oversight

The Atalanta Office of Public and Indian Housing Did Not Ensure That the Housing Authority of DeKalb County Accurately Implemented Its Memorandum of Agreement

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-01-10.

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

                                                                 Issue Date
                                                                  January 10, 2008

                                                                 Audit Report Number
                                                                  2008-AT-0001



TO:        Deborah Hernandez, Deputy Assistant Secretary for Field Operations, Office
             Public and Indian Housing, PQ




FROM:      James D. McKay, Regional Inspector General for Audit, 4AGA

SUBJECT: The Atlanta Office of Public and Indian Housing Did Not Ensure That the
         Housing Authority of DeKalb County Accurately Implemented Its Memorandum
         of Agreement


                                  HIGHLIGHTS

 What We Audited and Why

            We reviewed the U.S. Department of Housing and Urban Development (HUD)
            Atlanta Office of Public and Indian Housing’s (Public Housing) oversight of the
            Housing Authority of DeKalb County’s (Authority) compliance with its
            memorandum of agreement (agreement), as part of the Office of Inspector
            General’s (OIG) strategic plan.

            Our primary objective was to determine whether Public Housing adequately
            monitored the Authority’s implementation of operating improvements required in
            the agreement. Specifically, our objective was to determine whether Public
            Housing management controls and oversight processes used to monitor the
            implementation of the agreement were adequate.




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What We Found


           Public Housing did not ensure that the Authority accurately implemented its
           agreement. The Authority did not implement some tasks related to financial
           management and procurement. This occurred because Public Housing did not
           have adequate procedures in place for monitoring the agreement. As a result, the
           Authority was released from its agreement without fully completing and
           implementing it. Thus, HUD could not be assured that the Authority’s public
           housing program was managed in a manner consistent with sound financial
           practices.


What We Recommend


           We recommend that the Deputy Assistant Secretary for Public and Indian
           Housing Field Operations perform a comprehensive review of the procurement
           function at the Authority to ensure the procurement function is operating in
           accordance with federal and state regulations, and perform either staff or
           independent public accountant on-site review of the financial management
           internal controls to ensure that the Authority has adequate financial internal
           controls regarding the disbursement of funds prior approval.

           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 our review results with Public Housing officials during the audit.
           We provided a copy of the draft report to Public Housing officials on November
           27, 2007, for their comments and discussed the report with the officials at the exit
           conference on December 3, 2007. Public Housing provided written comments on
           December 17, 2007. Public Housing officials generally agreed with our finding
           and recommendations.

           The complete text of the auditee’s response, along with our evaluation of that
           response, can be found in appendix A of this report. The response includes a
           corrective action plan, which we reviewed and considered.




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                           TABLE OF CONTENTS

Background and Objectives                                                      4

Results of Audit
      Finding 1: Public Housing Did Not Ensure That the Authority Accurately   6
                 Implemented Its Agreement

Scope and Methodology                                                          12

Internal Controls                                                              13

Appendix
  A. Auditee Comments and OIG’s Evaluation                                     14




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                     BACKGROUND AND OBJECTIVES

The mission of the Office of Public and Indian Housing is to ensure safe, decent, and affordable
housing; create opportunities for residents’ self-sufficiency and independence; and assure fiscal
integrity by all program participants. To achieve this mission, the Office of Public and Indian
Housing aims to improve public housing authority management and service delivery efforts
through oversight, assistance, and selective intervention by highly skilled, diagnostic, and
results-oriented field personnel. The Housing Authority of DeKalb County (Authority) falls
within the jurisdiction of the Atlanta Office of Public Housing (Public Housing).

The Authority was placed on the U.S. Department of Housing and Urban Development’s (HUD)
troubled list based on its public housing assessment score for the fiscal year ending June 30,
2003. The Authority received a substandard score of zero for the financial indicator and an
overall score of 68. The substandard financial score was the result of the Authority’s failure to
submit audited financial statements for the fiscal year within the required timeframe. HUD
contracted with MDStrum Housing Services (MDStrum) to perform an independent assessment
of the Authority. MDStrum’s December 2004 report identified a number of areas needing
improvement. The report stated that the Authority did not have a centralized procurement
function and that the procurement files did not consistently show evidence of proper
procurement activity. MDStrum also reported that the Authority needed to develop formal
standard operating procedures for the finance area, including the development of written
instructions for the execution of every finance activity. Although internal memorandums and
letters of instruction were maintained for particular activities, these items were not
comprehensive and usually disseminated only to staff directly involved in the function affected.
According to the report, the Authority needed to develop a plan to review, revise, organize, and
formalize the various memorandums. Additionally, the agency needed to develop other
procedures as appropriate to form a comprehensive set of standard operating procedures, in the
form of a manual, for the finance area. Additional controls, in the form of written procedures
and revised practices, were needed to ensure the timely payment of invoices. Based on the
independent assessment, the Authority entered into a memorandum of agreement (agreement)
with Public Housing in May 2005 to correct the deficiencies identified in the independent
assessment.

