oversight

Tuckahoe Housing Authority, Low-Rent Housing and Nonprofit Entity Activities, Tuckahoe, New York

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-06-19.

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

                                                                   Issue Date
                                                                            June 19, 2008
                                                                   Audit Report Number
                                                                                2008-NY-1008




TO:        Mirza Negron Morales, Director, Office of Public Housing, 2APH


FROM:      Edgar Moore, Regional Inspector General for Audit, 2AGA

SUBJECT: Tuckahoe Housing Authority, Tuckahoe, New York, Had Weaknesses in the
         Administration of Its Low-Rent Housing and Nonprofit Entity Activities


                                   HIGHLIGHTS

 What We Audited and Why

             We audited the Tuckahoe Housing Authority (Authority) to address both a hotline
             complaint and a request from the Director, Office of Public Housing, New York
             field office. The objectives of the audit were to assess the merits of the complaint
             and determine whether the Authority administered its low-rent housing program
             and nonprofit entity activites in accordance with the annual contributions contract
             and other U.S. Department of Housing and Urban Development (HUD)
             regulations.

 What We Found


             The complaint allegations were valid and are addressed in appendix C of this
             report. The Authority did not adequately administer its low-rent program and
             nonprofit entity activities in accordance with regulations. Specifically,
             weaknesses existed in the Authority’s financial and management controls. The
           Authority executed a contract for executive director services in violation of its
           annual contributions contract, paid retirement benefits and legal costs that were
           inadequately supported, incurred unnecessary costs for board meetings, did not
           have proper documentation for the allocation of costs among its programs, and
           did not administer an admissions policy in accordance with HUD regulations.
           These weaknesses occurred because Authority staff was unfamiliar with HUD
           regulations. As a result, the Authority incurred ineligible costs of $64,314 and
           unsupported and unnecessary costs of $198,243.

           In addition, the Authority encountered delays in the construction of a senior
           citizen complex on land approved for disposal by HUD in 1999 for that purpose.
           As a result, it plans to break ground by November 2008.

What We Recommend


           We recommend that the HUD Director, Office of Public Housing, New York City
           field office, instruct the Authority to (1) reimburse ineligible expenses of $64,314
           related to the former executive director and salary costs of its nonprofit entity, (2)
           provide documentation to substantiate the unsupported retirement benefit costs of
           $13,543, legal costs of $32,052 and salary costs of $136,952, (3) provide
           justification for the $15,696 expended for three off-site board meetings so that
           HUD can determine the reasonableness or necessity of the costs, (4) develop a
           formal methodology to allocate costs among its programs, and (5) amend its
           admission policy to comply with HUD regulations.

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

Auditee’s Response


           We discussed the results of our review with Authority officials during the audit
           and at an exit conference held on May 21, 2008. Authority officials were
           requested to provide written comments on May 29, 2008, which we received on
           May 29, 2008. Authority officials generally disagreed with our findings. 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: Weaknesses Existed in Financial and Management Controls    5
      Finding 2: Development on Land Approved for Disposal by HUD Has Not   10
                 Been Realized


Scope and Methodology                                                       12

Internal Controls                                                           13

Appendixes
   A. Schedule of Questioned Costs                                          15
   B. Auditee Comments and OIG’s Evaluation                                 16
   C. Evaluation of Complaint Allegations                                   22




                                           3
                           BACKGROUND AND OBJECTIVES

The Tuckahoe Housing Authority (Authority), located in the Village of Tuckahoe, New York,
was incorporated in 1938 as a not-for-profit public corporation to provide affordable housing for
low-income families. The Authority is governed by a seven-member board of commissioners.
Five members of the board are appointed by the Village’s mayor for a five-year term, and two
members are elected by the tenant association for a two-year term. The Authority owns and
operates a four-building complex, known as Sanford Gardens, that has 99 apartments and a
single building complex, known as Jefferson Gardens, that has 51 housing units. The Authority
also administers 175 Section 8 housing choice vouchers and receives funding under the capital
fund program. Total U.S. Department of Housing and Urban Development (HUD) funding in
fiscal years 2006 and 2007 was more than $1.9 million and $2.1 million, respectively.

