oversight

The Housing Authority of the City of Weirton, Weirton, West Virginia, Needed to Improve Its Administration of Its HUD-Funded Programs

Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-12-18.

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

                                                                 Issue Date
                                                                         December 18, 2006
                                                                 Audit Report Number
                                                                         2007-PH-1003




TO:        William D. Tamburrino, Director, Baltimore Public Housing Program Hub,
            3BPH

           Candace S. Simms, Director, Maryland/West Virginia Public Housing Division,
             3BPH


FROM:



SUBJECT:   The Housing Authority of the City of Weirton, Weirton, West Virginia, Needed
            to Improve Its Administration of Its HUD-Funded Programs


                                  HIGHLIGHTS

 What We Audited and Why

           We audited the Housing Authority of the City of Weirton (Authority) as part of
           our fiscal year 2006 annual audit plan. Our objective was to determine whether
           the Authority properly administered its U.S. Department of Housing and Urban
           Development (HUD)-funded programs in accordance with HUD and federal
           requirements.

 What We Found


           The Authority did not properly administer its HUD-funded programs in
           accordance with HUD and federal requirements. The Authority did not follow
           federal procurement regulations when awarding consultant and construction
           contracts, prevent conflict-of-interest situations from occurring, operate its family
           resource center as intended, properly allocate costs among its programs, and
           properly administer its Section 8 program. The Authority is currently working
           under a memorandum of agreement and other procedures with HUD to correct
           numerous deficiencies in its HUD programs, including most of the deficiencies
           identified in our audit.

What We Recommend


           Because HUD is addressing program deficiencies with the Authority through a
           memorandum of agreement and other procedures, we did not recommend
           corrective action.

Auditee’s Response


           We discussed the report with the Authority during the audit and at an exit conference
           on November 30, 2006. The Authority provided written comments to our draft
           report on December 14, 2006. In its response, the Authority agreed with the report
           and stated it will work to improve its financial stability. The complete text of the
           Authority’s response can be found in appendix A of this report.




                                             2
                           TABLE OF CONTENTS

Background and Objectives                                                 4

Results of Audit
      Finding: The Authority Did Not Properly Administer Its HUD-Funded   5
      Programs

Scope and Methodology                                                     11

Internal Controls                                                         12

Appendixes
   A. Auditee Comments                                                    14




                                           3
                      BACKGROUND AND OBJECTIVES

The Housing Authority of the City of Weirton (Authority) was established under the laws of the
State of West 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. A five-member board of commissioners governs the
Authority. The Authority’s executive director is George Vargo. Its administrative office is
located at 525 Cove Road, Weirton, West Virginia. The Authority has eight employees.

The Authority owned and operated 116 public housing units and administered 535 Section 8
housing vouchers under annual contributions contracts with HUD during the audit. The annual
contributions contract defines the terms and conditions under which the Authority agrees to
develop and operate all projects under the agreement. HUD authorized the Authority the
following financial assistance for years 2004 through 2006:

   •   $5.1 million to provide housing assistance through tenant-based Section 8 housing choice
       vouchers,

   •   $557,000 in operating subsidies to operate and maintain its low-income housing
       developments, and

   •   $483,000 in Public Housing Capital Fund program funding to modernize its low-income
       public housing units.

The Authority has a component unit known as Holidays Cove Corporation. The corporation is a
registered nonprofit and owns a duplex.

The Authority built a family resource center on its property in 2002. According to its mission
statement, the center is for the benefit of the tenants residing in the Authority’s public housing
developments to house educational, job training, job retraining, job readiness, and youth
programs and educational, physical, and family mentoring services.

The Authority’s 2005 Public Housing Assessment System score designated the Authority as
troubled. Its overall score was 63 of 100 possible points. It failed the physical assessment and
financial assessment indicators, scoring 17 of 30 possible points on the physical assessment
indicator and 9 of 30 possible points on the financial assessment indicator.

The Authority has limited computer availability. Many records are created and maintained
manually. The Authority’s fiscal year runs from April 1 to March 31.

