oversight

Woonsocket Housing Authority, Woonsocket, Rhode Island, Housing Choice Voucher Program and Public Housing Program Deficieincies Resulted in Cost Exceptions Totaling $904,494

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-05-14.

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

                                                                 Issue Date
                                                                         May 14, 2008
                                                                 Audit Report Number
                                                                         2008-BO-1006




TO:         Donna J. Ayala, Director, Office of Public Housing, Boston Hub, 1APH
            Henry S. Czauski, Deputy Director, Departmental Enforcement Center, CV


FROM:       John A. Dvorak, Regional Inspector General for Audit, Region 1, 1AGA

SUBJECT: Woonsocket Housing Authority, Woonsocket, Rhode Island, Housing Choice
         Voucher Program and Public Housing Program Deficiencies Resulted in Cost
         Exceptions Totaling $904,494

                                   HIGHLIGHTS

 What We Audited and Why


             We audited the Housing Choice Voucher (Voucher) and public housing programs
             at the Woonsocket Housing Authority (Authority) as part of our annual audit plan.
             The overall objective of the audit was to determine whether the Authority
             efficiently and effectively administered its Voucher and public housing programs
             in compliance with its annual contributions contracts and U.S. Department of
             Housing and Urban Development (HUD) regulations. In addition, we wanted to
             determine whether the Authority’s board of commissioners (board) had conflicts
             of interest and whether the Authority established and followed a reasonable policy
             for travel costs charged to federal programs. Our efforts focused on whether the
             Authority properly (1) used federal funds to subsidize a separate nonprofit entity;
             (2) allocated costs and accounting for interfund transactions; (3) adhered to its
             procurement practices; (4) account for travel per diem rates and travel expense
             vouchers; and (5) adhered to its waiting lists procedures.
What We Found


         The Authority generally administered the Voucher and public housing programs
         in compliance with its annual contributions contract and HUD regulations. In
         addition, HUD’s Regional Counsel rendered an opinion that the Authority’s board
         members did not violate conflict-of-interest provisions of section 19(A) of the
         contract. However, we identified several deficiencies, including $663,413 in
         unsupported costs and $241,081 in opportunities for funds to be put to better use,
         because the Authority
         •   Improperly used federal funds to subsidize the development activities of
             Blackstone,
         •   Did not establish an adequate cost allocation plan for administrative and
             indirect costs and improperly advanced and used funds between its public
             housing and Voucher programs,
         •   Did not always comply with HUD procurement regulations and its own
             procurement policy,
         •   Did not establish a reasonable policy for travel per diem rates charged to
             federal programs and ensure that board members always submitted travel
             expense vouchers, and
         •   Did not always follow its HUD-approved waiting list procedures.


What We Recommend


         We recommend that the Director of the Office of Public Housing require the
         Authority to (1) cease the practice of improperly using federal funds to pay
         nonprogram costs and repay $2,608 in unreimbursed funds, (2) provide support
         for $587,000 in salary expenses and $67,855 in indirect costs charged to the
         Voucher program or reimburse these costs and cease the practice of advancing
         and using funds between its federal programs, (3) comply with HUD procurement
         regulations and its own procurement policy, (4) establish a reasonable policy for
         travel per diem rates charged to federal programs and ensure that board members
         always submit travel expense vouchers, and (5) obtain HUD approval on all
         actions that are contrary to its waiting list procedures.

         We also recommend that Authority establish controls to ensure that all
         interprogram transactions are recorded and reconciled monthly, thereby
         eliminating the average daily balance of $241,081 that was owed between federal
         programs during the period January 2005 through June 2007. Further, we
         recommend that HUD’s Departmental Enforcement Center consider sanctions as
         appropriate against the responsible parties for the improper use of federal funds
         used to pay nonprogram costs of an affiliated nonprofit entity.


                                          2
           For each recommendation in the body of the report without a management
           decision, please respond and provide status reports in accordance with HUD
           Handbook 2000.06, REV-3. Please furnish us copies of any correspondence or
           directives issued because of the audit.


Auditee’s Response


           We provided the Authority a draft report on March 31, 2008, and held an exit
           conference with officials on April 4, 2008. The Authority provided written
           comments on April 18, 2008. The Authority has taken some corrective actions
           that should eliminate the conditions noted in this report. The Authority’s
           response, along with our evaluation of that response, can be found in appendix B
           of this report.




                                           3
                          TABLE OF CONTENTS

Background and Objectives                                                          5

Results of Audit
 Finding 1: The Authority Improperly Used Federal Funds to Subsidize a Nonprofit   6
            Entity
 Finding 2: The Authority Did Not Have an Adequate Cost Allocation Plan and        8
            Improperly Advanced and Used Funds between Its Public Housing and
            Section 8 Programs
 Finding 3: The Authority Failed to Comply with HUD Procurement Regulations and    11
            Its Own Procurement Policy
 Finding 4: The Authority Did Not Establish a Reasonable Policy for Travel Costs   15
            Charged to Federal Programs and Board Members Did Not Always
            Submit Travel Expense Vouchers
 Finding 5: The Authority Did Not Always Follow Its HUD-Approved Program           17
            Waiting List Procedures

Scope and Methodology                                                              19

Internal Controls                                                                  20

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use               22
   B. Auditee Comments and OIG’s Evaluation                                        23
   C. Selected Criteria for the Voucher Program                                    35




                                           4
                         BACKGROUND AND OBJECTIVES

The United States Housing Act of 1937 established the federal framework for government-
owned affordable housing. This act also authorized public housing as the nation’s primary
vehicle for providing jobs and building and providing subsidized housing through the U.S.
Department of Housing and Urban Development (HUD). HUD disperses funds to public
housing agencies under annual contributions contracts to provide subsidy payments or housing
assistance payments for participating low-income families.