In 1997, the nonprofit entity, Jefferson Union Management Associates, was formed to develop
plans for the construction and use of housing units for low and middle income families and for
senior citizens. Jefferson Union has an identity-of-interest relationship with the Authority
because the Authority’s executive director serves as its president/chief operating officer and its
seven-member governing board consists of two members who are also on the board of the
Authority.

HUD designated the Authority as a substandard performer based upon a Public Housing
Assessment System 1 financial indicator rating of eight. In January 2003, the Authority was cited
for Section 504 noncompliance for failure to maintain a minimum number of units as
handicapped accessible. After the former executive director retired on December 31, 2006, a
consultant served as executive director through May 2007. Due to difficulties encountered in
hiring an executive director and low Public Housing Assessment System scores, in 2007, HUD
appointed an administrative consultant for a period of 16 weeks to assist the Authority. In
January 2008, the Authority hired a permanent executive director and signed a voluntary
compliance agreement with HUD to address the Section 504 noncompliance.

The objectives of the audit were to assess the merits of the complaint and determine whether the
Authority administered its low-rent housing program and nonprofit entity activities in
accordance with the annual contributions contract and other HUD regulations.




1
    The Public Housing Assessment System rates public housing authorities on four indicators: physical condition,
    financial condition, management, and tenant satisfaction.

                                                          4
                                                RESULTS OF AUDIT

Finding 1: Weaknesses Existed in Financial and Management Controls
Weaknesses existed in the Authority’s financial and management controls. Specifically, the
Authority executed a contract for executive director services in violation of its annual
contributions contract, paid retirement benefits and legal costs that were inadequately supported,
incurred unnecessary costs for board meetings, did not have proper documentation for the
allocation of costs among its programs, and did not administer an admissions policy in
accordance with HUD regulations. These weaknesses occurred because Authority staff was
unfamiliar with HUD regulations. As a result, the Authority incurred ineligible costs of $64,314
and unsupported and unnecessary costs of $198,243 to its low rent housing program.


    Ineligible Payments for
    Executive Director Services


                     The Authority executed a consultant contract for executive director services with
                     its former executive director upon his retirement without HUD approval. Section
                     19(A)(1)(ii) of part A of the Authority’s annual contributions contract prohibits
                     contracting with any person who had a direct or indirect interest with the
                     Authority during his or her tenure or for one year thereafter without obtaining a
                     waiver from HUD.

                     Despite advertising for an executive director, Authority officials stated
                     that the Authority had difficulty locating an executive director to replace
                     its retiring executive director. Accordingly, on November 21, 2006, the
                     board approved contracting with the former director upon his retirement.
                     On December 8, 2006, the Authority requested a waiver from the HUD
                     Office of Public Housing, New York City field office for this purpose.
                     The field office denied the waiver on February 5, 2007, and instructed the
                     Authority to terminate the contract. However, on March 29, 2007, the
                     Authority appealed to the Assistant Secretary, Public and Indian Housing,
                     who denied a waiver on May 4, 2007. At that time, the Authority
                     terminated its contract with the former executive director.

                     The contract provided that the Authority would pay the former executive
                     director $29,952 per year and provide a laptop computer, printer, and
                     appropriate software in an amount not to exceed $1,500. In return, the
                     former director was required to attend all board meetings, be on site for
                     two to four days monthly, and be available via daily communication. 2


2
    The former executive director was residing out of state at this time.

                                                             5
            The Authority had paid the former executive director $13,650 in fees and
            travel costs, $6,164 of which occurred after the field office’s denial of the
            waiver request. In addition, the Authority paid $1,953, or $453 more
            than the board authorized, for a computer and related hardware and
            software. Accordingly, we regard $6,617 ($6,164 plus $453) as ineligible
            costs.


