oversight

The Alexandria Redevelopment and Housing Authority, Alexandria, VA, Improperly Used Section 8 Funds to Support Its Other Programs

Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-10-04.

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

                                                                 Issue Date
                                                                        October 4, 2005
                                                                 Audit Report Number
                                                                       2006-PH-1001




TO:           William D. Tamburrino, Director, Baltimore Public Housing Program Hub,
               3BPH
              Lee A. Palman, Director, Office of Public Housing, Washington, DC, Field
               Office, 3GPH


FROM:


SUBJECT:      The Alexandria Redevelopment and Housing Authority, Alexandria, VA,
               Improperly Used Section 8 Funds to Support Its Other Programs


                                  HIGHLIGHTS

 What We Audited and Why

           We audited the Alexandria Redevelopment and Housing Authority’s (Authority)
           use of Section 8 funds. The audit was conducted as part of our fiscal year 2005
           annual audit plan. Our objective was to determine whether the Authority
           improperly used Section 8 funds to support its other programs.

 What We Found

           Contrary to its consolidated annual contributions contracts, the Authority
           improperly used Section 8 funds to support its other programs. This occurred
           because the Authority did not have internal controls in place to track its Section 8
           administrative and housing assistance funds during the year, monitor and
           periodically settle the Section 8 programs’ due-to/due-from account, and prevent
           it from using Section 8 funds to support its other programs. As a result, the
           Authority improperly used $462,214 of Section 8 funds to support its other
           programs.

What We Recommend

           We recommend that the Authority repay its Section 8 programs $462,214 it
           improperly used to support its other programs. The Authority took action to repay
           that amount during the audit, therefore, no further action on this specific
           recommendation is required. We further recommend that HUD require the
           Authority to create and implement internal controls to track its Section 8
           administrative and housing assistance funds during the year, reconcile and settle
           its Section 8 due-to/due-from account monthly, and prevent it from improperly
           using Section 8 funds to support its other programs, thereby putting $462,214 to
           better use over a one-year period.

           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 discussed the report with the Authority during the audit and at an exit
           conference on September 12, 2005. The Authority provided written comments to
           our draft report on September 27, 2005. To its credit, the Authority was proactive
           and began implementing corrective actions to improve controls over its Section 8
           funds during the audit. The complete text of the Authority’s response, along with
           our evaluation of that response, can be found in appendix B of this report.




                                            2
                            TABLE OF CONTENTS


Background and Objectives                                                   4

Results of Audit
      Finding 1: The Authority Improperly Used Section 8 Funds to Support   5
      Its Other Programs

Scope and Methodology                                                       8

Internal Controls                                                           9

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use        11
   B. Auditee Comments and OIG’s Evaluation                                 12




                                            3
                     BACKGROUND AND OBJECTIVES


The Alexandria Redevelopment and Housing Authority (Authority) was organized under the
laws of the Commonwealth of Virginia to provide low-rent housing for qualified individuals in
accordance with the rules and regulations prescribed by the U.S. Department of Housing and
Urban Development (HUD) and other federal agencies. The Authority is responsible for
operating a low-rent housing program that provides housing for eligible families, operating
redevelopment and conservation programs, and the delivery of services to citizens of low-rent
housing and urban renewal areas through the encouragement and development of social and
economic opportunities. A nine-member board of commissioners governs the Authority. The
Alexandria City Council appoints the commissioners to four-year terms. The current executive
director is William M. Dearman. The Authority’s main administrative office is located at 600
North Fairfax Street, Alexandria, Virginia.

The Authority owns and manages 886 public housing units and administers 1,833 housing
vouchers under consolidated annual contributions contracts with HUD. The contracts define the
terms and conditions under which the Authority agrees to develop and operate all projects under
the agreements.

For fiscal years 2002 to 2004, HUD authorized the Authority the following financial assistance:

   •   Αn $8.4 million operating subsidy to operate and maintain its public housing
       developments.

   •   $4.5 million in Public Housing Capital Fund Program funding to modernize public
       housing units.

   •   $45.3 million to provide housing assistance through Section 8 Housing Choice Voucher
       and Section 8 Moderate Rehabilitation programs.

Under the Section 8 programs, the Authority makes rental assistance payments primarily to
landlords on behalf of eligible families. HUD compensates the Authority for the cost of
administering the programs through administrative fees. The Authority also holds an interest in
two limited partnerships organized under the laws of the Commonwealth of Virginia to provide
low-rent housing for qualified individuals.

The Authority uses a due-to/due-from accounting system to account for transactions between
funds and/or entities included within its general ledger. The Authority makes payments for all its
administrative expenses from a general fund account and allocates costs to its various programs
at that time.

