oversight

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)

                                                                   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.”




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