Retirement-Related Benefits
Inadequately Supported

            In January 1996, the Authority executed an agreement with the Village of
            Tuckahoe by which the Authority assumed the transfer of the Village’s Section 8
            program. The agreement stipulated that the Village was not released from all
            terms, covenants, and conditions of contracts until February 1, 1996. In August
            1996, the Authority began paying the medical premiums on behalf of a retired
            employee who had worked in the Village’s Section 8 program and was entitled to
            benefits under the Village’s retirement plan.

            During the period January 1, 2000 through March 31, 2008, Authority records
            disclosed that the Authority paid $13,543 in benefits on behalf of this retired
            employee. Since it is not clear why the Authority, as opposed to the Village, is
            paying these expenses, we regard the $13,543 as an unsupported expense.
            Additionally, since these expenses are unsupported, any benefits paid on behalf of
            the retired employee prior to January 2000 should also be considered an
            unsupported expense.


Legal Expense Inadequately
Supported


            The Authority’s Executive Board approved legal counsel services for a two-year
            period beginning October 2000, which was subsequently renewed in October
            2002 and October 2004. The attorney was reimbursed $32,052 for legal services
            during the period October 2004 to May 2006 in connection with a discrimination
            lawsuit against the Authority. However, Authority officials did not provide
            documentation to support the charges for legal services related to the
            discrimination lawsuit. Accordingly, we regard the $32,052 as unsupported costs.


Unnecessary Expense for Board
Meetings

            The Authority held a board meeting every June in Atlantic City, New Jersey,
            which is approximately 147 miles from the Authority, during the years 2000 to

                                              6
                   2003. Authority officials stated that due to financial difficulties, these off-site
                   meetings were not held after 2003. While HUD regulations do not specifically
                   govern the locale for board meetings, the New York State Sunshine Law (Public
                   Officers Law Section 103(a)) requires that meetings be open to the public. HUD
                   regional counsel opined that to be considered open to the public under the state
                   law, distant and/or expensive travel should not be required.

                   We noted that the Authority required attendees to pay their own transportation to
                   these meetings but reimbursed them for food and lodging. This reimbursement
                   amounted to $15,696 for years 2000, 2001, and 2003. 3 While the board
                   authorized these off-site meetings, the minutes did not specify a rationale for
                   such. In addition, the expenditures were not adequately supported because for
                   2000 and 2001, there was one overall bill. Thus, the Authority could not ensure
                   HUD that it complied with its $350 per calendar day cap on per diem and
                   transportation expense per employee. Further, since the Authority could not
                   provide a specific rationale for holding off-site meetings, we consider the $15,696
                   in costs as unnecessary.


    Lack of a Formal Methodology
    for Allocating Direct Costs

                   Section 9C of the Authority’s annual contributions contract requires that adequate
                   records be maintained to identify the source and use of funds to allow HUD to
                   determine that expenditures are in accordance with program requirements. The
                   Authority allocated staff salary among its low-rent, Section 8, and nonprofit entity
                   activities. However, during the period 2005 through 2007, staff salary and related
                   benefit costs of $136,952 were reallocated from the low-rent housing program to
                   the Section 8 program, and $27,900 in salary cost was reallocated to the nonprofit
                   entity. A further review of the Authority’s books indicated that additional
                   amounts were allocated to the nonprofit for prior periods at the end of the fiscal
                   year resulting in a cumulative total of $57,697 through 2007. However, the
                   Authority lacked a written methodology for its allocation of direct costs and did
                   not have documented time studies or timesheets to support its allocation. In
                   addition, while the Section 8 program reimbursed the low-rent program for its
                   allocated costs, the nonprofit had not reimbursed the Authority for the $57,697 in
                   allocated salaries. Therefore, we regard the $136,952 allocated for salaries to the
                   Authority’s Section 8 program as unsupported and the $57,697 to its nonprofit as
                   an ineligible expense.




