Issue Date August 21, 2008 Audit Report Number 2008-LA-1015 TO: K.J. Brockington, Director, Los Angeles Office of Public Housing, 9DPH FROM: Joan S. Hobbs, Regional Inspector General for Audit, Region IX, 9DGA SUBJECT: The Housing Authority of the City of Los Angeles, California, Could Not Show That It Used HUD Program Funds in Accordance with HUD Requirements HIGHLIGHTS What We Audited and Why We audited the Housing Authority of the City of Los Angeles‟ (Authority) Section 8 Housing Choice Voucher program‟s financial transactions. We initiated the audit prior to the close of the Authority‟s 2007 fiscal year as part of our fiscal year 2008 annual audit plan. Our audit objective was to determine whether the Authority properly used Section 8 Housing Choice Voucher program funds in accordance with U.S. Department of Housing and Urban Development (HUD) rules and regulations for the benefit of its program participants. During the audit, we expanded our scope to include a review of its other HUD programs to determine the extent of its inappropriate interprogram fund transfers. What We Found The Authority could not show that it used program funds in accordance with its consolidated annual contributions contracts, executed grant agreements, or HUD rules and regulations. Without the required HUD approval, the Authority‟s accounting records showed that it improperly advanced and expended more than $27 million in restricted funds to cover its operating losses for its other programs. The Authority contended that there was no misappropriation of funds, but rather just a problem with the way the accounting system presented its financial transactions; however, we were unable to validate its contention. We attribute this deficiency to the Authority‟s failure to exercise prudent oversight over the use of HUD funds to ensure that federal requirements and grant agreements and contracts were followed. What We Recommend We recommend that the director of HUD‟s Los Angeles Office of Public Housing require the Authority to: (1) reimburse $27,801,379 in restricted funds to the proper programs; and (2) establish and implement adequate procedures and accounting controls to ensure that no interprogram advances of restricted funds are made in the future and funds are solely used for each program‟s intended purpose. 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 provided our discussion draft report to the Authority on July 3, 2008, and held an exit conference on July 22, 2008. As a result of the discussion and comments at the exit conference, we provided the Authority with a revised draft report on July 25, 2008. The Authority provided its written response to the draft report on August 1, 2008. The Authority disagreed with our report finding and recommendation to reimburse the restricted funds, although they reimbursed the funds to the restricted account toward the end of our audit. The complete text of the auditee‟s response, along with our evaluation of that response, can be found in appendix B of this report. 2 TABLE OF CONTENTS Background and Objectives 4 Results of Audit Finding 1: The Authority‟s Accounting Records Showed That It Improperly 5 Advanced HUD Program Funds To Other Federal Programs to Cover Operating Deficits Scope and Methodology 9 Internal Controls 10 Appendixes A. Schedule of Questioned Costs and Funds to Be Put to Better Use 11 B. Auditee Comments and OIG‟s Evaluation 12 C. Criteria 25 3 BACKGROUND AND OBJECTIVES The Housing Authority of the City of Los Angeles (Authority) was organized as a public housing authority in 1938 to provide low-cost housing to individuals meeting established criteria. The Authority is a state-chartered public agency that provides the largest stock of affordable housing in the Los Angeles area and it gets the majority of its funding from HUD. However, it has built numerous key partnerships with city and state agencies, nonprofit foundations, and community- based organizations, as well as private developers. As of the fiscal year end December 2007, the Authority had issued over 41,000 housing choice vouchers and paid more than $350 million in housing assistance payments for the housing of eligible participants under its Section 8 Housing Choice Voucher program. Even though the Authority met its dollar lease up threshold rate of 95 percent, its accounting records show more than $83 million in HUD Section 8 housing assistance payments surplus had accrued on its books between fiscal years 2004 through 2007. Approximately $28 million of this surplus subsidy will be used to offset the authorized subsidy paid in fiscal year 2008. The Authority‟s general ledger also showed more than $58 million in accrued administrative fees earned and over $16 million in interest and reinvested interest income and unrealized gains on housing assistance payment investments. Moreover, the Authority has built up over $180 million in portfolio investments, more than $132 million of which were funded primarily from its general revolving fund. Of the $58 million in accrued administrative fees earned, more than $46 million represented the Authority‟s pre-2003 administrative fees. HUD‟s Assistant Secretary for Public and Indian Housing authorized the Authority to use $40.5 million of its pre-2003 administrative reserves for the purpose of investing in rebuilding the Section 8 program, information technology, and multifamily housing development and other real estate acquisitions. As of December 31, 2007, the Authority had an available balance of over $26 million in pre-2003 reserves, of which, over $22 million may be used only for housing development and real estate acquisition (see chart below). December 31, 2007 Description Initial allocation Disbursements ending balance Rebuild Section 8 program area $ 1,500,000 $ - $ 1,500,000 Information technology $ 3,000,000 $ (621,478) $ 2,378,522 Housing development $ 36,000,000 $ (13,351,872) $ 22,648,128 Total $ 40,500,000 $ (13,973,350) $ 26,526,650 Our objective was to determine whether the Authority used program funds in accordance with HUD rules and regulations. We expanded our scope to include a review of its other HUD programs to determine the extent of its inappropriate interprogram fund transfers. 