In addition, the United States Housing Act of 1937, as amended by the Quality Housing and
Work Responsibility Act of 1998, created the Section 8 Housing Choice Voucher tenant-based
program (Voucher program). The Voucher program is funded by HUD and allows public
housing authorities to pay HUD subsidies directly to housing owners on behalf of the assisted
family.

The Voucher program and a low-rent housing program are administered by the Woonsocket
Housing Authority (Authority) for the City of Woonsocket, Rhode Island. HUD contracts with
the Authority to administor 642 low-income units through annual contributions contracts.1 The
Authority received $10.2 million in Voucher program funds during the period January 1, 2005,
through June 30, 2007, and earned administrative fees of approximately $1.2 million. The
annual contributions contracts require the Authority to follow appropriations laws, HUD
requirements including public housing notices, and the Authority’s administrative plan.

The principal staff member of the Authority is the executive director, who is hired and appointed
by the Authority’s board of commissioners (board). The executive director is directly
responsible for carrying out the policies established by the board and is delegated the
responsibility for hiring, training, and supervising the remainder of the Authority’s staff to
manage the day-to-day operations of the Authority and to ensure compliance with federal and
state laws and directives for the programs managed.

Our overall audit objective was to determine whether the Authority effectively and efficiently
administered its Voucher program in compliance with its annual contributions contracts and
HUD regulations. In addition, we wanted to determine whether board members had conflicts of
interest and whether the Authority established and followed a reasonable policy for travel costs
charged to federal programs. Our specific audit objectives were to determine whether the
Authority (1) improperly used federal funds to subsidize development activities of Blackstone
Valley Housing Development Corporation (Blackstone), a separate nonprofit entity; (2) had an
adequate cost allocation plan for administrative and indirect costs and whether it improperly
advanced and used funds between its public housing and Voucher programs; (3) complied with
HUD procurement regulations and its own procurement policy; (4) established and followed a
reasonable policy for per diem rates charged to federal programs; and (5) followed its public
housing and Voucher program waiting list procedures.


1
    As of May 1, 2007.


                                                5
                                       RESULTS OF AUDIT

Finding 1: The Authority Improperly Used Federal Funds to Subsidize a
Nonprofit Entity
The Authority improperly loaned and used $114,326 in federal funds2 to pay the operating
expenses of Blackstone, a separate affiliated nonprofit entity. This condition occurred because
the Authority’s board members did not follow the annual contributions contract or the Voucher
program restrictions to ensure that expenditures complied with federal regulations. As a result,
public housing and Voucher program funds were put at risk of not being repaid and not available
for use to pay the Authority’s public housing and Voucher program costs. Blackstone repaid all
of the funds except $2,608.




    The Authority Improperly Used
    Federal Funds on Blackstone
    Activities

                   The Authority created a separate affliated corporation to promote neigborhood
                   economic development, related employment opportunities, housing revitalization,
                   and urban renewal activities. This corporation was established within the state of
                   Rhode Island on January 29, 2002, and was called the Blackstone Valley Housing
                   Development Corporation. However, the Authority provided a $20,000 interest-
                   free loan from its public housing program to Blackstone in early 2005 to support
                   its initial operations. In addition, the Authority improperly used another $75,577
                   in public housing and $18,749 in Voucher program funds to subsidize the
                   operations of Blackstone from February 2003 through August 2007. The $20,000
                   loan was repaid on May 22, 2006, and as of August 2007, Blackstone had repaid
                   all but $2,608 of the remaining funds to its federal program.

                   In using the funds to subsidize Blackstone, the Authority’s board members and
                   the executive director did not follow annual contributions contract and Voucher
                   program restrictions. Therefore, the Authority’s use of the funds violated section
                   11(B) of the its annual contributions contract with HUD, which states, “the
                   Authority must not make any program expenditures, except in accordance with
                   the HUD approved budget estimate and supporting data for a program.” In
                   addition, Federal Appropriations Acts from 2004 forward restrict the use of
                   Voucher program funds to program uses.




2
    $95,577 in public housing funds and $18,749 in Voucher program funds.


                                                         6
Board Members Were Aware of
Funding Activity

             The Authority’s board members were aware of Blackstone’s funding activity.
             Our audit found through a review of the Authority’s board minutes that the board
             members had specific knowledge as to the origin of Blackstone’s initial funding.
             Two of the Authority’s board members also sat on the board of Blackstone. In
             addition, the Authority’s board members approved all of the Authority expenses
             on a monthly basis. Therefore, board members were aware that the Authority
             paid expenses on behalf of Blackstone and failed to follow HUD rules and
             regulations governing use of public housing and Voucher program funds.


Conclusion


             The Authority improperly used federal funds to pay nonprogram costs and put
             $114,326 in federal program funds at risk of loss had the operations of Blackstone
             failed. Also, these funds were not available for public housing and Voucher
             program purposes, and $2,608 of the funds had not been repaid.


Recommendations


             We recommend that the Director of the Office of Public Housing require the
             Authority to
             1A.    Cease the practice of using federal funds to pay nonprogram expenses
                    including those on behalf of Blackstone.

             1B.    Require the Authority to repay the $2,608 in ineligible expenditures from
                    nonfederal sources.

             1C.    Consider taking administrative actions against the Authority’s board
                    members and executive director who approved the improper use of federal
                    funds.

             We also recommend that the Director of the Departmental Enforcement Center

             1D.    Consider taking administrative sanctions against the Authority’s board
                    members and executive director who approved the improper use of federal
                    funds identified in this and the other findings presented in the report.