3
    The June 2002 meeting was held for training purposes, for which an off-site meeting would be justified; therefore,
    we did not take exception to those expenses.


                                                           7
Admission Policy Not in
Compliance with HUD
Regulations


             The Authority’s admission policy did not comply with HUD regulations. 24
             CFR (Code of Federal Regulations) 960.206(b)(2), requires that applicants for
             low-rent housing units be given working family preference if the head of
             household and spouse or sole member is age 62 or older or is a person with
             disabilities. The Authority’s admission policy did not extend this preference to
             disabled applicants, and in assigning units to applicants, the Authority gave
             preference to working nondisabled applicants. An Authority official stated that
             persons with disabilities were currently being given the required preference.
             However, the admission policy had not been revised to comply with HUD policy.


Conclusion

             Weaknesses existed in the Authority’s financial and management controls. These
             weaknesses resulted from the Authority staffs’ unfamiliarity with HUD
             regulations. Consequently, the Authority incurred ineligible, unsupported, and
             unnecessary expenses, and developed and administered an admissions policy that
             did not comply with HUD regulations.

Recommendations

             We recommend that the HUD Director, Office of Public Housing, New York City
             field office, instruct the Authority to

             1A.    Reimburse the low-rent program for the ineligible expenses of $6,617 paid
                    to the former executive director as a consultant without the approval of
                    HUD. Any reimbursement due the program should be made from
                    nonfederal funds.

             1B.    Provide documentation to substantiate the unsupported costs of $13,543
                    paid on behalf of the former Village of Tuckahoe retired employee since
                    2000. If these costs are determined by HUD to be ineligible, any amount
                    paid on behalf of the retired employee prior to January 2000 should be
                    computed, and the total of all costs should be considered as an ineligible
                    expense and reimbursed to the low-rent program.

             1C.    Provide documentation to substantiate the $32,052 in unsupported legal
                    costs. If the costs are not supported, reimbursement to the program should
                    be made from nonfederal funds.

                                             8
1D.   Provide justification for the $15,696 expended for three off-site board
      meetings so that HUD can determine the reasonableness or necessity of
      the costs. If the costs are not justified as reasonable or necessary,
      reimbursement to the program should be made from nonfederal funds.

1E    Provide support for the unsupported salaries and related benefits of
      $136,952 allocated to the Section 8 program so that HUD can determine
      their eligibility. Any amounts determined to be unsupported and
      inappropriately paid by the Section 8 program should be returned to the
      Section 8 program, thus insuring that the funds are put to better use.

1F.   Seek reimbursement to the program for the $57,697 in salary and related
      cost paid on behalf of the Authority’s nonprofit entity, which has not been
      reimbursed.

1G.   Develop a formal methodology to allocate direct costs in accordance with
      federal regulations among its low-rent, Section 8, and nonprofit entity
      activities.

1H.   Strengthen controls over expenditures to ensure that disbursements are
      properly supported and are in accordance with the Authority’s annual
      contributions contract.

1I.   Amend its administrative plan and admission policy to comply with
      HUD’s policy for providing preferences to the disabled or handicapped.




                               9
Finding 2: Development on Land Approved for Disposal by HUD Has
           Not Been Realized

In 1999 HUD authorized the Authority to transfer land to its nonprofit for construction of a 36-
unit senior citizen complex. However, the project has not been realized due to financial and
zoning approval difficulties. We attribute this to weaknesses in oversight by the Authority
board.


  Construction Delays and
  Reduction in Project Scope


               On September 9, 1999 HUD approved the Authority’s demolition/disposition
               application of Authority-owned land for the construction of a 36-unit senior
               citizen complex, which was to be occupied in September 2001. On September 27,
               1999, the nonprofit’s board of directors competitively selected a construction
               corporation to serve as a joint venture developer for the complex. Subsequently,
               the corporation encountered financial difficulties and various zoning board
               denials. However, not until April 13, 2004 did the nonprofit Board act to
               terminate its joint venture with the corporation based upon failure to obtain (1)
               approvals necessary to construct the project, (2) financing necessary to erect the
               building, and (3) acceptable architectural or engineering plans for the structure.