Public Housing selected the oversight strategy of remotely monitoring the Authority’s
implementation of the tasks under the agreement. Under the remote monitoring strategy, Public
Housing required the Authority to submit monthly progress reports. The agreement monthly
progress reports submitted to Public Housing by the Authority stated the actions taken to
implement the performance targets and the completion dates and included supporting
documentation for the actions. Public Housing staff were responsible for ensuring that the
performance targets were met in terms of quantity, timeliness, and quality.

Public Housing released the Authority from its agreement in June 2006, within the first year of
the recovery period, based on the Authority’s certifying to having completed the tasks in the
agreement.


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Our objective was to determine whether Public Housing management controls and oversight
processes used to monitor the implementation of the agreement were adequate.




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                                RESULTS OF AUDIT

Finding 1: Public Housing Did Not Ensure That the Authority
           Accurately Implemented Its Agreement
Public Housing did not ensure that the Authority accurately implemented its agreement. The
Authority did not implement some tasks related to financial management and procurement. This
occurred because Public Housing did not have adequate detailed procedures in place for
monitoring the agreement. As a result, the Authority was released from its agreement without
fully completing and implementing it. Thus, HUD could not be assured that the Authority
completed the required tasks, which was one of the conditions for releasing the Authority from
its troubled designation.



 The Agreement


              The agreement executed between Public Housing and the Authority consisted of the
              following nine sections:

                     1.   Governance
                     2.   Organization
                     3.   Finance and procurement
                     4.   Housing management
                     5.   Property maintenance
                     6.   Resident services
                     7.   Modernization
                     8.   Security
                     9.   Management information systems

              Each section contained several tasks to be completed before the agreement was
              considered fulfilled and the Authority released from its troubled designation.

              We reviewed tasks under the governance, organization, finance and procurement,
              and property maintenance sections of the agreement. The supporting documentation
              submitted to fulfill the governance, organization, and property maintenance sections
              of the agreement appeared to support that the Authority implemented the required
              tasks. Although the documentation submitted by the Authority indicated that the
              tasks had been completed, interviews and discussions with Authority staff and
              verification of the supporting documentation submitted showed that a more in-depth
              review, including verification of the documentation submitted for these sections, was
              necessary.


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Finance Tasks Not
Implemented as Required

           The agreement required the Authority to develop a plan to facilitate the
           development of standard operating procedures consisting of comprehensive
           financial management and internal control policies and procedures. The
           Authority provided to Public Housing its draft internal control monitoring systems
           guidebook. The guidebook contained an internal control checklist which the
           Authority completed, indicating that the Authority did not (1) obtain approval
           from the accounting department regarding the availability of funds before issuing
           a purchase order or making an expenditure commitment and (2) obtain
           verification from the accounting and budget department that sufficient
           unobligated funds were available to meet the proposed expenditure before
           commitment of a payable or procurement. The Authority did not recognize or
           address this deficiency. Further, the Public Housing specialist responsible for this
           section did not have correspondence, files, or notes that documented his review of
           the information submitted. In addition, the documentation did not indicate that
           the specialist monitored or provided comments for this section of the agreement.

           Public Housing did not question why the Authority did not have controls in place
           for obtaining approval from the finance department before making commitments
           for purchases. The lack of controls caused the Authority to make excessive
           contract payments as noted in our prior audit (see audit report number 2007-AT-
           1006).

Some Procurement Tasks Not
Implemented


           Public Housing did not ensure that the Authority accurately implemented tasks
           related to procurement. The following are examples of procurement tasks that were
           not implemented as required by the agreement:

              •   Draft, review, and finalize procurement procedures and distribute to key
                  staff. The agreement required the Authority to submit revised procurement
                  procedures to Public Housing. The supporting documentation provided to
                  Public Housing in September 2005 did not include procurement procedures.
                  Consequently, Public Housing had no assurance that the Authority had
                  developed the procedures. The Authority did not draft procurement
                  procedures until February 2007, after it was released from the agreement in
                  June 2006. The agreement also required the Authority to provide training on
                  the procurement policy and procedures. The Authority certified that it
                  completed the training in September 2005; however, the sign-in sheet
                  submitted as support for completing this task indicated that the training was
                  held in October 2005. Public Housing staff did not question the discrepancy.