Our objective was to determine whether the Authority administered its HUD-funded programs in
accordance with HUD and federal requirements.




                                                  4
                                         RESULTS OF AUDIT

Finding: The Authority Did Not Properly Administer Its HUD-Funded
Programs
The Authority did not administer its HUD-funded programs in accordance with HUD and federal
requirements. It did not acquire goods and services in accordance with federal procurement
regulations, prevent conflict-of-interest situations from occurring, operate its family resource
center as intended, properly allocate costs among its programs, and properly administer its
Section 8 program. HUD is addressing program deficiencies, including most that we identified,
with the Authority through a memorandum of agreement and other procedures. Because HUD is
in the process of addressing deficiencies in the Authority’s operations and performance, we did
not recommend corrective action.


    The Authority Did Not Acquire
    Goods and Services in
    Accordance with Federal
    Procurement Regulations


                    The Authority did not follow federal procurement regulations and its own
                    procurement policy for acquiring goods and services. Because the Authority did
                    not maintain a contract register, we selected five payments valued at $61,129
                    from the Authority’s vendor payment history from its fiscal years 2004 and 2005
                    to perform our review. The five payments ranged from $600 to $23,319 and
                    included payments for accounting, computer, and construction services. We
                    requested the Authority’s files supporting the purchases. The Authority did not
                    maintain contract files for four of the purchases totaling $42,179. Thus, the
                    Authority could not demonstrate that it complied with federal procurement
                    regulations or its own procurement policy. HUD regulations 1 and the Authority’s
                    procurement policy 2 require the Authority to maintain sufficient documentation
                    regarding the history of the procurement, including as a minimum, the method of
                    procurement chosen, the selection of the contract type, the rationale for selecting
                    or rejecting offers, and the basis for the contract price. The Authority’s small
                    purchase threshold is $10,000. Small purchases of $1,000 or less must be
                    supported by one quotation if the price received is considered reasonable. Small
                    purchases over $1,000 but not more than $10,000 require that the Authority solicit
                    and obtain no fewer than three price quotations. As noted above, the Authority
                    did not provide any documentation for four of the purchases we reviewed.



1
    24 CFR [Code of Federal Regulations] 85.36b(9)
2
    Procurement Policy of the Housing Authority of the City of Weirton, revised April 25, 1991, section II.B.2


                                                           5
                   For the one purchase totaling $18,950 that was supported by a contract file, the
                   Authority received only one bid and contracted with the bidder to do the work.
                   Although federal regulations 3 required the Authority to perform an independent
                   analysis of cost or price for all procurement actions, including modifications,
                   before receiving bids, there was no documentation in the file to demonstrate that
                   the Authority complied with this requirement. In this case, there was an initial
                   contract valued at $18,150 and an $800 change order.

    The Authority Did Not Prevent
    Conflict-of-Interest Situations
    from Occurring


                   Existing conflict-of-interest situations may be hindering the Authority’s
                   operations. The Authority’s executive director serves as executive director for
                   both the Authority and its affiliated nonprofit entity. He also serves as the
                   contracting official for both organizations, is the paid director of the local Boys
                   and Girls Club of America, and coaches the local high school boys’ basketball
                   team. The Boys and Girls Club used the Authority’s family resource center for
                   daily after-school activities (see discussion of the family resource center below).
                   Further, an Authority employee is holding two paid positions, which may also be
                   a hindrance to the operations of the Authority. This employee is employed as the
                   part-time check writer for the Authority’s Section 8 program but is also employed
                   by the City of Weirton as its full-time director of social services. The Authority’s
                   consolidated annual contributions contract prohibits conflicts of interest. 4

