oversight

The Miami-Dade Housing Agency, Miami, Florida, Did Not Maintain Adequate Controls over Capital Fund Program Drawndowns

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-09-17.

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

                                                              Issue Date
                                                                   September 17, 2008
                                                              Audit Report Number
                                                                   2008-AT-0004




TO:        Deborah Hernandez, Deputy Assistant Secretary for Field Operations, PQ


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

SUBJECT: The Miami-Dade Housing Agency, Miami, Florida, Did Not Maintain Adequate
           Controls over Capital Fund Program Drawdowns

                                  HIGHLIGHTS

 What We Audited and Why

            We audited capital fund program drawdowns by the Miami-Dade Housing
            Agency (Agency). Your representative at the Agency requested this audit,
            because we identified problems with multiple drawdowns of capital funds during
            our recent audit of the capital fund program. Our objective was to determine
            whether the Agency used capital fund program drawdowns in accordance with
            U.S. Department of Housing and Urban Development (HUD) requirements.

 What We Found


            The Agency did not use capital fund program drawdowns in accordance with
            HUD requirements.

            The Agency’s internal controls over capital fund program drawdowns from HUD
            were inadequate. The Agency drew down $257,253 to close out the 2003 capital
            fund program grant using the same expenses it used for previous drawdowns. The
            Agency also drew down from its 2007 capital fund program grant $283,168 more
            than was supported by expenses. These conditions occurred because the Agency
            did not have effective controls in place to identify and track excess funds that
           needed to be returned. As a result, we have no assurance that $540,421 in excess
           funds was repaid.

           Further, the Agency used capital fund program drawdowns to reimburse itself for
           ineligible and unsupported expenses. The Agency was reimbursed from capital
           funds for $62,123 that was used for public housing operations and $127,593 that
           it could not support was used for capital fund activities. It was also unable to
           provide documentation to support $257,694 in expenses transferred to the 2007
           capital fund program grant that had not been reimbursed. These conditions
           occurred because the Agency did not have effective internal controls in place to
           ensure that capital funds were used in accordance with HUD requirements. As a
           result, we consider $62,123 to be ineligible, $127,593 to be unsupported, and
           $257,694 to be funds that could be put to better use, since the Agency had not
           been reimbursed for these expenses.

What We Recommend


           We recommend that HUD require the Agency to (1) provide supporting
           documentation showing that the $257,253 excess drawdown was returned to the
           program or reimburse HUD from non-federal funds, (2) provide supporting
           documentation for the $283,168 in expenses for the 2007 capital fund program
           grant or reimburse the capital fund program from non-federal funds, and (3)
           define the roles and responsibilities of its accountants for the monthly
           reconciliation of capital fund program grants to HUD records and monitor capital
           fund drawdowns and excess capital funds. We also recommend that HUD
           determine and place appropriate restrictions on the Agency’s ability to draw down
           capital funds.

           In addition, HUD should require the Agency to (1) reimburse HUD $62,123, (2)
           provide supporting documentation for $127,593 that it could not support was for
           capital fund activities and $257,694 transferred to the 2007 capital fund program,
           and (3) implement and enforce policies and procedures to improve controls over
           the 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 discussed the findings with your representative during the audit. We also
           provided your office a draft report on July 31, 2008, and discussed the report with
           you and your representative at the exit conference on August 8, 2008. You

                                            2
provided written comments to our draft report on September 3, 2008, and you
generally agreed with the findings and recommendations.

Your response and our evaluation of the response are included in appendix B of
this report.




                                3
                            TABLE OF CONTENTS

Background and Objective                                                         5

Results of Audit
      Finding 1: The Agency’s Internal Controls over Capital Fund Program        6
                 Drawdowns Were Inadequate
      Finding 2: The Agency Used Capital Fund Program Drawdowns for Ineligible   9
                 and Unsupported Expenses

Scope and Methodology                                                            13

Internal Controls                                                                15

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use             16
   B. Auditee Comments and OIG’s Evaluation                                      17




                                            4
                      BACKGROUND AND OBJECTIVE

The Miami-Dade Housing Agency (Agency) is the Miami-Dade County (County) departmental
unit that owns, operates, or controls almost 10,000 units of public and other assisted housing
within Miami-Dade County, Florida. The Agency’s objective is to provide low- and moderate-
income residents with quality, affordable housing opportunities.