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                   In addition, Authority staff stated that they did not receive procurement
                   training.

               •   Develop a standard method of organization for all procurement files,
                   reorganize existing files, and maintain future procurement files to comply
                   with federal and state regulations. The agreement required the Authority to
                   submit a file organization outline and confirm the reorganization of contract
                   files. The Authority submitted a procurement policy, which did not contain
                   a procurement file organization outline or indicate whether contract files had
                   been reorganized. Our on-site review of nine contracts executed by the
                   Authority found that they did not comply with federal and state regulations.
                   In addition, organization of the procurement files reviewed was not
                   standardized, and none of the files reviewed contained all of the information
                   required by the agreement.

               •   Create and maintain a procurement register. The agreement required the
                   Authority to submit a completed procurement log. The Authority submitted
                   a finance consulting contract report to support its completion of this task.
                   The information did not support the creation and maintenance of a
                   procurement register. On-site discussions with the former executive director
                   and former chief operating officer in September 2006 revealed that they
                   were not aware of the requirement to maintain a comprehensive listing of all
                   contracts. The Authority did not begin maintaining a complete contract
                   register until September 2006, after it was released from the agreement.

            In all of the examples above, Public Housing staff provided no comments or
            assistance to the Authority to address the insufficient documentation submitted.
            Public Housing officials stated that they relied on the former executive director’s
            certification that the tasks were implemented as required by the agreement. Public
            Housing staff stated that they had concerns regarding the Authority’s procurement;
            however, no additional monitoring or technical assistance was provided to the
            Authority to ensure that the procurement tasks were adequately implemented.

United States Housing Act of
1937 Requirements

            The United States Housing Act of 1937 (Act), paragraph (j)(2)(A)(i), requires
            that, upon designating a public housing agency with more than 250 units as
            troubled, the HUD Secretary shall provide for an on-site, independent assessment
            of the management of the agency. The Act also requires Public Housing to enter
            into a memorandum of agreement with each troubled public housing agency.

            Such agreement shall set forth (1) targets for improving performance as measured
            by the performance indicators within a specified period; (2) strategies for meeting
            such targets, including a description of the technical assistance that the HUD

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           Secretary will make available to the agency; and (3) incentives or sanctions for
           effective implementation of such strategies.

           The Act states that, to the extent that Public Housing determines such action to be
           necessary to ensure the accuracy of any certification made under this section, an
           independent auditor shall be retained to review documentation or other
           information maintained by a public housing agency to substantiate each
           certification submitted by the agency.


Authority Remotely Monitored


           According to the general guidance available, Public Housing could choose to
           provide either on-site or remote monitoring of the Authority while it was under
           the agreement. Public Housing selected the oversight strategy of remotely
           monitoring the Authority’s implementation of the tasks. Under the remote
           monitoring strategy, Public Housing required the Authority to submit monthly
           progress reports showing the actions taken to implement the performance targets
           and the completion dates, along with supporting documentation for the actions.
           Public Housing staff were responsible for ensuring that the performance targets
           were met in terms of quantity, timeliness, and quality.

           Public Housing staff stated that they chose to remotely monitor the Authority’s
           implementation of the agreement because the Authority was designated as
           troubled for not submitting its financial statements in a timely manner. If the
           financial statements had been submitted in a timely manner, the Authority would
           have qualified as a high performer. Thus, they did not see a need to provide
           additional monitoring while the Authority was under the agreement. However,
           based on the independent assessment the Authority was designated as troubled in
           several areas of operations needing improvement for the Authority to operate
           efficiently and effectively, which were identified in the agreement.

           Public Housing’s lack of management controls and oversight processes used to
           monitor the agreement also contributed to the Authority’s not adequately
           implementing the agreement. Public Housing officials informed us that each
           section of the agreement was assigned to a specialist who was responsible for
           reviewing the supporting documentation and making the decision to accept or
           request more support for the tasks. The public housing director reviewed the final
           completed agreement but did not review the supporting documentation or the
           specialists’ decisions.




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 Lack of Detailed Guidance


             The Authority did not adequately implement the tasks under the agreement
             because of Public Housing’s lack of detailed guidance available to use when
             monitoring the implementation of the agreement. There is no guidance that
             provides instruction on how to determine which oversight strategy to use for
             housing authorities that are under memorandums of agreement. Although there is
             general guidance requiring the establishment of a memorandum of agreement for
             troubled housing authorities, there is no specific guidance in place that
             specifically addresses how the memorandum of agreement should be monitored.