    The Authority Did Not Operate
    Its Family Resource Center as
    Intended


                   The Authority built a family resource center on its property using a combination
                   of Community Development Block Grant funds, capital funds, and other private
                   funding, but it did not appear to be benefiting the tenants residing in the
                   Authority’s public housing developments as intended. HUD funds are intended to
                   benefit low- and moderate-income families. According to its mission statement,
                   the center would be used to house educational, job training, job retraining, job
                   readiness, and youth programs and educational, physical, and family mentoring
                   services. However, the Authority could not provide participant sheets to
                   demonstrate that the facility was accomplishing its mission. Further, HUD’s
                   Office of Inspector General (OIG) staff visited the center in 2004 and found that
                   the facility was being used mainly as a basketball court. The staff concluded that
                   the center did not seem to be used for the activities that were stated in the mission
                   statement and that it may not have been benefiting the tenants of the Authority’s

3
    24 CFR [Code of Federal Regulations] 85.36(f)(1)
4
    Section 19


                                                       6
                   public housing developments. It appeared that the center was used by the Boys
                   and Girls Club rather than the public housing residents for the programs intended.

                   The Authority did not appear to be operating its family resource center in a
                   fiscally responsible manner. It appeared that the center did not generate sufficient
                   funds to sustain its operations. A September 2004 cooperative agreement
                   between the Authority and the Boys and Girls Club delineates the responsibilities
                   of each party relative to the club’s use of the family resource center. The
                   agreement required the club to pay $300 monthly to use the center Monday
                   through Friday from 4:45 p.m. to 7:00 p.m. daily. This equates to a rental fee of
                   about $6.66 per hour, assuming 20 days of use during the month.

    The Authority Did Not Properly
    Allocate Costs among Its
    Programs


                   The Authority did not properly allocate costs among its Section 8 and public
                   housing programs. For 2004 and 2005, the Authority’s operating expenses were
                   $862,078 and $772,260, respectively. The Authority allocated costs such as
                   salaries, travel, training, telephone, accounting and auditing services,
                   memberships, and Internet services between its Section 8 and low-rent public
                   housing programs. Most of the costs were allocated evenly between Section 8
                   and public housing. However, some costs such as legal, automobile, insurance,
                   and rent were allocated entirely, or nearly entirely, to either Section 8 or public
                   housing. Federal regulations 5 state that indirect costs incurred for a common cost
                   objective should be distributed equitably to the benefited cost objectives based on
                   the relative benefits derived. The Authority could not explain the basis for the
                   percentages except that they were determined by the Authority’s fee accountant.

                   The Authority also did not allocate certain costs to its affiliated nonprofit entity,
                   its family resource center, or its Public Housing Capital Fund program.
                   According to the April 2001 services agreement between the Authority and the
                   nonprofit, the Authority would provide services such as housing management,
                   client screening, contract administration services, budget development, and
                   preparation of grant and loan requests on a reimbursable basis as directed by the
                   nonprofit, and the Authority would invoice the nonprofit monthly. However, the
                   services agreement had a two-year term that ended on April 9, 2003. The services
                   agreement was not renewed. The Authority has not billed the nonprofit for any
                   expenses since 2003 although the Authority’s staff continues to dedicate time and
                   perform work tasks that directly benefit the nonprofit. According to the
                   Authority’s executive director, the Authority’s fee accountant recommended that
                   the Authority charge the nonprofit 1 percent of the executive director’s and his
                   administrative assistant’s salary beginning in the Authority’s fiscal year 2007. 6

5
    Office of Management and Budget Circular A-87, attachment C, section A.1
6
    April 1, 2006, to March 31, 2007


                                                        7
                The Authority’s staff also dedicates time and performs work tasks that directly
                benefit the family resource center. The Authority’s allocation methodology for
                2004 and 2005 did not include allocating any administrative costs to its family
                resource center or its Public Housing Capital Fund program.

    The Authority Did Not Properly
    Administer Its Section 8
    Program

                The Authority did not administer its Section 8 program according to HUD and
                federal regulations and its own policies and procedures. We reviewed various
                aspects of the Authority’s Section 8 program and noted the deficiencies described
                below.