The U.S. Department of Housing and Urban Development (HUD) awarded the Agency more
than $47 million in capital fund program grants for fiscal years 2003 through 2005. These funds
were to enable the Agency to correct physical and management deficiencies and to keep public
housing units safe and desirable places to live.

On August 7, 2007, HUD announced that the Agency was in substantial default of both its public
housing annual contributions contract and its Section 8 consolidated annual contributions
contract. The default authorized HUD to take possession of the Agency’s public housing and
Section 8 assets, projects, and programs. HUD took possession of the Agency on October 26,
2007.

On April 24, 2008, we reported that the Agency did not properly support multiple drawdowns of
capital funds. The Agency drew down capital funds from the 2002 capital fund program grant
by using expenses that had been used to justify drawdowns from the 2003 and 2004 capital fund
program grants. The Agency could not provide documentation to support that HUD was
reimbursed for the excess funds. As a result, HUD requested that we perform additional work to
determine whether this practice occurred in other capital fund program grants and, if so, how
recently. HUD also requested that we determine the eligibility of capital fund program expenses.
We reviewed additional capital fund program drawdowns during this audit to determine whether
the Agency used them in accordance with HUD requirements.

Our objective was to determine whether the Agency used capital fund program drawdowns in
accordance with HUD requirements.




                                               5
                                RESULTS OF AUDIT


Finding 1: The Agency’s Internal Controls over Capital Fund Program
Drawdowns Were Inadequate
The Agency’s internal controls over capital fund program drawdowns were inadequate. The
Agency drew down $257,253 to close out the 2003 capital fund program grant using the same
expenses it used for previous drawdowns. It also drew down from its 2007 capital fund program
grant $283,168 more than was supported by expenses. These conditions occurred because the
Agency did not have effective controls in place to identify and track excess funds that needed to
be returned. As a result, we have no assurance that $540,421 in excess funds was repaid.




 The Agency Used Duplicate
 Expenses to Justify Two
 Drawdowns

               Regulations at 24 CFR [Code of Federal Regulations] 85.20 (b)(2)(3) require the
               Agency to maintain (1) accounting records that adequately identify the source and
               application of funds provided and must contain information pertaining to
               liabilities and expenditures and (2) effective control and accountability of cash
               and other assets to ensure that they are used solely for authorized purposes.

               We reviewed 332 drawdowns for the 2003, 2004, and 2005 capital fund program
               grants to identify expense transfers in which the Agency used the same expenses
               to justify more than one drawdown from the HUD Line of Credit Control System
               (LOCCS). We identified 21 drawdowns that involved expense transfers and
               selected eight for further review. We identified two excess drawdowns from
               these expense transfers.

               The Agency used duplicate expenses to justify a capital fund drawdown. We
               identified two capital fund drawdowns for $802,884 in November 2006 and
               March 2007 for the 2003 capital fund program grant. The Agency offset the
               March 2007 excess drawdown by not drawing down funds for subsequent capital
               fund program expenses. However, in June 2007, the Agency drew down
               $257,253 using these same expenses as justification to close out the 2003 capital
               fund program grant.

               The current grant accountant did not consider the $257,253 to be an excess
               drawdown, because the former chief financial officer reconciled the general
               ledger to LOCCS for the 2003 capital fund program grant, and it balanced.
               However, the current grant accountant was not able to provide supporting

                                                6
             documentation for this reconciliation. As a result, we consider the $257,253
             excess drawdown to be unsupported costs.

             The Agency did not have effective controls in place to identify and track excess
             funds that needed to be returned to the program. Agency accountants maintained
             informal accounting records on excess capital fund program drawdowns, but they
             were not used. The current grant accountant said that he provided his informal
             accounting records to the former chief financial officer, but she disregarded this
             information. The former grant accountant maintained informal accounting
             records on excess capital fund program drawdowns, but Agency officials were not
             aware of them. The former controller and the grant accountant’s supervisor
             informed us that they did not know about Agency excess drawdowns and any
             repayments by the former grant accountant. In addition, the Agency did not
             ensure continuity of operations between the former and current grant accountants.
             The former grant accountant briefed the current grant accountant on his last day
             with the Agency but did not provide his informal accounting records.