The overall objective of our audit was to determine whether the Authority improperly used
Section 8 funds to support its other programs.



                                                4
                                    RESULTS OF AUDIT


Finding 1: The Authority Improperly Used Section 8 Funds to Support
Its Other Programs

Contrary to its consolidated annual contributions contracts, the Authority did not sufficiently
manage Section 8 funds HUD provided. This occurred because the Authority did not have
policies and procedures in place to track its Section 8 administrative and housing assistance
funds during the year, monitor and periodically settle the Section 8 programs’ due-to/due-from
account, and prevent it from using Section 8 funds to support its other programs. As a result, the
Authority improperly used $462,214 to pay expenses of its other programs. By creating and
implementing internal controls to adequately manage its Section 8 funds, the Authority will put
$462,214 to better use over a one-year period.




    The Authority Used Section 8
    Funds to Support Other
    Programs


                Contrary to its Section 8 consolidated annual contributions contracts 1 the
                Authority did not sufficiently manage its Section 8 funds and improperly used
                $462,214 in 2004 to pay expenses of its other programs. We analyzed the
                Authority’s Section 8 bank statements and Section 8 Year-End Settlement
                Statements as of December 31, 2004 and found the following:

                                            Description                                         Amount
                  Balance in the Authority’s Section 8 bank account                           $1,532,082
                  Amount that should be in the Authority’s Section 8 bank                     $1,994,296
                  account 2
                  Difference                                                                  ($ 462,214)

                The Authority’s Section 8 consolidated annual contributions contract required it
                to use funds HUD provided for its Section 8 programs to pay Section 8 program
                expenditures. However, our audit showed the Authority did not have policies,
                procedures, or other controls in place to track the various types of funds deposited
                into its Section 8 bank account and, therefore, could not identify what funds

1
 Sections 11.a, 13.c, and 14.a.
2
 The Authority’s 2004 Section 8 Year-End Settlement Statements showed it owed HUD $977,403, and its reserve
balance was $1,016,893. Therefore, the Authority’s Section 8 bank account should contain $1,994,296.


                                                      5
                 comprised the balance in the account. As a result, when the Authority withdrew
                 funds from this account, it had no assurance that it was using program funds
                 properly.

                 The Authority maintained a single bank account for its Section 8 Housing Choice
                 Voucher program and its Section 8 Moderate Rehabilitation program funds. 3 It
                 also commingled funds from its other programs into this account. However, it did
                 not maintain documentation to show why the other funds were deposited or when
                 the funds were to be repaid, if at all. The Authority needed to track its funds by
                 program category because HUD regulations restrict the Authority’s use of its
                 various program funds. For example, although HUD pays the Authority an
                 administrative fee as compensation for administering the Section 8 programs,
                 HUD policy restricts the use of earned administrative fees and administrative fee
                 reserves, depending on when the funds were appropriated. Also, the consolidated
                 annual contributions contract required the Authority to maintain complete and
                 accurate books of account and records for its programs, including records
                 identifying the source and application of its funds, and to demonstrate effective
                 control and accountability for program cash.

                 To resolve this issue, the Authority needed to repay its Section 8 account
                 $462,214 from nonfederal funds. It also needed to establish policies and
                 procedures to track its Section 8 funds during the year and prevent it from using
                 Section 8 funds improperly.


    The Authority Did Not Monitor
    and Settle Its Section 8 Due-
    to/Due-from Account


                 In addition to not tracking Section 8 funds, the Authority did not have policies
                 and procedures in place to monitor and periodically settle the Section 8 programs’
                 due-to/due-from account. As part of its routine operations, the Authority paid all
                 of its administrative expenses, including those of its Section 8 programs, from a
                 general fund account and allocated costs to its various programs. The Authority
                 used a due-to/due-from accounting system to record expenses and account for
                 transactions between funds and/or entities included within its general ledger. A
                 program or entity’s due-to balance represents amounts it owes another program or
                 entity (payables) for disbursements and/or advances made on its behalf.
                 Conversely, a due-from balance (receivable) represents an amount owed to the
                 program or entity.

                 Instead of monitoring the balance in its due-to/due-from account and settling it
                 periodically however, the Authority allowed the balance to fluctuate. The

3
 Includes funds provided by HUD for housing assistance payments, administrative fees, and the Authority’s
administrative fee reserves accumulated from prior years.