4 RESULTS OF AUDIT Finding 1: The Authority‟s Accounting Records Showed That It Improperly Advanced HUD Program Funds to Other Federal Programs to Cover Operating Deficits According to the Authority‟s accounting records, it improperly advanced and expensed more than $27 million in HUD program funds among its other federal programs. The Authority contended that there was no misappropriation of funds, but rather, just a problem with the way the accounting system presented its financial transactions; however, we were unable to validate its contention. We attribute the deficiency to the Authority‟s failure to exercise prudent oversight over the use of HUD funds to ensure that federal requirements and contracts were followed. As a result, fewer funds may have been available to serve its targeted participants and the Authority may not have met the specific purpose, goals, and requirements of those programs. The Authority Inappropriately Advanced Funds to Other Federal Programs Contrary to the Public and Indian Housing Low-Rent Technical Accounting Guide 7510.1 G, consolidated annual contributions contracts, and grant agreements, the Authority‟s accounting records showed that it withdrew more than $31 million in restricted funds and advanced it to other federal programs to cover operating shortfalls. Of the $31 million in restricted funds, more than $27 million represented HUD awarded funds (see the charts below). This occurred because the Authority commingled all of its monies into a general revolving fund account which lacked proper procedures or accounting controls to limit withdrawals only to funds available on deposit for each of its programs. Lending programs Program Receivable Section 8 Housing Choice $ 16,707,150 Low Rent $ 4,076,910 HOPE VI $ 5,527,417 Section 8 New Construction $ 738,856 Section 8 Moderate Rehabilitation 1 $ 10,026 Section 8 Moderate Rehabilitation 2 $ 53,136 Section 8 Moderate Rehabilitation 3 $ 453,159 Disaster Housing Assistance $ 137,569 Comprehensive Grant $ 97,156 Subtotal – HUD $ 27,801,379 Other federal $ 4,166,822 Workforce Investment Act - Dislocated Worker $ 6,297 Subtotal - non-HUD $ 4,173,119 Total $ 31,974,498 5 Borrowing programs Program Payable Rent Subsidy $ 15,011,446 Capital Fund $ 7,006,184 Shelter Plus Care $ 5,395,426 Housing Opportunities for Persons with Aids $ 2,203,082 Section 8 Rental Special Allocations $ 1,053,367 Other federal $ 519,963 Community Development Block Grant $ 421,146 Workforce Investment Act - Adult $ 173,010 Resident Opportunities and Self-Sufficiency $ 90,288 Multi-family Service $ 48,829 Development $ 41,225 Workforce Investment Act - Youth $ 10,532 Total $ 31,974,498 During our audit, the Authority explained that its Oracle system reconciles the advancements and repayments by recording either an interprogram receivable or payable in the general ledger. An interprogram receivable is created when a program loans its pooled cash to another program to cover its operating losses on a short term basis, while an interprogram payable is created when a program borrows cash from the general revolving fund to cover its operating losses. A year end reconciliation is conducted to identify the total receivable and payable amounts outstanding. Given that all program monies are commingled into one account and the lending and borrowing from the general revolving fund are tracked only by interprogram receivable and payable balances, it has no way of showing whether it has lent out excess housing assistance payment monies, administrative fees earned, or interest income for the Section 8 Housing Choice Voucher program or any of its other programs with excess funds. When we met with the Authority to discuss the finding, it claimed that the monies lent out to the programs were solely from unrestricted funds; however, it could not provide adequate support to justify this statement. Moreover, this contradicted what we were told during the audit, which was that funds for programs with receivable balances were lent out to pay for programs with payable balances. In addition, we noted that the independent auditors certified in its 2004, 2005, and 2006 financial statements that advances are “due to/from other programs,” indicating that designated restricted monies were transferred between programs rather than unrestricted monies. The Authority also disputed our understanding of its program advances, which it claims are short term loans of investments and are only reflected in the Authority‟s books. The funds associated with the advances never leave the organization or the respective programs. However, Authority officials and staff also stated that HUD will not provide reimbursement for most of its programs‟ expenditures until it can show funds were actually spent, requiring it to make payments first out of its general revolving fund to keep its programs in operation. Any excess funds in the general revolving fund are then invested in securities on a daily basis