The Agency’s General Ledger
Did Not Support the Drawdown
Amount


             We reviewed the expenses transferred by the Agency to the 2007 capital fund
             program grant for reimbursement and reconciled the general ledgers for the 2007
             capital fund program grant to LOCCS as of May 2008. The Agency failed to
             reconcile its 2007 capital fund program grant to LOCCS according to its internal
             procedures and drew down $283,168 more than was supported by expenses. The
             Agency’s procedures revised in February 2007 require the Agency to perform
             monthly reconciliations of the general ledgers for capital fund program grants to
             LOCCS. Agency staff were uncertain regarding who had responsibility for
             performing the reconciliations. As a result, we considered the $283,168 excess
             drawdown to be an unsupported cost.


Conclusion


             The Agency needs to strengthen its internal controls over capital fund program
             drawdowns. The Agency drew down $257,253 using duplicate expenses and
             $283,168 more than was supported by expenses. Informal accounting records are
             maintained to identify and track excess capital funds. Excess capital fund
             drawdowns would not be a problem if the Agency conducted monthly
             reconciliations of its grants to LOCCS. Monthly reconciliations would improve
             the identification and tracking of excess capital funds that need to be reimbursed,
             create more formal records, and provide increased management oversight of

                                              7
          capital funds. Without monthly reconciliations, we have no assurance that
          $540,421 in excess funds was reimbursed to the program.

Recommendations



          We recommend that HUD

          1A. Require the Agency to provide documentation to support that the $257,253
              excess drawdown was returned to the program. If sufficient documentation
              cannot be provided, determine whether non-federal funds are available for
              the Agency to reimburse HUD, since the grant period has expired. Based
              upon that determination, HUD should require the Agency to reimburse HUD
              or consider forgiving the recovery of any remaining unsupported amounts.

          1B. Require the Agency to provide documentation to support the $283,168 in
              expenses for the 2007 capital fund program grant. If sufficient
              documentation cannot be provided, determine whether non-federal funds are
              available for the Agency to reimburse the capital fund program. Based upon
              that determination, HUD should require the Agency to reimburse the capital
              fund program account or consider forgiving the recovery of any remaining
              unsupported amounts.

          1C. Require the Agency to define the roles and responsibilities of its accountants
              in performing the monthly reconciliation of capital fund program grants to
              LOCCS and to monitor capital fund drawdowns and excess capital funds.

          1D. Determine and place appropriate restrictions on the Agency’s ability to draw
              down capital funds from LOCCS to reimburse itself for capital fund
              program expenses.




                                          8
Finding 2: The Agency Used Capital Fund Program Drawdowns for
Ineligible and Unsupported Expenses
The Agency used capital fund program drawdowns to reimburse itself for ineligible and
unsupported expenses. The Agency was reimbursed from capital funds for $62,123 that was
used for public housing operations and $127,593 that it could not support was used for capital
fund activities. It was also unable to provide documentation to support $257,694 in expenses
transferred to the 2007 capital fund program grant that had not been reimbursed. These
conditions occurred because the Agency did not have effective internal controls in place to
ensure that capital funds were used in accordance with HUD requirements. As a result, we
consider $62,123 to be ineligible, $127,593 to be unsupported, and $257,694 to be funds that
could be put to better use, since the Agency had not been reimbursed for these expenses.


               As indicated in finding 1, we reviewed 332 drawdowns for the 2003, 2004, and
               2005 capital fund program grants to identify, in part, (1) public housing and other
               program expenses transferred to the capital fund program for reimbursement and
               (2) capital fund program expenses transferred from one grant year to another for
               reimbursement. We identified 21 drawdowns that involved expense transfers and
               selected eight for further review. We reviewed two drawdowns above in finding
               1 and six drawdowns below. We also selected one recent public housing agency
               program expense transferred to the 2005, 2006, and 2007 capital fund grants
               because of its large amount.

 Deficiencies with the Transfer
 of Public Housing Operating
 Expenses to the Capital Fund
 Program

               Regulations at 24 CFR 968.112(o)(3) state that costs to assist in public housing
               operations are ineligible. Regulations at 24 CFR 85.20(b) require grantees to
               maintain records that adequately identify the source and application of funds
               provided for financially-assisted activities and that these accounting records be
               supported by source documentation. The 2006 Agency annual plan states that
               additions of non-emergency work items that exceed $500,000, not included in the
               annual or five-year plan, are a significant amendment or modification, which
               would require formal approval by the Miami-Dade County Board of County
               Commissioners. Regulations at 24 CFR 903.21 state that the public housing
               agency may not implement the amendment or modification until it is provided to
               and approved by HUD.