                                                       6
           Authority’s routine operations included reimbursing itself for amounts it
           advanced on behalf of the Section 8 programs by withdrawing funds from the
           Section 8 programs’ bank account and posting an accounting transaction reducing
           the Section 8 programs’ payables. According to the Authority’s finance director,
           the decision to withdraw and transfer funds, in terms of timing and amount, was
           based upon the need for funds by other programs and/or entities included in the
           Authority’s general ledger. The finance director did not consider the amount of
           the Section 8 programs’ payable when determining the amount of funds to be
           transferred. As a result, the lack of monitoring and settling the account
           contributed to the Authority’s eventual improper use of Section 8 funds.

           To more effectively manage its operations, the Authority should create and
           implement policies and procedures whereby it reconciles and settles its Section 8
           due-to/due-from account monthly.


The Authority Began Taking
Corrective Action


           During the audit, the Authority began taking immediate action to correct the
           deficiencies we noted. In this regard, in May 2005, the Authority deposited funds
           from nonfederal sources into its Section 8 bank account to repay the $462,214 it
           improperly used to support its other programs. The finance director also told us
           the Authority was preparing policies and procedures to track its Section 8 funds,
           periodically settle the Section 8 programs’ payables, and prevent it from
           improperly using Section 8 funds to support its other programs in the future. By
           implementing these controls to prevent further improper use of Section 8 funds,
           the Authority will put $462,214 to better use over a one-year period.

Recommendations



           We recommend that HUD direct the Authority to

           1A.    Repay its Section 8 programs $462,214 of housing assistance funds from
                  nonfederal sources.

           1B.    Create and implement policies and procedures to track Section 8
                  administrative and housing assistance funds during the year, reconcile and
                  settle the Section 8 due-to/due-from account monthly, and prevent the
                  Authority from improperly using Section 8 funds to support its other
                  programs, thereby putting $462,214 to better use over a one-year period.




                                            7
                         SCOPE AND METHODOLOGY


We performed the audit at the Authority in Alexandria, Virginia, from January through
September 2005. The audit was done in accordance with generally accepted government
auditing standards and included tests of internal controls that we considered necessary under the
circumstances.

The audit covered transactions representative of operations current at the time of the audit and
included the period January 2002 through December 2004. We expanded the scope of the audit
as necessary. We reviewed the Authority’s Section 8 consolidated annual contributions contracts
with HUD and other applicable program guidance. We discussed operations with management
and staff personnel at the Authority and key officials from HUD’s Washington, DC, field office.

To determine that the Authority improperly used HUD funds to support its other programs, we

   •   Reviewed deposit and withdrawal transactions recorded on the Authority's Section 8 bank
       account statements for the period January 2002 through December 2004, the Authority’s
       associated accounting transactions, general ledger accounts, and available supporting
       documentation.

   •   Reviewed the Authority’s Section 8 year-end settlement statements for years 2002
       through 2004.

   •   Interviewed Authority personnel.

   •   Reviewed the Authority’s independent auditor’s reports for fiscal years 2001 through
       2003.




                                                8
                                 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:

               •       Policies, procedures, and other management tools implemented to track
                       Section 8 funds during the year.

               •       Policies, procedures, and controls implemented to periodically settle the
                       Section 8 programs’ due-to/due-from account.

               •       Policies, procedures, and controls implemented to prevent Section 8 funds
                       from being used improperly.

              We assessed the relevant controls identified above.

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

 Significant Weaknesses


              Based on our review, we believe the following items are significant weaknesses:

              The Authority did not

                   •     Track its Section 8 funds during the year.


                                                   9
•   Periodically settle the Section 8 programs’ due-to/due-from account.

•   Prevent Section 8 funds from being used improperly.




                            10
                                       APPENDIXES


Appendix A

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

                  Recommendation          Ineligible 1/       Funds to be put
                         number                                to better use 2/
                                 1A       $462,214 *
                                 1B                             $462,214
                               Total       $462,214             $462,214

      * The Authority took action to repay this amount. No further action concerning this
      recommendation is required.


1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or federal, state, or local
     polices or regulations.

2/   “Funds to be put to better use” are quantifiable savings that are anticipated to occur if an
     Office of Inspector General (OIG) recommendation is implemented, resulting in reduced
     expenditures at a later time for the activities in question. This includes costs not incurred,
     deobligation of funds, withdrawal of interest, reductions in outlays, avoidance of
     unnecessary expenditures, loans and guarantees not made, and other savings.




                                              11
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         12
13
Comment 1




            14
                         OIG Evaluation of Auditee Comments


Comment 1   Our audit objective was to determine whether the Authority improperly used
            Section 8 funds to support its other programs. As such, our audit objective did
            not require us to audit the expenditures of the Authority’s other programs.
            However, as discussed in the audit report, the Authority violated its annual
            contributions contracts with HUD by improperly using Section 8 funds to pay
            expenses of its other programs.




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