deprived of funds that could have been used to pay its operating expenses and
there is no assurance that earned administrative fees reported to HUD were correctly calculated.
Documentation Lacking for
Salary and Other Costs
During calendar years 2004 and 2005, the Authority improperly documented the
allocation of $471,166 in salaries among its various programs. The Authority
used the “operating budget schedules of all positions and salaries” submitted to
HUD as the basis for the salary allocation. However, there was no reasonable
basis for this allocation, since it was neither based on nor developed from actual
time distribution records. Further, the payroll records did not reflect the actual
time distributed to the various programs. This violates Section 9 (C) the
consolidated annual contributions contract, which requires the Authority to
maintain records to identify the source and use of funds allowing HUD to
determine that expenditures are in accordance with program requirements. An
Authority official acknowledged that the allocation of salaries is not based on a
plan developed from actual time and stated that the Authority will develop such a
plan and implement new payroll documentation procedures.
The Authority also did not properly allocate $54,500 in shared services with the
not-for-profit entity. The Authority executed a contract for technical management
consultant services and charged the entire amount to its Public Housing Capital
Fund program. However, both the request for proposal and the contract indicated
that the contractor would also provide assistance to the not-for-profit entity.
Consequently, the Authority should have developed a cost allocation plan to
equitably prorate the cost of these shared services with the not-for-profit entity.
HUD Approval Not Obtained
for a Lawsuit Settlement
The Authority settled a lawsuit for $12,500 in May 2005 without obtaining HUD
approval as required by HUD Handbook 1530.1, chapter 5, section 5-3C. According
11
to the handbook, HUD’s written agreement is required before accepting any
settlement arising out of litigation. The executive director stated that he was
unaware that such approval was needed. However, since part A, section 5, of the
consolidated annual contributions contract requires that the Authority comply with
all applicable statutes, executive orders, and regulations issued by HUD, the
Authority should have sought HUD approval.
Unauthorized Loans to the Not-
For-Profit
The Authority loaned its not-for-profit entity $50,000, consisting of $40,000 from
the Section 8 program account to finance the development of the not-for-profit
entity and $10,000 from the general fund to assist the not-for-profit in meeting its
obligations. While the $40,000 loan was approved by the board and both loans
were repaid by the not-for-profit, such loans violate section 9(C), entitled
“Depository Agreement and General Fund,” of the Authority’s consolidated
annual contributions contract, which requires that HUD approval be obtained for
expenditures for purposes other than to pay project development and operation
costs and to purchase investment securities.
Improper Calculation of
Administrative Fees
The Authority incorrectly calculated its earned Section 8 administrative fees.
This occurred because in its fee calculation, the Authority erroneously included
units leased to families receiving portable vouchers 5 and units terminated from
the program. During the period January 2004 through October 2005, the
Authority received at least $1,945 in unearned administrative fees.
Further, the Authority lacked documentation for the number of units under lease
for a 14-month period. It could not provide 14 of the 22 monthly Section 8 “recap
of housing assistance payments” reports used to determine the number of units
leased during the period January 2004 through October 2005, and some of the
reports provided did not accurately reflect the number of families in the
Authority’s program. Consequently, we could not determine whether
administrative fees for the missing 14 months were calculated correctly, and there
is no assurance that the Authority reported accurate leasing information to HUD
through the Voucher Management System. 6
5
Portable vouchers represent vouchers that the Authority administers for another authority related to tenants who
rent units within the Authority’s jurisdiction with vouchers issued by the other authority. The other authority
receives funding from HUD for the vouchers, and the Authority bills the other authority for housing assistance
payments and a share of the administrative fee.
6
The Voucher Management System provides a central system to monitor and manage the authorities’ vouchers by
collecting data, enabling HUD to fund, obligate, and disburse funding in a timely manner based on actual voucher
use.
12
Conclusion
The Authority did not establish adequate controls over its financial management
system to properly allocate costs and to obtain approval to disburse funds for
lawsuit settlements and make loans to its not-for-profit. As a result, it was
deprived of funds that could have been used to pay its operating expenses.
Further, the Authority did not have adequate controls to ensure that its employees
maintained records in accordance with HUD requirements. Therefore, there is no
assurance that information it submitted to HUD through the Voucher
Management System was accurate and that earned administrative fees were
correctly calculated. Consequently, incorrect data could result in the Authority
receiving more voucher funding than is needed.
Recommendations
We recommend that the director, Office of Public Housing, New York Hub,
require the Authority to
3A Develop a cost allocation plan based on actual time to support salaries
charged to various HUD programs.