and any interest will be distributed to the 6 appropriate programs. Hence, the program advances are made before the excess funds are invested. Authority officials attributed its need to advance general revolving fund monies to HUD and pass through agencies such as the Los Angeles Housing Department, because of a recurring problem with executing its grant agreements or contracts in a timely manner. If a contract is pending, the Authority will pay the expenses out of the general revolving fund and hold all of its reimbursement billings until the contract is executed. This delay negatively impacts the Authority‟s ability to draw funds to pay for its program expenditures. Corrective Action When we brought this issue to the Authority officials‟ attention, it promptly took action and asked their independent public accountant to revise the presentation of the 2007 financial statement report to reflect that advanced funds were repaid with accrued pre- 2003 administrative fee reserves ($20,019,740) and Los Angeles LOMOD Incorporated ($15,946,630) monies. We were able to validate that these funds were used to repay the programs based on the documentation provided after our fieldwork was concluded. Nevertheless, had we not questioned the Authority‟s usage of its funds, it is likely that the Authority would not have taken any remedial action to correct this deficiency, despite the fact that program funds were restricted to specific programs and there is a sufficient amount of alternative unrestricted funds to cover the operating costs of its programs from its authorized pre-2003 administrative fees. This violation occurred because the Authority did not exercise prudent oversight over the use of program funds to ensure that federal requirements and basic accounting principles were followed. Conclusion The Authority‟s accounting records showed that it improperly advanced and expensed more than $27 million in restricted program funds to cover the operating shortfalls of its other programs. The Authority disagreed that there was any misappropriation of funds and contended that it was just a problem with the way that the accounting system presented its financial transactions. We were unable to validate its contention. We believe this violation occurred because the Authority did not exercise prudent oversight over the use of program funds to ensure that federal requirements and basic accounting principles were followed. Consequently, the Authority failed to ensure that HUD funds were spent in accordance with requirements and may not have served its programs‟ targeted participants. 7 Recommendations We recommend that the director of the Los Angeles Office of Public Housing require the Authority to 1A. Identify the amounts that were borrowed from or lent out to a specific program and immediately reimburse $27,801,379 in restricted funds to the proper programs or require the Authority to repay the balance from nonfederal funds. 1B. Establish and implement procedures and controls to ensure that no interprogram advances of restricted funds are made in the future and funds are solely used for each program‟s intended purpose. 8 SCOPE AND METHODOLOGY We performed our on-site audit work at the Authority, located in Los Angeles, California between January and April 2008. Our audit generally covered the period January 1, 2005 through December 31, 2007. Our objective was to determine whether the Authority used Section 8 Housing Choice Voucher program funds in accordance with HUD requirements. We expanded our scope as necessary to include a review of all the Authority‟s HUD administered program funds as it relates to any internal advances. To accomplish our audit objectives, we Reviewed applicable HUD regulations, including HUD Public and Indian Housing Notices, 24 CFR [Code of Federal Regulations] Part 982.152, Office of Management and Budget Circular A-87, and HUD Low-Rent Technical Guide 7510.1 G. Reviewed the Authority‟s Section 8 Housing Choice Voucher, Low Rent, HOPE VI, Section 8 New Construction, Section 8 Moderate Rehabilitation, Disaster Housing Assistance, and Comprehensive Grant programs‟ consolidated annual contributions contracts or grant agreements. Reviewed the Authority‟s policies and procedures related to its administration of its HUD program funds. Interviewed HUD and Authority personnel to acquire background information about the Authority. Interviewed the Authority‟s finance department personnel to obtain an understanding of its financial operations, practices, and controls. Reviewed Authority accounting records including its 2004, 2005, 2006, and 2007 audited financial statements, general ledgers, bank statements, reimbursement forms, and other supporting documentation. Reviewed the cumulative interfund account activity through the end of December 31, 2007, which was updated by the Authority and provided to us on April 14, 2008. We performed our review in accordance with generally accepted government auditing standards. 