                                              7
                                      RESULTS OF AUDIT

Finding 2: The Authority Did Not Have an Adequate Cost Allocation
Plan and Improperly Advanced and Used Funds between Its Public
Housing and Voucher Programs
The Authority did not have an adequate cost allocation plan for its administrative salaries and
could not account for the indirect costs charged for other Voucher program administrative costs.
In addition, it improperly advanced and used funds between its public housing and Voucher
programs and did not reconcile differences between these federal programs. These conditions
occurred because the Authority did not establish a supportable basis for its cost allocation plan
and see the need for establishing accounting controls over program borrowing because it only
borrowed funds between its federal programs. As a result, the Authority’s allocation of
management and finance salaries totaling $587,000 and indirect costs of $67,855 were not
supported. In addition, an average of $241,081 was owed to the public housing program from
the Section 8 program during the period January 2005 through June 2007, making these funds
unavailable for public housing purposes.



    Allocation of Salaries and
    Indirect Costs Was Unsupported



                 The Authority did not establish a supportable basis for its cost allocations between
                 federal programs. Instead, it allocated salaries between its federal programs3
                 using predetermined percentages. The Authority charged $587,000 for
                 administrative salaries (management and finance) and could not support the
                 indirect rate of 12 percent charged for other Voucher program administrative
                 costs totaling $67,855. This condition occurred because the Authority did not
                 have a written cost allocation method that the clearly defined and supported the
                 allocation percentages. Therefore, we consider the costs charged to the Voucher
                 program to be unsupported.

    The Authority Advanced Funds
    between Federal Programs



                 The Authority advanced and used funds between its federal programs in violation
                 of its annual contributions contract, section 11(B), which states that the Authority

3
 The Authority’s primary housing programs are federal operating, federal leased housing, and capital fund
programs.


                                                        8
             must not make any program expenditures except in accordance with the HUD-
             approved budget estimate and supporting data for a program. This condition
             occurred because the Authority was unaware of the fund restriction for the public
             housing program and did not see the need for establishing accounting controls
             over program borrowing since it only borrowed funds between its federal
             programs. Therefore, the Authority also did not have adequate accounting
             controls over its interprogram receivables and payables and did not reconcile
             differences in its interfund accounts between its federal programs on a monthly
             basis. Over a period of 910 days, there was as much as $669,000 in funds owed
             to the Authority’s public housing program by the Voucher program, and the
             average daily balance owed was $241,081. As a result, the funds owed were not
             available for public housing purposes.

             The Authority needs to establish controls to ensure that all interprogram balances
             are reconciled monthly and repaid. This will eliminate the significant balances
             owed, resulting in an average of $241,081 in public housing funds being put to
             better use annually.


Conclusion


             Management and finance salaries totaling $587,000 and indirect costs of $67,855
             were not supported. The Authority did not have an adequate cost allocation plan
             for its administrative salaries (management and finance) because it failed to
             establish a supportable basis for its cost allocation plan. In addtion, it could not
             account for the indirect cost allocation rate of 12 percent charged for other
             Voucher program administrative costs because it did not have a doucmented basis
             for its indirect cost rate.

             On a monthly basis, $241,081 was not available for public housing program
             purposes. The Authority improperly advanced and used funds between its public
             housing and Voucher programs because it was unaware of fund restrictions. In
             addtion, it did not reconcile differences between its federal programs because it
             did not establish accounting controls over program borrowing between its federal
             programs.




                                              9
Recommendations


          We recommend that the Director of the Office of Public Housing require the
          Authority to

          2A.     Develop allocations method to determine the proper allocation of salaries
                  and benefits and indirect costs to the public hosing and Voucher programs.

          2B.     Provide support for management and finance salary expenses totaling
                  $587,000 charged to the Voucher program or reimburse the Voucher
                  program from nonfederal funds.

          2C.     Provide support for the 12 percent indirect allocation factor used to charge
                  $67,855 for indirect costs to the Voucher program or reimburse the
                  Voucher program from nonfederal funds.

          2D.     Establish controls to reconcile differences and eliminate borrowing
                  between federal programs on a monthly basis, resulting in an average of
                  $241,081 in public housing funds being put to better use annually.




                                           10
                                RESULTS OF AUDIT

Finding 3: The Authority Failed to Comply with HUD Procurement
Regulations and Its Own Procurement Policy
The audit identified several instances in which the Authority’s procurement practices did not
comply with HUD regulations and its own procurement policy. Specifically, the Authority failed
to
   • Award contracts competitively,
   • Execute or update service contracts and/or written agreements,
   • Implement a method for conducting technical evaluations,
   • Document the source selection process, and
   • Maintain a detailed history of all procurements.

This condition occurred because the executive director (contracting officer) did not fulfill his
responsibility to establish and follow effective management controls over the procurement
process. As a result, HUD had no assurances that the Authority’s procurement process was fair
and equitable and resulted in obtaining the best quality and/or priced goods and services. In
addition, without formal contract documents, the Authority was at risk for overbilling and paying
for unauthorized or substandard goods and services.