               In November 2006, the Agency transferred more than $2.6 million in public
               housing operating expenses to the 2003, 2004, and 2005 capital fund program
               grants and made four capital fund program drawdowns to reimburse itself for
               these expenses. We reviewed 20 expenses totaling $195,379 to determine

                                                9
whether the costs could be reimbursed from the capital fund program. The
Agency was reimbursed from capital funds for five expenses totaling $62,123 that
were for public housing operations and seven expenses totaling $30,718 that
lacked support showing that the expenses were for capital fund activities. In
addition to these 12 expenses, six eligible capital fund expenses were not
budgeted and included in an amended and approved Agency annual plan. A
comparison of the respective annual plans indicated that there were additions of
non-emergency work items exceeding $500,000 that included these 18 expenses.
However, the expenses were included in the annual plan only after they were
transferred to the capital fund program grants and, therefore, were implemented
without prior County or HUD approval. The other two expenses did not need to
be budgeted and included in the annual plan, because they were for emergency
work items. As a result, we considered $62,123 to be an ineligible cost because it
was not used for its intended purpose of rehabilitating and modernizing public
housing and $30,718 to be an unsupported cost because the Agency did not have
the documentation to support that it was for capital fund activities.

In January 2008, the Agency transferred $2.4 million in public housing operating
expenses to the 2005, 2006, and 2007 capital fund program grants. The Agency
transferred the expenses but did not draw down the capital funds to reimburse
itself. The Agency maintained documentation to support that $2.2 million was for
payroll expenses transferred to the 2005 and 2006 capital fund program grants but
was unable to provide documentation to support $257,694 transferred to the 2007
capital fund program grant. Since the Agency had not been reimbursed from
capital funds for these expenses, we considered the $257,694 to be funds that
could be put to better use if properly supported.

These conditions occurred because the Agency did not have effective internal
controls in place to ensure that capital funds were used in accordance with
regulations and HUD requirements. The Agency’s former director of public
housing agreed that the five expenses totaling $62,123 should not have been
reimbursed from capital funds. Regarding the seven expenses totaling $30,718,
Agency staff said that their policies and procedures did not require them to
maintain supporting documentation for capital fund expenses. The Agency
prepared journal vouchers that transferred the seven expenses to the capital fund
program. While the journal vouchers indicated that the seven expenses were for
preparing vacant units for occupancy, the Agency lacked the documentation to
support that the expenses were for this purpose. Agency staff added that due to
the many vacant units that needed to be prepared at the time, the main concern
was to put the units back online and not to prepare documentation. We were
unable to obtain an explanation for the 18 expenses that were not budgeted and
included in an amended and approved Agency annual plan, because the former
director of public housing had left the Agency. As for the $257,694 in public
housing operating expenses transferred to the 2007 capital fund program grant,
Agency staff stated that they were directed by the former chief financial officer
and a contractor to make this transfer without supporting documentation.

                                10
Deficiencies with the Transfer
of Capital Fund and Other
Expenses to the Capital Fund
Program


             Paragraph 2-14A of the HUD Comprehensive Grant Guidebook 7485.3G requires
             the housing agency to properly apportion to the appropriate program budget any
             direct charges for the salaries of employees assigned full or part time to the
             modernization program. The housing agency may allocate salary expense
             through use of the time sheet method or through use of a per unit or other
             reasonable basis. Attachment B(8)(h)(3) of Office of Management and Budget
             (OMB) Circular A-87 requires that when employees are expected to work solely
             on a single federal award or cost objective, charges for their salaries and wages
             will be supported by periodic certifications that the employees worked solely on
             that program for the period covered by the certification.

             In 2006, the Agency transferred $210,159 in capital fund and HOPE VI salary
             expenses to the 2005 capital fund program grant and made two capital fund
             program drawdowns to reimburse itself for these expenses. It transferred
             $180,423 in capital fund salary expenses from the 2004 capital fund program
             grant and $29,736 in HOPE VI salary expenses to the 2005 capital fund program
             grant. We reviewed $72,299 in capital fund salary expenses and $24,576 in
             HOPE VI salary expenses to determine whether the costs could be reimbursed
             from the capital fund program. Although these salary expenses were eligible for
             reimbursement under the capital fund program, the Agency did not maintain
             supporting documentation such as employee timesheets or certifications as
             required by the OMB circular. While Agency supervisors estimated the
             percentage of employee salaries and wages to be allocated to the capital fund
             program, the estimates were not based on documentation. Agency staff stated that
             they did not record time allocated between federal and non-federal programs. As
             a result, we considered $96,875 to be an unsupported cost, because the Agency
             did not have a required method for determining the percentage of time allocated
             to the capital fund program.