9 INTERNAL CONTROLS Internal control is an integral component of an organization‟s management that provides reasonable assurance that the following objectives are being achieved: Effectiveness and efficiency of operations, Reliability of financial reporting, and Compliance with applicable laws and regulations. Internal controls relate to management‟s plans, methods, and procedures used to meet its mission, goals, and objectives. Internal controls include the processes and procedures for planning, organizing, directing, and controlling program operations. They include the systems for measuring, reporting, and monitoring program performance. Relevant Internal Controls We determined the following internal controls were relevant to our audit objectives: Policies, procedures, and accounting controls in place to reasonably ensure that its HUD program funds were being used in accordance with applicable laws and regulations. Safeguarding HUD program funds by reasonably ensuring that resources are protected against waste, loss, and misuse. We assessed the relevant controls identified above. A significant weakness exists if management controls do not provide reasonable assurance that the process for planning, organizing, directing, and controlling program operations will meet the organization‟s objectives. Significant Weaknesses Based on our review, we believe the following item is a significant weakness: The Authority lacked sufficient procedures and controls in place over the use of its HUD program funds to ensure compliance with rules and regulations (finding 1). 10 APPENDIXES Appendix A SCHEDULE OF QUESTIONED COSTS Recommendation Number Ineligible 1/ 1A $27,801,379 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. In this situation, the Authority advanced and expended $27,801,379 in restricted HUD program funds to its other federal programs to cover operating deficits. 11 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments 12 Comment 1 Comment 2 Comment 3 Comment 4 13 Comment 5 Comment 6 14 15 16 Comment 7 Comment 3 Comment 8 Comment 9 17 18 Comment 10 Comment 11 19 OIG Evaluation of Auditee Comments Comment 1 We disagree with the Authority's contention. During our audit, we met several times with the Authority's finance officer to gain an understanding of its interfund accounts. Each time we met, we were told that funds were borrowed between programs to cover the operating shortfalls of programs that do not have sufficient funds. This fact is reflected in the Authority's interprogram fund balances as shown in its general ledger and draft balances to be reported in the 2007 audited financial statements. The Authority explained that HUD and other federal grantors require that contracts be executed and expenditures be paid up front before reimbursements are made by HUD. Consequently, monies were borrowed from other programs with surplus funds that are restricted to a specific program. This is a violation of the consolidated annual contributions contracts. Therefore, such borrowings reflect a weakness in the Authority's internal controls over the use of its HUD program funds as the Authority could not ensure that funds were used for each of its program's specific purpose. We agree that there is no longer a balance to be repaid from nonfederal funds as the Authority had "repaid/reclassified" unrestricted funds to cover the inappropriate advancements of restricted funds. This repayment/reclassification of funds occurred after we had notified them of the issue, in which they had over two months to correct its records and its 2007 audited financial statements due on June 30, 2008. Once we issue the report, we intend to close out the recommendation since the Authority has already taken the recommended actions. Comment 2 We disagree. The executed contracts signed by the Authority and HUD strictly forbid the use of restricted monies for any other purpose. For example, section c of the public housing contract states that "the HA may withdraw funds from the General Fund only for: (1) the payment of costs of development and operations of the project under annual contributions contract with HUD; (2) the purchase of investment securities as approved by HUD; and (3) such other purposes as may be specifically approved by HUD. Program funds are not fungible; withdrawals shall not be made for a specific program in excess of funds available on deposit for that program." The $27,081,379 in advancements that were made between programs is strictly forbidden by the clause shown above; therefore, the Authority could not have used all program revenues in compliance with HUD program rules. An independent certified public accountant is responsible for expressing an opinion on the financial statements based on its audit as the financial statements are the responsibility of the management of the Housing Authority. We agree that the independent certified public accountants did not misrepresent the program advancements between programs for the audited financial statements prepared for fiscal year 2007 as the report was revised after our audit and prior to its final issuance. We notified the Authority of our contention more than two months before it was issued, which gave the Authority time to revise its "presentation" of its audited financial statements. However, a review of the fiscal years 2004, 2005, and 2006 audited financial statements, 20 which were prepared by the Authority's independent certified public accountants, show what we have concluded all along - that program funds were being borrowed and lent out between programs ("amounts advanced from and due to the Housing Authority's programs are as follows") and are used to "offset against one another" (see below). We also agree that there is no longer a balance to be repaid from nonfederal funds as the Authority had "repaid/reclassified" unrestricted funds to cover the inappropriate advancements of restricted funds. This repayment/reclassification of funds occurred after we had notified them of the issue, in which they had over two months to put its records in the correct order. Had we not brought this to the Authority's attention, it would not have used its unrestricted funds to repay its restricted funds, as it has been occurring for the past three years as shown below. 