 The Authority Did Not Comply
 with Procurement Regulations
 and Its Own Policy


              The Authority did not comply with requirements when procuring services for
              housing quality inspections, legal services, and fee accountant services and did
              not use a lease-purchase analysis when it considered leasing photocopy
              equipment. The Authority’s procurement policy stated that the Authority would
              comply with HUD’s annual contributions contract; HUD Handbook 7460.8,
              “Procurement Handbook for Public Housing Agencies;” and the procurement
              standards of 24 CFR [Code of Federal Regulations] 85.36. The term
              “procurement” includes both contracts and modifications–including change
              orders–for construction or services as well as purchase, lease, or rental of supplies
              and equipment. Section 5(A) of the annual contributions contract further required
              the Authority to comply with all provisions of the contract and all applicable
              regulations issued by HUD. Procurement regulations at 24 CFR 85.36 required
              the Authority to

                  •   Conduct all procurement in a manner that provides full and open
                      competition and


                                               11
             •   Maintain sufficient records to show the history of the procurement. The
                 records should include the rationale and justification for the method of
                 procurement, the type of contract, the selection of the contractor, and the
                 basis for the contract price.

          The specific requirements not complied with included the awarding of contracts
          competitively, executing or updating service contracts and/or written agreements,
          implementing a method for conducting technical evaluations, documenting the
          source selection process, and maintaining a detailed history of all procurements.

There Were No Housing Quality
Inspection Contracts

          The Authority could not show that the best quality and/or priced goods and
          services had been obtained for its housing quality inspections before our audit.
          In addition, the Authority could not show that inspection services procurements
          were awarded competitively because it could not provide a detailed history of the
          procurement showing the selection process or the method for conducting the
          technical evaluations. The procurements needed to be supported by
          documentation regarding the method of selection, the procurement chosen, the
          rationale for selecting or rejecting offers, and the basis for the contract price.

          The Authority’s two Voucher program housing quality inspection contractors had
          been working without a written contract since December 2005. There had been
          no written agreements, only verbal commitments, to extend the contracts.
          However, all contracts and modifications should be in writing, clearly specifying
          the desired supplies, services, or construction. The two contractors were paid a
          total of $35,325 for their inspection services during the period January 2006
          through July 2007. As a result of our audit, the Authority solicited a request for
          proposal for Voucher program housing inspections on September 12, 2007. The
          request outlined in detail the scope of services and contract award process
          evaluation criteria. The Authority received three bid proposals. It entered into
          two signed contracts with the two lowest responsive bidders, which turned out to
          be the previous two contractors.


Procurement Policies Not
Followed For Legal Services

          The Authority did not follow its procurement policy regarding the hiring of its
          attorneys. For the legal contracts before July 2006, the Authority could not show
          a detailed history of the procurement, although the requests for proposals were
          publicized and identified the evaluation factors. However, the bid proposals were
          not maintained, nor were the negotiations regarding the selection process and



                                          12
           methods used for conducting technical evaluations of the proposals received
           documented in the files.

           For the current attorney services, the authority did not have a detailed history of
           the procurement to support the selection or signed contracts. The two legal firms
           being used had been working without written contracts since July 2006, and have
           been paid a total of $133,753 without signed contracts. Therefore, The Authority
           could not show that the best quality and/or priced goods and services were
           obtained for its legal services. The executive director stated that the board
           approved the hiring of the law firms in July 2006. The executive director also
           stated that it was an oversight on his part in not obtaining the signed legal
           contracts. All contracts and modifications should be in writing, clearly specifying
           the desired supplies, services, or construction and supported by documentation
           regarding the method of selection, the procurement chosen, the rationale for
           selecting or rejecting offers, and the basis for the contract price.


Procurement Policies Not
Followed For Fee Accountant
Services


           The Authority did not follow its procurement policy regarding the hiring of its fee
           accountant. It entered into a sole source contract for fee accountant services at a
           $2,000 monthly cost for the period January 2005 through December 2006. The
           Authority did not document the history of the procurement and did not follow its
           own procurement policy regarding small purchases. Its procedures state, “For
           small purchases in excess of $2,500 but not exceeding $25,000, no less than three
           offers shall be solicited to submit price quotations. These quotes may be obtained
           orally, by telephone or in writing, as detailed by State or local laws.”

           In addition to failing to obtain competition, the Authority continued to retain and
           pay $2,000 per month for the fee accountant services although the contract had
           expired well over a year earlier. Therefore, the Authority could not show that the
           best quality and/or priced goods and services were obtained for its fee accountant
           services.


The Authority Leased
Photocopy Equipment



           The Authority entered into leasing contracts totaling $85,200 to lease its copiers
           in 2006. However, leasing the copiers may not have been the Authority’s best
           option as required by its procurement policy. Our analysis of the lease showed



                                            13
             that the purchase of the copiers would have been less costly than the leases. The
             Authority did not normally perform such analyses when considering a lease. We
             determined that the Authority could have saved more than $13,000 had it
             purchased the copiers instead of leasing them. This example illustrates potential
             cost savings if the Authority incorporates lease versus purchase analyses in its
             procurements.


Conclusion



             HUD had no assurance that the Authority’s procurement process was fair,
             equitable, and resulted in obtaining the best quality and/or priced services. When
             procuring services for housing quality inspections, legal services, and fee
             accountant services and when leasing photocopy equipment, the Authority did not
             comply with HUD regulations and its own procurement policy. In addition,
             without formal contract documents, the Authority was at risk of overbilling and
             paying for unauthorized services. This condition occurred because the
             Authority’s executive director did not fulfill his responsibility to establish and
             implement effective management controls over the procurement process.


Recommendations


             We recommend that the Director of the Office of Public Housing require the
             Authority to
             3A.    Implement procedures and controls to ensure that its contracts are awarded
                    in a manner that provides full and open competition as required by HUD’s
                    regulations and its procurement policy.

             3B.    Perform a lease versus purchase analysis on future procurements when it
                    is considering a lease.

             3C.    Maintain documentation supporting the basis for contracts awarded,
                    including history of procurement and appropriate analysis and signed copies
                    of contracts.