               Additionally, while approved for a 36-unit complex by HUD, the Authority
               sought a variance from the local zoning board for a 50-unit complex. This
               resulted in various appeals which also delayed initiating construction. On July 26,
               2001 a variance request was rejected and two subsequent appeals by the zoning
               board resulted in approval for a 43-unit complex on September 9, 2002.
               However, due to the delays caused by the financial difficulties of the first joint
               developer, this variance lapsed, and the new developer had to file for another
               variance. On July 21, 2005, this developer secured approval for a 37 unit
               complex.

               After the termination of the first joint developer, the nonprofit contracted with
               another company to serve as the joint developer, and has secured a financing
               commitment. The Housing Trust Corporation, a New York State public benefit
               corporation has committed to providing a $1.8 million loan for 30 years at a 1
               percent interest rate. The commitment is contingent upon breaking ground on the
               project no later than November 3, 2008, and the Housing Trust Corporation’s
               approval of the project as required under federal or state environmental laws and
               regulations. Authority officials stated that these conditions will be met.
               HUD officials have advised that until financing is secured and construction
               closing occurs, the land remains subject to a Declaration of Trust which limits the
               use of the property for public housing purposes in accordance with the Annual

                                               10
             Contributions Contract between the Authority and HUD. Prior to closing, the
             Authority is required to obtain approval from the HUD New York City Office of
             Public Housing to release the Declaration of Trust and restrictive covenants.

Conclusion


             The Authority’s nonprofit has encountered significant delays and a reduction in
             the scope of the planned senior citizen housing complex. While HUD approved
             the disposition of the land transfer in 1999 for the construction of a 36-unit senior
             citizen complex, construction of the project has not yet been initiated.

Recommendation


             We recommend that the HUD Director, Office of Public Housing, New York City
             field office, instruct the Tuckahoe Housing Authority to

             2A. Submit to HUD for approval a Declaration of Trust for the land approved
                 for disposition to ensure that the land is used for public housing purposes in
                 accordance with the Annual Contributions Contract.

             2B. Establish procedures that will ensure that the board provides adequate
                 oversight of the joint venture developer, thus ensuring that this project is
                 completed in a timely manner.




                                              11
                        SCOPE AND METHODOLOGY

To accomplish our objectives, we

       „ Reviewed applicable laws and regulations relating to public housing authority low-rent
         operations and nonprofit activity and the Authority’s annual contributions contract;

       „ Reviewed 24 CFR (Code of Federal Regulations) Part 8 relating to public housing
         authority responsibility to make facilities handicapped accessible;

       „ Analyzed the Authority’s administrative plan; admission and occupancy procedures;
         independent public accountant reports for the period ending December 31, 2004, 2005,
         and 2006; and financial records for calendar years 2004 through 2007;

       „ Interviewed HUD field office staff from the Offices of Public Housing, Fair Housing
         and Equal Opportunity, and the General Counsel;

       „ Interviewed Authority management, and program and financial staff to gain an
         understanding of the Authority’s operations and assess internal controls;

       „ Reviewed the monitoring files of the Offices of Public Housing, and Fair Housing and
         Equal Opportunity;

       „ Selected a nonstatistical sample of disbursements to determine whether the Authority
         expended low-rent and capital funds in accordance with HUD regulations; and

       „ Reviewed the operations of the Authority’s nonprofit activity related to the development
         of land approved for transfer by HUD to ensure that Authority assets were not put at risk
         and to document progress toward realizing the plans for the land.