21 Comment 3 We agree. We removed the section regarding unrealized interest income as the Authority's explanation of the interest allocation was supported and verified. Comment 4 In addition to a change in presentation of its interfund balances, the Authority failed to mention that it also had to repay/reclassify/move its pre-2003 administrative fees and LOMOD unrestricted funds to make its restricted funds whole. 22 Comment 5 We vehemently disagree with the Authority‟s contention that our finding is unsupported, erroneous and not based on solid auditing standards. As explained in Comment 1, we met several times with the Authority‟s finance office to gain an understanding of its interfund accounts. Each time we met, we were told that funds were borrowed between programs to cover the operating shortfalls of programs that do not have sufficient funds. The accounting records also reflected our understanding of the process. Comment 6 The independent auditor's opinion of the Authority's compliance is to the "accounting principles generally accepted in the United States of America." On page 51 of the 2007 audited financial statements, it states that "in planning and performing our audit, we considered the Housing Authority's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but for the purpose of expressing an opinion on the effectiveness of the Housing Authority's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Housing Authority's internal control over financial reporting." Furthermore, the audited financial statements state that "we performed tests of its compliance with certain provisions of law, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion." The Authority did not demonstrate that it had sufficient procedures and controls over the use of its HUD program funds as $27,081,379 in program funds were advanced between its programs. Comment 7 We cannot attest to the Authority‟s assertion that significant improvements in Internal Control and Section 8 program execution allowed HACLA‟s SEMAP scores to progress from Troubled to High Performer since that was outside the scope of our audit. Comment 8 We agree that the Authority had over $40 million in unrestricted funds in its account during 2004, 2005, and 2006. However, those monies were not designated as monies used to cover the operating losses of other programs during our audit. Rather, we were informed that those monies were unrestricted and the Authority had discretion over its use. During our fieldwork, the Authority's accounting records reflected only five entries that affected the unrestricted fund balance. Those entries are related to the acquisition of four housing development properties with the aggregate amount of $13,351,872 and information technology related expenses of $621,478. The remaining balance of the unrestricted funds was unencumbered and was to be used to purchase other properties. It was not until after we had informed the Authority of our finding that it used its unrestricted monies to repay the restricted funds that were used to cover the operating deficits of its other programs. 23 Comment 9 We agree that no interest income was allocated to the unrestricted funds during 2004, 2005, and 2006. However, this does not prove that restricted funds were “whole”. As discussed in Comment 2, the accounting records showed that program funds were being borrowed and lent out between programs. We agree that the restricted funds were made whole after the fact when the Authority had “repaid/reclassified” unrestricted funds to cover the inappropriate advancements of restricted funds during 2007. Comment 10 We commend the Authority for its desire to provide uninterrupted service to clients of federal programs administered by the Authority. However, we maintain that the Authority should not use restricted funds in violation of the annual contributions contracts. Comment 11 We agree that there is no longer a balance to be repaid from nonfederal funds as the Authority had "repaid/reclassified" unrestricted funds to cover the inappropriate advancements. The Authority "repaid/reclassified" restricted with unrestricted funds after we had notified them of the issue during our audit. Once we issue the report, we will record that the corrective action has already taken place and close out the recommendation. 24 Appendix C CRITERIA A. Section 8 Housing Choice Voucher Program’s Consolidated Annual Contributions Contract: Paragraphs 11(a), (b), and (c), states, “the HA must use program receipts to provide decent, safe, and sanitary housing for eligible families in compliance with the United States Housing Act of 1937 and all HUD requirements. Program receipts may only be used to pay program expenditures. The HA may not make any program expenditures, except in accordance with the HUD-approved budget estimate and supporting data for a program. Interest on the investment of program receipts constitutes program receipts.” Paragraphs 12(a) and (b), states, “the HA must maintain an administrative fee reserve for a program and must use funds in the administrative fee reserve to pay administrative expenses in excess of program receipts. If any funds remain in the administrative fee reserve, the HA may use the administrative reserve funds for other housing purposes if permitted by state and local law.” Paragraph 13(c), states, “the HA must only withdraw deposited program receipts for use in connection with the program in accordance with HUD requirements.” B. Low Rent and Comprehensive Grant Programs’ Consolidated