                                             14
                                RESULTS OF AUDIT


Finding 4: The Authority Did Not Establish a Reasonable Policy for
Travel Costs Charged to Federal Programs and Board Members Did Not
Always Submit Travel Expense Vouchers

The Authority did not establish a reasonable policy for travel costs charged to federal programs.
In addition, the Authority’s board members did not always submit travel vouchers for travel
costs incurred for Authority business. These conditions occurred because the board members
established an arbitrary $175 per diem rate and the board members incorrectly interpreted the
requirement for submitting travel expense vouchers. As a result, the travel expenses charged to
federal programs were excessive, and without submitting detailed travel expense reports upon
completion of the travel, expenditures may not have been valid and reasonable. In addition, the
Authority could not account for $5,950 in cash advances for board members who attended Public
Housing Authorities Directors Association (PHADA) conferences. Therefore, we question these
costs as being unsupported.




   The Per Diem Rate of $175 per
   Day Was Excessive

              The Authority did not establish a reasonable policy for travel costs when its board
              members arbitrarily established a travel per diem and incidental expense rate of
              $175 per day. In addition to the rate having been excessive, the Authority did not
              follow its own Board Resolution No. 703, which stated that the board members
              could adopt the Federal Travel Regulation Manual as a reference to provide
              additional guidelines in establishing this arbitrary rate. Although, the resolution
              did not mandate the Authority to use the Federal Travel Regulation Manual, it
              would have aided the Authority in determining what a reasonable per diem rate
              should be. The daily per diem rate of $175 for meals and incidental expenses was
              clearly unreasonable. For example, the federal per diem rates for the Phoenix,
              Arizona, and Las Vegas, Nevada, trips taken to PHADA conferences were $59
              and $64, respectively.


   Board Members Did Not Always
   File Expense Vouchers


              Board members did not always complete or file travel expense vouchers for
              expense incurred on the behalf of the Authority. This condition occurred because
              some board members had different interpretations of the Authority’s approved


                                               15
                 travel policy, which stated that travel expenses (1) would be reimbursed provided
                 they were reasonable in nature and amount, (2) were properly supported with
                 documentation, and (3) had been appropriately approved. In addition, the
                 reimbursements for actual subsistence expenses would need to be supported by
                 receipts and/or travel expense reports, and receipts were required for expenses of
                 more than $50. Some board members misinterpreted this policy to mean that if
                 the expenses were less than $50, the board members would not have to prepare a
                 travel expense voucher. By not always submitting travel expense vouchers, the
                 Authority had no assurances that travel funds were properly supported and
                 reasonable. The Authority could not account for $5,950 in cash advances for
                 board members who attended PHADA conferences in Phoenix, Arizona, and Las
                 Vegas, Nevada.4 Therefore, we question these costs as being unsupported.


    Conclusion


                 Travel cost incurred by the Authority were unreasonable when compared to the
                 federal travel rates allowed, and unsupported costs were charged to federal
                 programs. The Authority did not establish a reasonable policy for travel per diem
                 rates charged to federal programs because the board of commissioners established
                 an arbitrary travel per diem rate of $175 per day. In addition, board members did
                 not always submit travel expense vouchers for travel costs incurred for the
                 Authority because of the board’s incorrect interpretation of the expense reporting
                 policy.



    Recommendations

                 We recommend that the Director of the Office of Public Housing require the
                 Authority to

                 4A.    Establish a reasonable policy for travel per diem rates charged to federal
                        programs.

                 4B.    Enforce the requirement to always file a travel expense voucher for all
                        travel cost incurred.

                 4C.    Provide support for the travel expense vouchers for the PHADA
                        conferences totaling $5,950 or if support is unavailable, reimburse the
                        applicable federal programs accordingly.



4
 The board members who attended PHADA conferences received $1,750 in cash advances for Phoenix, Arizona,
and $4,200 in cash advances for Las Vegas, Nevada.


                                                    16
                                 RESULTS OF AUDIT

Finding 5: The Authority Did Not Always Follow Its HUD-Approved
Program Waiting List Procedures

The Authority did not always follow its own HUD-approved public housing admissions and
continued occupancy policy and Voucher program waiting list procedures. We identified three
instances in which applicants received preferential treatment over other applicants on the public
housing and Voucher program waiting lists. This condition occurred because the executive
director decided to put the safety of the tenants first and provide housing to a homeless person
without HUD approval. As a result, prospective tenants on the public housing and Voucher
program waiting lists were bypassed for these applicants.



 Three Tenants Were Given
 Preferential Treatment on
 Waiting Lists


               Two tenants received Voucher program assistance, and another tenant was placed
               in public housing ahead of others on the waiting lists. Although the Authority
               documented the reasons why these tenants received preferential treatment,
               including detailed police and medical reports, it failed to obtain HUD approval for
               these exceptions.

               Both the Authority’s admissions and continued occupancy policy for the public
               housing program and Voucher program administrative plan provided detailed
               instructions on how to establish and maintain waiting lists including a preference
               system, selection factors, and removing applicants from the waiting list.

               Further, HUD regulations at 24 CFR 982.204(a) state, “The PHA [public housing
               authority] must select participants from the waiting list in accordance with
               admission policies in the PHA administrative plan.”

               The admissions and continued occupancy policy for the public housing program
               and the Voucher program’s administrative plan did not provide the board
               members or the executive director clear guidance on how to handle problem
               tenants or homeless applicants. Therefore, the executive director made a
               conscious decision to put the safety of the tenants first and provide housing to a
               homeless person without HUD approval.




                                                17
Conclusion



             The Authority failed to request HUD’s approval before deviating from its
             approved waiting list procedures. Two tenants received Voucher program
             assistance, and another tenant was placed in public housing ahead of others on the
             waiting lists.