                     •   The Authority did not update its administrative plan as needed. The latest
                         hard-copy version of the Authority’s administrative plan available to
                         employees was dated May 1999. We noted that although the Authority
                         was receiving automated updates to the administrative plan from a
                         consultant, it did not update its hard-copy administrative plan and make
                         the revised plan available to the employees administering the program.
                         HUD regulations require the Authority to administer its program in
                         accordance with its administrative plan. 7

                     •   The Authority did not properly maintain its Section 8 waiting list.
                         According to the Authority’s administrative plan, 8 the waiting list will be
                         maintained, and applicants will be selected based on the date and time of
                         application. However, when the Authority provided us a hard-copy
                         printout of its waiting list, the results were sorted out of order. That is, for
                         applications received on the same day, applicants who applied at 2:00 p.m.
                         were listed before the applicants who applied at 10:00 a.m.

                         The Authority did not periodically review and purge its waiting list. It
                         stored its waiting list on an automated spreadsheet. As of May 2006, the
                         waiting list had 3,860 entries on it. The majority of the entries were dated
                         between September 1998 and May 2006. However, the waiting list
                         included 26 entries with no names, 13 entries with dates before August
                         1931, two entries with dates in the future, three entries with illogical
                         entries in the name field, and multiple entries for several applicants. The
                         Authority’s goal should be to maintain an accurate waiting list. HUD
                         guidance 9 advises housing authorities to maintain an up-to-date waiting
                         list. An up-to-date and well-managed waiting list promotes fair and


7
  24 CFR [Code of Federal Regulations] 982.54
8
  Chapter 4, section F
9
  Housing Choice Voucher Program Guidebook, chapter 4, section 4.5


                                                      8
                         consistent treatment of families and ensures that needy families receive
                         assistance as quickly as possible.

                     •   The Authority assisted a client who was not on the waiting list. In our
                         review of five client files, we found that one client was receiving
                         assistance, however, their name was not on the waiting list. This client
                         received assistance from December 2004 to October 2005, when the
                         Authority terminated the client for failure to properly report income.
                         However, the Authority readmitted this client to the program in January
                         2006. We reviewed the Authority’s Section 8 waiting list and found no
                         evidence that this client was ever on it. HUD regulations 10 and the
                         Authority’s administrative plan 11 state that except for special admissions,
                         applicants will be selected from the waiting list.

                     •   The Authority did not document vacancy information needed to properly
                         manage the program on its housing assistance payment register. Contrary
                         to HUD guidance, 12 the Authority’s manual housing assistance payment
                         register did not include a means to record dates on which clients vacated
                         their housing units and calculate the number of days the unit was vacant.
                         By accumulating this information, the Authority would be able to verify
                         and adjust monthly rental payments to landlords.

                     •   The Authority’s housing inspectors did not always complete inspection
                         forms thoroughly. In two of the five Section 8 client files reviewed, the
                         housing inspector annotated the inspection result (fail) and signed the
                         inspection report; however, there were few other markings and/or notes
                         documenting the inspection. The lack of notes and/or markings raises
                         concern about the authenticity and quality of the inspections.

     HUD Is Addressing Deficiencies
     in the Authority’s Programs

                HUD has determined that the Authority has not properly administered its HUD
                programs and has taken action to have the Authority comply with applicable rules
                and regulations and improve its performance. HUD completed an assessment of
                the Authority’s low-income public housing programs in May 2004. The
                assessment disclosed deficiencies in several aspects of the Authority’s operations,
                including financial management and procurement, housing management, property
                maintenance, and management information systems, and also addressed funding
                and use of the family resource center, training for the board of commissioners,
                and conflicts of interest.