3B Develop an equitable cost allocation of shared resources with the not-for-
profit entity.
3C Obtain approval for the $12,500 and any future lawsuit settlements as
required by HUD regulations.
3D Develop and implement controls to ensure that funds are only used for
their intended purposes as required by consolidated annual contributions
contract.
3E Reimburse the Section 8 program $1,945 for excessive Section 8
administrative fees calculated due to duplicate billings for portable
vouchers and the inclusion of terminated units.
3F Provide documentation to HUD, which demonstrates whether
administrative fees were calculated correctly during the period January 1,
2004, through October 31, 2005. If additional fees are found to be
unearned, the Authority should reimburse HUD.
3G Develop and implement procedures to ensure that monthly Section 8
“recap of housing assistance payments” reports accurately reflect the units
under lease.
13
Finding 4: The Authority Transferred Properties to the Not-for-Profit
Entity without Clear Title
The Authority generally operated the activities of the not-for-profit entity in accordance with
HUD regulations. However, management control weaknesses allowed activities contrary to
HUD regulations. For example, the Authority did not obtain, as required by HUD regulations, a
partial release of declaration of trust when it transferred six of seven scattered-site properties to
the not-for-profit. This release ensures that property is transferred with clear title.
Consequently, the not-for-profit entity did not have legal ownership of the properties when it
sold five of six properties to eligible residents under the Section 5(h) homeownership program.
Authority officials were unaware that a partial release of declaration of trust should have been
obtained from HUD before the properties were transferred and sold. As a result, the position of
the Authority and the not-for-profit could be compromised in any legal issue.
Properties Improperly
Transferred to Not-For-Profit
The Authority improperly transferred six of seven scattered-site properties to the
not-for-profit entity for sale under its Section 5(h) homeownership program.
Section 5(h), part I, section 2.2, of the implementing agreement between the
Authority and HUD provides that when property is transferred by the Authority in
accordance with the homeownership plan, HUD will release the title restrictions
prescribed by the annual contributions contract. Nevertheless, as shown in the
chart below, the Authority transferred six properties to the not-for-profit entity by
board resolution without obtaining a HUD-executed release of the title
restrictions, known as a partial release of declaration of trust. Consequently,
when the not-for-profit sold five of six properties to eligible residents under the
Authority’s homeownership program, it did not have legal title. The Authority
has yet to obtain the release for two properties.
Property Date transferred Date sold Date of release
(1) Aug. 12, 2003 Aug. 25, 2003 Mar. 22, 2004
(2) Nov. 18, 2003 Jan. 12, 2004 June 4, 2004
(3) Nov. 18, 2003 July 29, 2004 June 9, 2004
(4) Sept. 30, 2004 Mar. 9, 2005 N/A
(5) Mar. 31, 2005 Apr. 6, 2005 N/A
(6) June 20, 2005 June 21, 2005 Sept. 8, 2005
The executive director agreed that the properties were transferred without a partial
release of declaration of trust and stated that the declarations of trust will be
obtained before transferring the remaining four scattered-site properties to the not-
for-profit entity.
14
Conclusion
Weaknesses in the not-for-profit’s management controls that permitted properties
to be sold to participants in the homeownership program without clear title could
result in compromising the position of either the Authority or the not-for-profit in
any legal proceedings.
Recommendations
We recommend that the director, Office of Public Housing, New York Hub,
require the Authority to
4A Obtain executed partial releases of declaration of trust from HUD for the
two properties that have been sold without such releases.
4B Establish procedures that will ensure that clear title is obtained through
HUD’s partial release of declaration of trust before transferring and selling
any future properties under the homeownership program.
15
SCOPE AND METHODOLOGY
To accomplish our objectives, we reviewed applicable laws, regulations, HUD handbooks,
guidebooks, notices, and directives. We interviewed HUD field office and Authority officials
and reviewed board-meeting minutes to obtain an understanding of the Authority’s policies,
procedures, and internal controls. We obtained and analyzed HUD field office monitoring
reports and independent public accountant audit reports for fiscal years 2003 and 2004 to identify
reported internal control weakness and potential negative trends.
We analyzed the Authority’s bank reconciliations, bank statements, cancelled checks, check
registers, payment vouchers, payroll records, and general ledgers to assess internal controls and
review disbursements. We also reviewed documentation relating to the not-for-profit’s activities
to ensure compliance with HUD requirements.