Recommendations


             We recommend that the Director of the Office of Public Housing require the
             Authority to
             5A.    Establish clear policy and guidance on how to handle extraordinary
                    circumstances (or emergency situations such as problem tenants or
                    homeless applicants) and the requirement to obtain HUD approval when
                    extraordinary circumstances arise that may require actions that are
                    contrary to its approved admissions and continued occupancy policy and
                    waiting list procedures for its Voucher program.




                                             18
                        SCOPE AND METHODOLOGY

We conducted the audit between August 2007 and February 2008. Our fieldwork was conducted
at the Authority’s main office located at 679 Social Street Woonsocket, Rhode Island. In
addition, we performed a sample of physical inspections of tenant units throughout the city of
Woonsocket. Our audit covered the period January 1, 2005, to June 30, 2007, and was extended
when necessary to meet our objectives. To accomplish our audit objectives, we

   •   Interviewed the Authority’s executive director, deputy director, Section 8 coordinator,
       senior housing data clerk, accounting specialists, management information specialists, and
       fee accountants to determine policies and procedures to be tested;

   •   Interviewed Blackstone board members to determine the relationship between Authority
       board members and Blackstone;

   •   Requested a legal opinion from Regional Counsel to determine whether any conflicts of
       interest existed between Blackstone and the Authority board members;

   •   Reviewed the financial statements, general ledgers, tenant files, rent reasonableness data,
       and cost allocation plans as part of our testing for control weaknesses;

   •   Reviewed program requirements including federal laws and regulations, Office of
       Management and Budget circulars, the consolidated annual contributions contract
       between the Authority and HUD, and the Authority’s administrative plan to determine its
       compliance to applicable HUD procedures;

   •   For the period January 2005 through June 2007, reviewed the Authority’s accounting
       controls over cost allocations, interprogram borrowing, and travel to determine whether
       the Authority had accounting controls in place to safeguard its assets; and

   •   Summarized the results of our analyses.

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




                                                 19
                              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 tenant eligibility and calculating housing assistance
                          payments, tenant payments, and utility allowances;
                      •   Controls over rent reasonableness;
                      •   Controls over housing quality standards inspections;
                      •   Controls over expenditures to ensure that they were eligible, necessary,
                          and reasonable
                      •   Controls over accounting for cost allocations and interprogram
                          receivables and payables;
                      •   Controls over procurements;
                      •   Controls over travel per diem costs and travel expense vouchers; and
                      •   Controls over voucher use (eligibility, waiting lists, and use).

              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.




                                                20
Significant Weaknesses


           Based on our review, we determined the following items to be significant
           weaknesses:
               ƒ   Controls to prevent using program funds for nonprogram expenses (see
                   finding 1).

               ƒ   Controls over accounting for cost allocation and interprogram receivables
                   and payables (see finding 2).

               ƒ   Controls over the management of its procurement practices (see finding
                   3).

               ƒ   Controls over establishing travel per diem rates and filing travel expense
                   vouchers (see finding 4).

               ƒ   Controls over waiting list procedures (see finding 5).




                                            21
                                   APPENDIXES

Appendix A

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

     Recommendation Ineligible 1/ Unsupported 2/ Funds to be put to            Totals
         number                                    better use 3/
           1B                 $2,608                                         $2,608
           2B                                 587,000                       587,000
           2C                                  67,855                        67,855
           2D                                                      241,081 241,081
           4C                                   5,950                         5,950
          Totals              $2,608         $660,805             $241,081 $904,494

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

2/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of audit. Unsupported costs
     require a decision by HUD program officials. This decision, in addition to obtaining
     supporting documentation, might involve a legal interpretation or clarification of
     departmental policies and procedures.

3/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. This includes reductions in outlays, deobligation of funds, withdrawal of
     interest subsidy costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified. In this instance, if the Authority implements our
     recommendation to eliminate interfund payables and receivables, this amount $241,081
     will be available annually for the program area for which it was originally intended.




                                            22
        AUDITEE COMMENTS AND OIG’S EVALUATION

Appendix B
Ref to OIG Evaluation   Auditee Comments




                         23
Ref to OIG Evaluation                Auditee Comments




Comment 1




                        IG Evaluation of Auditee Comments




                                       24
Ref to OIG Evaluation   Auditee Comments




Comment 2




                         25
Ref to OIG Evaluation   Auditee Comments




Comment 3




                         26
Ref to OIG Evaluation   Auditee Comments




                         27
Ref to OIG Evaluation               Auditee Comments




Comment 4




Comment 5 OIG Evaluation of Auditee Comments




                                      28
Ref to OIG Evaluation   Auditee Comments




                         29
                          OIG Evaluation of Auditee Comments


Comment 1:

     The Authority agreed with our comments detailing the creation of a separate nonaffiliated
     development corporation and those related to the portion of public housing fund
     advances. However, the Authority raised questions regarding the amounts and
     responded that the advances were paid from the revolving fund (central bank account),
     and never classified which program advanced the funds. Therefore, the Authority feels
     that the advances could have been considered voucher funds.

     The Authority’s statements are factually incorrect. Although the central revolving
     account commingled all program funds, the expenditures from the account were coded as
     to which general ledger and corresponding HUD program was charged. Therefore, the
     Authority is factually incorrect when stating that the funds could all be considered as
     having coming from the voucher program. In addition, the Authority is factually
     incorrect by stating that all but $2,608 of the funds was repaid by the end of 2004. In
     fact, expenditures were made and specifically charged to the public housing program for
     Blackstone Valley Housing Development Corporation (Blackstone) through August
     2007. In addition, the Authority improperly provided a $20,000 interest-free loan from
     its public housing program to Blackstone in early 2005 to support its initial operations.
     The authority’s response did not dispute this fact. Therefore, the Authority did use public
     housing funds for Blackstone.