Conclusion


             The Agency needs to strengthen its internal controls for using capital funds. The
             Agency used capital funds to reimburse itself for ineligible and unsupported
             expenses. It failed to provide supporting documentation for public housing
             operating expenses transferred to the capital fund program for reimbursement. It
             also failed to budget and include 18 capital fund expenses in an amended and
             approved Agency annual plan. As a result, we considered (1) $62,123 to be an
             ineligible cost, because it was not available for its intended purpose, (2) $30,718

                                              11
          to be an unsupported cost, because the Agency could not determine that it was for
          capital fund activities, and (3) $96,875 to be an unsupported cost, because the
          Agency did not have a required allocation/certification method for employee
          salaries. We also consider $257,694 to be funds that could be put to better use,
          since the Agency had not yet drawn down funds for these expenses.

Recommendations


          We recommend that HUD

          2A. Require the Agency to reimburse HUD $62,123, since the grant period has
              expired.

          2B. Require the Agency to provide documentation to support that the seven
              expenses totaling $30,718 were for capital fund activities. If sufficient
              documentation cannot be provided, determine whether non-federal funds are
              available for the Agency to reimburse the capital fund program. Based upon
              that determination, HUD should require the Agency to reimburse the capital
              fund program account or consider forgiving the recovery of any remaining
              unsupported amounts.

          2C. Require the Agency to revise, implement, and enforce policies and
              procedures to maintain supporting documentation for expenses transferred
              to and reimbursed from the capital fund program.

          2D. Require the Agency to implement and enforce policies and procedures to
              plan and budget for the use of capital funds and any needed revisions by
              amending and approving the annual plan.

          2E. Require the Agency to provide documentation to support the $257,694 in
              transferred expenses before it draws down capital funds. If sufficient
              documentation cannot be provided, the Agency should transfer these
              expenses back to the public housing program.

          2F. Require the Agency to provide documentation to support the allocation of
              $96,875 in salary expenses to the capital fund program. If sufficient
              documentation cannot be provided, determine whether non-federal funds are
              available for the Agency to reimburse the capital fund program. Based upon
              that determination, HUD should require the Agency to reimburse the capital
              fund program account or consider forgiving the recovery of any remaining
              unsupported amounts.

          2G. Require the Agency to develop an allocation/certification method for
              employee salaries and wages to comply with the requirements.

                                          12
                        SCOPE AND METHODOLOGY

Our audit objective was to determine whether capital fund program drawdowns were used in
accordance with HUD requirements. To accomplish our objective, we

       Reviewed relevant HUD and federal regulations;

       Interviewed HUD and Agency officials;

       Reviewed relevant Agency policies and procedures; and

       Reviewed Agency files and records including reimbursement packages, checks and
       invoices, and other financial data.

As of March 2008, the Agency had made 374 capital fund program drawdowns from HUD totaling
more than $36 million to reimburse itself for expenses incurred under the 2003, 2004, and 2005
capital fund program grants. The Agency was unable to locate and provide us with the
reimbursement packages for 42 drawdowns totaling more than $4 million. Due to HUD’s taking
possession of the Agency, several external parties may have been using these reimbursement
packages. We reviewed 332 capital fund program drawdowns totaling more than $32 million.

To determine whether capital fund program drawdowns were used in accordance with HUD
requirements, we reviewed the 332 Agency drawdowns to determine whether

           The same expenses were used to justify more than one reimbursement from HUD
           (i.e., excess drawdown),
           Public housing and other program (i.e., HOPE VI) expenses transferred to the capital
           fund program were eligible for reimbursement, and
           Capital fund expenses transferred from one grant year to another were eligible for
           reimbursement.

We selected eight capital fund program drawdowns for further analysis. Two drawdowns involved
duplicate expenses, four drawdowns involved public housing program expenses, and two
drawdowns involved capital fund and other program expenses. We also selected one recent
public housing program expense transferred to the 2005, 2006, and 2007 capital fund program
grants because of its large amount. The Agency had not drawn down capital funds from HUD
for reimbursement of this expense.

Two drawdowns totaling more than $1.0 million involved duplicate expenses. In March 2007,
the Agency drew down $802,884 using the same expenses as justification that were used in an
earlier drawdown in November 2006. In June 2007, the Agency drew down $257,253 using the
same expenses that were used for the March 2007 excess drawdown.