We selected a sample of 10 tenant files (five Section 8 and five low-rent housing) to assess
whether the Authority accurately determined tenant eligibility and housing assistance payments
and performed recertifications in a timely manner. To determine the Authority’s compliance
with housing quality standards, we selected a sample of 10 Section 8 and five low-rent housing
units for inspection. To determine whether the Authority was monitoring inspection results and
abating housing assistance payments when necessary, we analyzed the files of 28 Section 8 units
that the Authority reported as not meeting housing quality standards during calendar year 2005.
We also reviewed several monthly reports provided on Section 8 units leased during the period
January 1, 2004, through October 31, 2005, to determine whether administrative fees were
correctly earned.
The review generally covered the period January 1, 2004, through October 31, 2005, and was
expanded as deemed necessary. Audit fieldwork was performed from November 2005 through
May 2006. We performed our review in accordance with generally accepted government
auditing standards.
16
INTERNAL CONTROLS
Internal controls are 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:
• Program operations - Policies and procedures that management has
implemented to reasonably ensure that a program meets its 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 resources - Policies and procedures that management has
implemented to reasonably ensure that resources are safeguarded against
waste, loss, and misuse.
• 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.
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.
17
Significant Weaknesses
Based on our review, we believe the following items are significant weaknesses:
• The Authority did not have controls to ensure vouchers were used only in
authorized jurisdictions (see finding 1).
• The Authority did not have adequate controls to ensure that unit inspections
were documented and tracked, housing assistance payments were
appropriately abated for noncompliance, and housing quality control
inspections complied with HUD requirements (see finding 2).
• The Authority did not have controls to ensure that all disbursements were
properly documented and approved, and that monthly Section 8 “recap of
housing assistance payments” reports accurately reflected the units under
lease (see finding 3).
• The Authority did not ensure that properties were properly transferred to
its not-for-profit entity (see finding 4).
18
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Recommendation Ineligible 1/ Unsupported Funds to be put
number 2/ to better use 3/
1A $ 210,704
1C $ 49,483
1D 11,460
2A $ 343,854
2D 19,716
3C 12,500
3E 1,945 _________ _________
Total $ 51,428 $ 356,354 $ 241,880
1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
that the auditor believes are not allowable by law; contract; or federal, state, or local
polices or regulations.
2/ 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.
3/ “Funds to be put to better use” are estimates of amounts that could be used more
efficiently if an Office of Inspector General (OIG) recommendation is implemented.
This includes reductions in outlays, deobligation of funds, withdrawal of interest subsidy
costs, costs not incurred by implementing recommended improvements, avoidance of
unnecessary expenditures noted in preaward reviews, and any other savings which are
specifically identified.
19
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
20
Appendix B
Ref to OIG Evaluation Auditee Comments
Comment 1
Comment 2
21
Appendix B
Ref to OIG Evaluation Auditee Comments
Comment 2
Comment 3
Comment 4
Comment 5
22
Appendix B
Ref to OIG Evaluation Auditee Comments
Comment 6
Comment 5
Comment 5
Comment 5
23
OIG Evaluation of Auditee Comments
Comment 1 The auditee agreed that it issued 22 Section 8 vouchers outside of its jurisdiction.
However, the auditee should have obtained a written waiver from HUD to issue
and manage these 22 vouchers because the vouchers were issued contrary to HUD
portable voucher regulations since the local housing authority where the vouchers
were used did not administer a Section 8 program and the local Section 8 program
officials advised the auditee that it did not have the capacity to manage the 22
vouchers.
Comment 2 The auditee agreed to investigate and terminate the HAP contract if warranted.
We further recommend that the individuals involved be given an opportunity to
request an informal hearing prior to deciding whether to terminate the contract.
Comment 3 The auditee concurred that inspections and corrective action were not properly
documented and advised that it has instituted new procedures to improve controls;
however, HUD officials need to verify that these procedures will address the
weaknesses we identified.
Comment 4 The auditee concurred that housing quality control inspections were not always
properly documented and has discontinued the use of a letter to record the results
of inspections. Since we found that inspections were not always documented,
HUD will need to verify that the additional controls the auditee plans to
implement will ensure that inspection results are properly documented.
Comment 5 The auditee’s actions are responsive to our recommendation.
Comment 6 The auditee agreed with our recommendations; however, HUD officials need to
verify that the corrective action was taken.
24
The Freeport Housing Authority, Freeport, New York Has Financial and Management Control Weaknesses
Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-06-30.
Below is a raw (and likely hideous) rendition of the original report. (PDF)