Annual Contributions Contract: Section 9 (C), states, “the HA shall maintain records that identify the source and application of funds in such a manner as to allow HUD to determine that all funds are and have been expended in accordance with each specific program regulation and requirement. The HA may withdraw funds from the general fund only for: (1) the payment of costs of development and operations of the project under the Annual Contributions Contract with HUD; (2) the purchase of investment securities as approved by HUD; and (3) such other purposes as may be specifically approved by HUD. Program funds are not fungible; withdrawals shall not be made for a specific program in excess of funds available on deposit for that program.” Section 10 (C), states, “the HA shall not withdraw from any of the funds or accounts authorized amounts for the projects under the Annual Contributions Contract, or for the other projects or enterprises in excess of the amount then on deposit in respect thereto.” 25 C. HOPE VI Program: OMB Circular A-87 C(3)(c), states, “any cost allocable to a Federal award may not be charged to other Federal awards to overcome fund deficiencies, to avoid restrictions imposed by law or terms of the Federal awards, or for other reasons.” D. Section 8 New Construction Program’s Consolidated Annual Contributions Contract: Section 4 (d)(2), states, “housing assistance payments shall only be paid to the owner for contract units occupied by eligible families leasing decent, safe and sanitary units from the owner in accordance with statutory requirements, and with all HUD regulations and other requirements.” E. Section 8 Moderate Rehabilitation Program’s Consolidated Annual Contributions Contract: Section 1.13 (c), states, “the HA may only withdraw deposited program receipts for use in connection with the program in accordance with HUD requirements.” F. Disaster Housing Assistance Program’s Grant Agreement: a. Section 10 (a), states, “program receipts may only be used to pay eligible program expenditures.” b. Section 11 (c), states, “PHA may only withdraw deposited program receipts for use in connection with the program in accordance with HUD requirements.” c. Public and Indian Housing Notice 2007-26 (4)(r), states, “DHAP funding may not be used for other activities or costs. DHAP funding remains separate and distinct from the PHA‟s regular voucher program and the DVP (Disaster Voucher Program) in terms of the source and use of the funding.” G. 24 CFR [Code of Federal Regulations] 982.152(a)(3), last amended on May 14, 1999, states, “the HA administrative fees may only be used to cover costs incurred to perform HA administrative responsibilities for the program in accordance with HUD regulation and requirements.” H. PIH [Public and Indian Housing] Notice 2004-7, section 8, states, “transfer of amounts from the operating (administrative fee) reserve to another non-Section 8 program account does not constitute use of the operating reserve for other housing purposes, even if the account to which funds would be transferred is designated for housing purposes. Operating reserve funds must be expended to be considered used for other housing purposes.” 26 I. PIH [Public and Indian Housing] Notice 2006-03, section 9, states, a “pha must be able to differentiate housing assistance payments equity (budget authority in excess of housing assistance payments expenses) from administrative fee equity (administrative fees earned in excess of administrative costs).” J. PIH [Public and Indian Housing] Notice 2007-14, section 8 (i), states, “any administrative fees from 2007 funding (as well as 2004, 2005 and 2006 funding) that are subsequently moved into the administrative fee equity account in accordance with generally accepted accounting principles at year-end must only be used for the same purpose.” K. PIH [Public and Indian Housing] Low-Rent Technical Accounting Guide 7510.1G: Part 2-13, states, “the HA receives funds from a variety of HUD program funding sources including management operations, development, modernization, and community involvement grants. The HA also receives locally generated income such as tenant rents and charges. The use of these funds is restricted to the specific purposes authorized in the program budgets. It is the responsibility of the HA to assure that the accounting system used by the HA accurately identifies the source, use, and remaining balances of individual program cash resources.” Part 2-15, states, “the HA may use pooled funds for any expenditure chargeable to the HA programs which have funds on deposit; however, funds shall not be withdrawn for a program in excess of the amount of funds on deposit for that particular program. The HA should take care to maintain supporting documentation for pooled fund transactions in enough detail to provide an adequate audit trail.” Part 2-16, states, “funds provided by HUD are to be used by the HA only for the purposes for which the funds are authorized. Program funds are not fungible and withdrawals should not be made for a specific program in excess of the funds available on deposit for that program. As generally used, the term „commingling of funds‟ refers to the use of one program's funds to pay expenditures for, and in excess of the funds available for, another program.” 27
The Housing Authority of the City of Los Angeles, California, Could Not Show That It Used HUD Program Funds in Accordance with HUD Requirements
Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-08-21.
Below is a raw (and likely hideous) rendition of the original report. (PDF)