10
   24 CFR [Code of Federal Regulations] 982.204(a)
11
   Chapter 4, section A
12
   HUD Handbook 7420.6, chapter 3, section 12h


                                                     9
             In August 2004, HUD entered into a memorandum of agreement with the
             Authority as a binding contractual agreement for the Authority to improve its
             performance. The agreement included performance targets and strategies for
             various aspects of the Authority’s operations, including finance and procurement,
             housing management, property maintenance, resident services and initiatives,
             security, and management information systems, and also addressed training for
             the members of the Authority’s board of commissioners, conflicts of interest, and
             funding and use of the family resource center. The term of the agreement was
             from September 1, 2004, to August 31, 2005. However, as of April 2006, the
             Authority had not satisfactorily complied with the requirements of the agreement,
             and HUD extended the expiration date of the memorandum of agreement to
             May 31, 2006. Consequently, HUD and the Authority entered into a new
             memorandum of agreement on May 12, 2006. The term of the new agreement is
             from May 12, 2006, to May 31, 2007. This second memorandum of agreement
             addressed many of the same performance targets and strategies included in the
             first memorandum of agreement, such as finance and procurement, housing
             management, property maintenance, management information system, training for
             the members of the Authority’s board of commissioners, and funding and use of
             the family resource center.

             HUD also conducted an on-site consolidated review in August 2006 and
             identified deficiencies in the Authority’s operations. During the routine visit,
             HUD reviewed various aspects of the Authority’s operations including correction
             of emergency health and safety violations, its Management Assessment
             Subsystem certification, its Section 8 Management Assessment Program, its
             Enterprise Income Verification, and its rental integrity monitoring. HUD
             identified significant problems in four of the five aspects of the Authority’s
             operations. HUD found no significant problems with the Authority’s correction
             of emergency health and safety violations. HUD required the Authority to
             implement corrective actions and report on its progress by November 13, 2006.

Conclusion


             The audit results show that the Authority did not properly administer its HUD-
             funded programs. However, since HUD is addressing program deficiencies with
             the Authority through a memorandum of agreement and other procedures, we did
             not consider it practical to perform additional audit work until HUD has had an
             opportunity to resolve the issues covered by the memorandum of agreement and
             its other reviews. Accordingly, we did not recommend corrective action.
             Nonetheless, we will include the Authority in our future risk assessments and hold
             open the potential to initiate another audit of the Authority.




                                             10
                        SCOPE AND METHODOLOGY

We performed the audit at the Authority in Weirton, West Virginia, from April through July 2006.
The audit was performed in accordance with generally accepted government auditing standards and
included tests of internal controls that we considered necessary.

The audit covered transactions representative of operations current at the time of the audit and
included the period April 2003 through March 2005. We expanded the scope of the audit as
necessary. We reviewed the Authority’s consolidated annual contributions contracts with HUD
and applicable program regulations and guidance. We discussed operations with management
and staff personnel at the Authority and key officials from HUD’s Charleston, West Virginia,
field office. Although we used computer processed data during our review it was not significant
to the audit results. Therefore, we did not assess the reliability of the data.

To determine whether the Authority properly administered its HUD-funded programs, we

   •   Reviewed applicable HUD and federal regulations to gain an understanding of the
       Authority’s programs.

   •   Reviewed the Authority’s fiscal years 2004 and 2005 audited financial statements and
       annual plans.

   •   Reviewed the Authority’s written policies and procedures.

   •   Reviewed the Authority’s August 2004 and May 2006 memorandums of agreement with
       HUD.

   •   Reviewed reports from recent reviews performed by HUD and other HUD
       correspondence.

   •   Reviewed the Authority’s cash disbursements journal, bank statements, and invoices.

   •   Reviewed contract files.

   •   Reviewed the Authority’s cost allocation methodology.

   •   Reviewed files maintained by the Authority for five Section 8 clients.

   •   Interviewed appropriate HUD and Authority personnel.




                                               11
                              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 objective:

                  •   Policies, procedures, control systems, and other management tools
                      implemented to ensure that the Authority administers its HUD-funded
                      programs in accordance with its annual contributions contracts and
                      applicable HUD and federal regulations.

              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

                  •   Follow federal procurement guidelines for purchasing goods and services,

                  •   Prevent conflict-of-interest situations from occurring,

                  •   Operate its family resource center as intended,



                                                12
•   Properly allocate costs, and

•   Properly administer its Section 8 Housing Choice Voucher program.




                              13
                APPENDIXES

Appendix A

             AUDITEE COMMENTS




                    14