Four drawdowns totaling more than $2.6 million involved the transfer of public housing program
expenses to the capital fund program. We did not consider $600,000 in expenses for further
                                               13
analysis, because these expenses were not subject to the eligibility requirements of the capital
fund program, according to HUD requirements. From the remaining $2 million, we selected 20
expenses totaling $195,379 for further analysis, considering the large dollar amount and
frequency of payments to vendors.

Two drawdowns totaling $215,073 involved the transfer of capital fund expenses from one grant
year to another and the transfer of HOPE VI program expenses to the capital fund program. One
drawdown involved a transfer of $180,423 in salary expenses from the 2004 capital fund
program grant to the 2005 capital fund program grant. We limited our review to the three largest
salary payments in each pay period from four cost centers, or 36 salary payments totaling
$72,299. The other drawdown of $34,650 involved a transfer of $29,736 in salary expenses from
the HOPE VI program grant to the 2005 capital fund program grant. We limited our review to
11 salary payments totaling $24,576.

We also selected for further analysis a January 2008 public housing program expense transfer
totaling more than $2.4 million because of its large amount. In reviewing these expenses, we
reconciled the general ledgers for the 2007 capital fund program grant to HUD records as of May
2008.

To achieve our audit objective, we reviewed computer-processed data from the Agency’s financial
system. We performed limited testing of capital fund program general ledgers. We traced selected
capital fund program expenses to supporting documents such as invoices, checks, and purchase
orders to test the accuracy and completeness of the expenses recorded to the general ledger. We
consider the computer-processed data recorded in the general ledger to be reliable for
accomplishing our audit objective.

The audit generally covered the period October 1, 2002, through September 30, 2007, and we
extended the period as needed to accomplish our objective. We conducted our fieldwork from
March through June 2008 at the Agency offices located in Miami, Florida.

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




                                               14
                             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:

                  Controls over the safeguarding of resources as they relate to the disbursement of
                  capital funds,
                  Controls over compliance with laws and regulations, and
                  Controls over the validity and reliability of data.

              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 Agency’s internal controls over capital fund program drawdowns from
                  HUD were inadequate (see finding 1).

                  The Agency used capital fund program drawdowns to reimburse itself for
                  ineligible and unsupported expenses (see finding 2).




                                               15
                                   APPENDIXES

Appendix A

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



      Recommendation                                               Funds to be put to
          number            Ineligible 1/         Unsupported 2/        better use 3/

             1A                                        $257,253
             1B                                         283,168
             2A                 $62,123
             2B                                          30,718
             2E                                                              $257,694
             2F                 _______                  96,875               _______

            Total               $62,123                $668,014              $257,694


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
     policies or regulations.

2/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of audit. Unsupported costs
     require a decision by HUD program officials. This decision, in addition to obtaining
     supporting documentation, might involve a legal interpretation or 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
     costs not incurred, deobligation of funds, withdrawal of interest, reductions in outlays,
     avoidance of unnecessary expenditures, loans and guarantees not made, and other savings
     which are specifically identified. For recommendation 2E, the $257,694 represents funds
     that could be put to better use, because the Agency had not drawn down capital funds to
     reimburse itself.




                                             16
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         17
Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 1




Comment 1




                         18
Ref to OIG Evaluation   Auditee Comments




Comment 2




Comment 1
Comment 3




Comment 1




                         19
Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 1




Comment 1




                         20
Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 4




                         21
                         OIG Evaluation of Auditee Comments

Comment 1   We concur with your proposed management decisions and will record them in the
            Audit Resolution and Corrective Action Tracking System, with a target
            completion date of December 31, 2009.

Comment 2   You stated that since HUD is in possession of the Agency it was not necessary to
            place any restrictions on the Agency’s ability to draw down capital funds from
            LOCCS. You also stated that when HUD is no longer in possession of the
            Agency, HUD will determine if it is necessary to have any restrictions on the
            Agency’s ability to draw down capital funds from LOCCS.

            We concur with your decision.

Comment 3   The five expenses totaling $62,123 were transferred and paid from the 2003
            capital fund program grant.

Comment 4   You stated that allocation/certification for employee salaries and wages is no
            longer needed because the Agency has developed and is continuing to implement
            a method that complies with Asset Management requirements. Your office is
            working with the Agency to assign staff to appropriate cost centers and asset
            management projects.

            We concur with your decision.




                                            22