     Furthermore, the Authority’s response indicates that pre-2004 voucher reserve funds
     were available to use for Blackstone. We concur that that this was the case, and took no
     exception to the initial $85,000 of these funds loaned as start up costs for Blackstone.
     However, the Authority used a total of $109,944 in Section 8 funds ($85,000 promissory
     note and $24,944 in payments) to pay Blackstone operating expenses. Since the 2004
     and 2005 Appropriations Acts, Congress restricted the use of administrative fees that
     were subsequently moved into the administrative fee reserve account at year-end, and the
     Authority improperly used $18,749 out of the $109,944 advanced. The remaining
     balance $91,195 ($85,000 promissory note and $6,195 in payments) was paid from the
     FY 2002 and 2003 Section 8 operating reserve, to which we took no exception.

     In summary, the Authority stated that it would cease the use of federal funds for non-
     program expenses and will repay the $2,608 from nonfederal sources, which will satisfy
     our recommendation. The Authority also requested that although they were not in perfect
     alignment with HUD intended directives, that we consider not requesting that HUD
     consider taking administrative sanctions because they achieved success in furthering their
     public housing mission. We agreed that HUD encouraged this type of activity to
     supplement the development of low-income housing. However, the Authority failure to
     follow HUD rules and regulations governing use of public housing and Voucher program
     funds is reportable and as such administrative action or sanctions should be considered by



                                             30
     HUD. Our recommendation was changed to reflect that administrative action or
     sanctions should be considered by HUD.

Comment 2:

     The Authority agreed that during our audit the Authority did not establish a supportable
     basis for its cost allocations between its federal programs. The Authority charged
     $587,000 for administrative salaries (management and finance) and could not support the
     indirect rate of 12 percent charged for other Voucher program administrative costs
     totaling $67,855.

     The Authority response stated that the Authority has done an after the fact analysis to
     determine a source for the 12 percent administrative cost allocation. The analysis was
     based on management interviews and assessments of total administrative overhead costs
     incurred related to HUD’s current Asset Management project to revamp public housing’s
     financial management and reporting guidelines.

     In addition, the Authority’s response indicates that the salary costs it allocated were
     associated with administering the program and none of the $587,000 in management and
     finance salaries questioned should be charged to the voucher program. We find these
     statements unreasonable since the Authority indicates that many in management were
     involved with the administration pertaining to the program. The Authority must support
     and show that the salary costs of employees who work on multiple activities or programs
     were for the administration of the specific program charged. Generally, the support
     includes personnel activity reports or equivalent documentation that reflects distribution
     of the actual activity or time allocation of each employee for each program. Budget
     estimates or other distribution percentages determined before the services are performed
     do not qualify as support.

     Our review determined that the Authority did not have a written cost allocation method
     that clearly defined and supported the allocation of percentages of costs charged to
     federal programs and the Authority’s response agrees. Therefore, our recommendations
     remain unchanged and the Authority needs to work with HUD program officials to
     develop and implement an equitable and fully supported allocation plan.

     In addition, the Authority’s response to our finding of inappropriate borrowing between
     federal programs indicates that public housing “possessed adequate and available funds
     and did not go without” is not acceptable. The fact remains that the Authority violated
     HUD regulations by lending these funds for other than the program purposes for which
     they were appropriated. Finally, the Authority’s response states that the audit report is
     factually incorrect by stating that the cause for this condition was that the “Authority did
     not see the need for establishing accounting controls over program borrowing because it
     only borrowed fund between federal programs.” Based on the Authority’s response that
     refers to this issue as an “administrative task of transferring funds between the program
     accounts that did not take place,” we stand by our original statements as to the cause of
     this condition. Therefore, our recommendations remain unchanged.



                                              31
Comment 3:

     The Authority stated that it complied with CFR 85.36; however, it will take steps to
     better document its procedures. We disagree that the Authority always complied with
     CFR 85.36. Our evaluation of the Authority’s response to each procurement deficiency
     cited in the report follows:

     HQS Inspections:

     The Authority agreed that the Authority should not have extended the original HQS
     inspection contract for services beyond the 2-year period and did not dispute that because
     of our audit, the Authority did solicit a request for proposal for Voucher program housing
     inspections in September 2007.

     The fact that the same firms were rehired because of the solicitation and the prices did not
     change significantly is not a relevant. Because the Authority did not resolicit the contract
     when it initially expired, the Authority suppressed competition and violated CFR 85.36.

     Legal Services:

     We agree that the Authority publicly advertised for the pre-July 2006 period, as well as,
     for current periods for legal services and defined the criteria in the specifications for
     which proposals were submitted. However, for legal contracts awarded before July 2006,
     the Authority could not show a detailed history of the procurement and for the current
     attorney services and the Authority did not have a detailed history of the procurement to
     support the selection or signed contracts. Although a proposal matrix was provided to us
     during the audit, the only information contained in the matrix was a summary of the date
     the proposals were received from the respondents, the types of legal services (i.e. General
     Counsel, Tenant Evictions, Labor relations) to be provided, and the hourly rates bid for
     these services. The detailed proposals were not maintained and no detailed analysis of
     the proposals was provided. Therefore, our finding and recommendations remain
     unchanged.

     The Authority response stated that in the future all proposals will be retained in
     accordance with record retention policies and the Authority is in process of obtaining an
     engagement letters and/or contracts from the hired attorneys. We consider these
     proposed corrective actions responsive to our recommendations.