             In addition, there is no guidance specifying which strategies should be used or
             whether they should or can be changed, based on a housing authority’s
             performance, during the period in which a housing authority is under a
             memorandum of agreement. There is no current handbook for monitoring
             troubled housing authorities. The only guidance available is the “Field Office
             Monitoring of Public Housing Agencies,” Handbook 7460.7, dated 1994, which
             has not been updated to incorporate changes within HUD and the program area.
             Updated guidance that provides specific instructions on how to select oversight
             strategies and provide monitoring would help ensure that housing authorities
             adequately implement the tasks under a memorandum of agreement.

Conclusion


             Overall, Public Housing did not ensure that the Authority implemented the
             agreement. The Authority was released from the agreement without fully
             implementing the tasks required based on the information submitted and the
             signed certifications provided by the former executive director. Public Housing
             relied on the documentation provided although the information did not accurately
             support proper completion of the tasks.

             Public Housing officials explained that no additional monitoring other than
             remote monitoring was necessary. Thus, they did not critically review the
             Authority’s monthly progress reports. Public Housing officials also stated that
             they only had the staff and funds to provide limited oversight of troubled housing
             authorities. However, considering that the Authority was a local housing
             authority, costs should not have been a factor in providing the necessary oversight
             to ensure that the agreement was properly implemented. Proper oversight was
             necessary to ensure the implementation of the agreement, especially when the
             documentation submitted did not adequately support the required operating
             improvements.


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Recommendations



          We recommend that the Deputy Assistant Secretary for Field Operations, Public
          and Indian Housing

             1A.        Perform a comprehensive review of the procurement function at
                        the Authority to ensure the procurement function is operating in
                        accordance with federal and state regulations.

             1B.        Perform either staff or independent public accountant on-site
                        review of the financial management internal controls to ensure that
                        the Authority has adequate financial internal controls regarding the
                        disbursement of funds prior to approval.




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                        SCOPE AND METHODOLOGY

To achieve our audit objectives, we

   ƒ   Obtained a general understanding of Public Housing’s management control system;

   ƒ   Obtained an understanding of Public Housing’s agreement process, policies, and
       procedures;

   ƒ   Obtained an understanding of 24 CFR [Code of Federal Regulations] 902.75, the U.S.
       Housing Act of 1937, and other applicable laws and regulations;

   ƒ   Selected various areas of the agreement to test by reviewing supporting documentation
       submitted by the Authority in its monthly progress reports for accuracy and sufficiency;

   ƒ   Obtained an understanding of the Authority’s procedures for responding to the
       agreement;

   ƒ   Obtained an understanding of Public Housing’s oversight of the agreement from
       documented team review comments and correspondence with Authority staff; and

   ƒ   Conducted interviews with Public Housing and Authority staff to follow up on
       discrepancies and issues noted during the review and to obtain information regarding
       policies and procedures.

The review focused on the completion and certification of the various sections of the agreement
previously identified as at risk of noncompliance in the independent assessment. We reviewed
tasks related to governance, organization, finance and procurement, and property maintenance
sections of the agreement. We reviewed supporting documentation to determine whether it fully
satisfied requirements. In some instances, additional documentation was requested from
Authority staff such as minutes from board meetings, board resolutions, board training records,
personnel files, check vouchers, invoices, contract files, and pest control logs to test
implementation.

We interviewed Public Housing officials and Authority management and staff. We performed
our site work between April and September 2007 at the Authority in Decatur, Georgia, and
Public Housing in Atlanta, Georgia. The audit covered the period May 1, 2005, through June 30,
2006, the period during which the Authority was under the agreement, but was extended as
necessary for the audit.

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




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                             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:

                  ƒ   Compliance with laws and regulations - Policies and procedures that
                      management has implemented to reasonably ensure that resources are used
                      in accordance with laws and regulations.

                  ƒ   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 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 Weakness


              Based on our review, we believe the following item is a significant weakness:

              •       Public Housing did not ensure that the Authority accurately implemented
                      its agreement (see finding 1).


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                         APPENDIX

 Appendix A

         AUDITEE COMMENTS AND OIG’S EVALUATION


 Ref to OIG Evaluation     Auditee Comments




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 Comment 1




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                    15
Comment 2




                     Comment 2 Comment 2




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                            OIG Evaluation of Auditee Comments

   Comment 1   Public Housing’s agreement with the finding and recommendation indicates its
               willingness to make necessary improvements. The planned corrective actions
               outlined in the comments are responsive to the recommendation. We concur with
               the management decisions for this recommendation.

   Comment 2   The planned corrective actions outlined in the comments are responsive to the
               recommendation. We concur with the management decisions for this
               recommendation.




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