     Fee Accountants:

     The Authority response indicated that it did document the procurement with an
     advertisement for bids defining criteria and subsequent award for a 2005 contract in the
     best interest of the Authority with pricing considered. However, the Authority did not
     provide a copy of the advertisement nor did it dispute the fact that it entered into a sole
     source contract for fee accountant services for the period January 2005 through



                                              32
     December 2006. In addition, the Authority did not dispute that this contract was
     extended for an additional year to 2007 and continued to retain and pay $2,000 per month
     for the fee accountant services although the contract had expired well over a year earlier.
     Also, the From January 1, 2005, to July 2, 2007, approximately $57,000 was paid to the
     fee accountants from the sole source procurement that far exceeded the Authority’s small
     purchase maximum of $25,000. Therefore, the Authority’s response is factually incorrect
     by stating that “this was a small purchase as defined in CRF 85.36” and that the
     advertisement “went above and beyond the requirement.”

     In summary, since the Authority’s response did not provide any additional
     documentation, our findings and recommendations remain unchanged.


     Leased Equipment:

     The Authority’s response stated that factual correction should be made to the report
     amount to adjust the total lease costs down to $85,200, by excluding the maintenance
     costs included in the lease. We agree, and revised the report amount; however, this
     change does not affect our conclusion and recommendation.

     In addition, the Authority’s response stated, “budget concerns may have driven the
     lease/buy decision.” In our opinion, budget concerns should not have driven this decision
     because necessary funds could have been borrowed and the purchase option might still
     have been more economical.

     The Authority’s response that it leased copiers in 2005 and found evidence of
     lease/purchase analysis that seemed to indicate a 5% lease interest rate is not relevant.
     That lease was entered into before the time-period of our audit scope. Our analysis only
     covered those copy machines that were leased beginning in 2006.

     Although the Authority agreed that our equipment cost assumptions utilized in
     calculating our $13,000 potential savings were reasonable for the cash on cash analysis,
     the Authority stated that our analysis did not consider potential interest earnings on “cash
     made available by not purchasing” that would have reduced the potential savings.

     We agree that we did not include potential interest earnings in our analysis. However,
     the Authority’s response correctly concluded that leasing normally carries a premium
     over purchasing, when considering all factors. Furthermore, the Authority agreed to
     perform lease versus purchase analysis on future acquisitions, which we consider
     response to our recommendation. Therefore, our finding and recommendation remain
     unchanged.

Comment 4:

     The Authority stated than an advanced check was never issued to one of the
     commissioners accounting for $1,050 of the $5,950 cash advanced. Based on the records



                                              33
     provided during the audit, we determined that the total advanced was $5,950 per purchase
     requisitions. Since the Authority’s response did not contain further documentation to
     support their statement our audit position remains unchanged.

     In addition, the Authority response stated that unexpended advances totaling $1,982 were
     returned to the Authority following their trips, thereby reducing the amount requiring
     support or reimbursed from $5,950 to $2,918. Since the Authority’s response did not
     include the details and supporting documentation, we could not verify the amounts
     returned. However, if the Authority can provide the documentation, we agree that these
     unexpended advances could reduce the $5,950 we reported as unsupported.

     In summary, these commissioners did not file expense reports for the trips in questioned.
     Therefore, our finding and recommendations for this condition remain unchanged. Also,
     the Authority agreed to obtain travel expense vouchers for the travel in question, which
     we consider responsive to our recommendation. Finally, the Authority agreed that the
     established per diem rates were excessive and has already initiated corrective action.

     We commend the Authority’s actions to date and encourage the Authority to work with
     HUD’s Office of Public Housing to resolve the audit recommendations.

Comment 5:

     The Authority disagreed with the finding that it did not always follow its HUD-approved
     program waiting list procedures because they stated they “followed the rules for
     allocations permitted in the Designated Housing Plan (DHP) originally committed in
     2002, and then renewed and approved by HUD on July 16, 2007,” which granted 35 new
     section 8, HCV set asides. In addition, Authority’s response stated that: “Under Rhode
     Island law we could not legally deny these two disabled residents access to these
     apartments, nor could we evict them for their actions (per our legal counsel) so we relied
     on the guidelines of the DHP that granted us 35 new section 8, HCV set asides.”

     As stated in the report finding, this condition occurred because the executive director
     decided to put the safety of the tenants first and provide housing to a homeless person
     without HUD approval. While we recognize that these were difficult circumstances, the
     Authority should have obtained HUD approval since these actions on were contrary to
     the requirements of its approved Admissions and Continued Occupancy Policy (ACOP)
     and the Voucher program (waiting list procedures). Therefore, our recommendation
     remains unchanged and the Authority needs to work with HUD’s Office of Public
     Housing when extraordinary circumstances ( or emergency situations) arise that may
     require actions contrary to its approved waiting list procedures.




                                             34
Appendix C

     SELECTED CRITERIA FOR THE VOUCHER PROGRAM


Consolidated Annual Contributions Contract, Section 11(A), Use of Program Receipts: The HA
[housing authority] must use program receipts to provide decent, safe, and sanitary housing for
eligible families in compliance with the U.S. Housing Act of 1937 and all HUD requirements.
Program receipts may only be used to pay program expenditures.

24 CFR [Code of Federal Regulations] 982.54, Administrative Plan: “(a) The PHA [public
housing authority] must adopt a written administrative plan that establishes local policies for
administration of the program. (b) The PHA must revise the administrative plan if needed to
comply with HUD requirements. (c) The PHA must administer the program in accordance with
the PHA administrative plan.”




                                              35