The review generally covered the period January 1, 2004, through December 31, 2007, and was
expanded as necessary. We conducted our audit at the Authority in Tuckahoe, New York, during
the period October 2007 through March 2008. We performed our review in accordance with
generally accepted government auditing standards.




                                               12
                             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:

              •       Program operations – Policies and procedures that management has
                      implemented to reasonably ensure that a program meets its objectives.

              •       Validity and reliability of data – Policies and procedures that
                      management has implemented to reasonably ensure that valid and reliable
                      data are obtained, maintained, and fairly disclosed in reports.

              •       Compliance with laws and regulations – Policies and procedures that
                      management has implemented to reasonably ensure that resource use is
                      consistent with laws and regulations.

              •       Safeguarding resources – Policies and procedures that management has
                      implemented to reasonably ensure that resources are safeguarded against
                      waste, loss, and misuse.

              We assessed the relevant controls identified above.

              A significant weakness exists if management controls do not provide reasonable
              assurance that the process for planning, organizing, directing, and controlling
              program operations will meet the organization’s objectives.




                                               13
Significant Weaknesses


           Based on our review, we believe the following items are significant weaknesses:

               •   Program operations – The Authority did not ensure that its program met the
                   objectives of its operations when plans for the development of land approved
                   for disposal by HUD were not realized (see finding 2).

               •   Compliance with laws and regulations – The Authority did not ensure
                   compliance with laws and regulations when it executed a contract for
                   executive director services in violation of its annual contributions contract,
                   paid retirement benefits and legal costs that were inadequately supported,
                   incurred unnecessary costs for board meetings, did not have proper
                   documentation for the allocation of costs among its programs, and did not
                   administer an admissions policy in accordance with HUD regulations (see
                   finding 1).




                                             14
                                   APPENDIXES

Appendix A

                SCHEDULE OF QUESTIONED COSTS

        Recommendation                                            Unreasonable or
                number           Ineligible 1/ Unsupported 2/      Unnecessary 3/
        ______________      ________________   _______________     _______________
                    1A                $6,617
                    1B                                 $13,543
                    1C                                  32,052
                    1D                                                    $15,696
                    1E                                 136,952
                    1F                57,697
                                    _______          ________             _______
                    Total           $64,314          $182,547             $15,696


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/   Unreasonable/unnecessary costs are those costs not generally recognized as ordinary,
     prudent, relevant, and/or necessary within established practices. Unreasonable costs
     exceed the costs that would be incurred by a prudent person in conducting a competitive
     business.




                                            15
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation   Auditee Comments




Comment 1




                         16
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation   Auditee Comments




Comment 2




Comment 3




Comment 4




Comment 5




                         17
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation   Auditee Comments




Comment 6



Comment 7




Comment 8




                         18
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation   Auditee Comments




Comment 9




Comment 10



Comment 7

Comment 7




Comment 11




                         19
                         OIG Evaluation of Auditee Comments

Comment 1   The letter reportedly from Ms. Morales granting an extension, which was
            provided at the exit conference, was unsigned and therefore is not regarded as
            official correspondence. The HUD field office will need to determine whether it
            had granted an extension via such letter during the audit resolution process.

Comment 2   The annual contributions contract prohibited the Authority to contract with the
            former executive director without a waiver from HUD. A waiver was requested
            after the decision to contract was made, and was denied by the HUD field office
            on February 5, 2007. Consequently, the Authority had not followed the proper
            procedures, which would have been to secure the waiver prior to executing a
            contract.

Comment 3   The contract executed between the Authority and the Village of Tuckahoe binds
            the Authority to the contractual obligations that existed between the Village and
            HUD for the administration of the Section 8 program. The Authority lacks
            support to have assumed the obligation for medical benefit payments on behalf of
            a Village Section 8 employee who had retired prior to the transfer of the program
            to the Authority.

Comment 4   The expenses categorized as unsupported were not within the scope of services
            provided under the Authority’s routine legal retainer fee. While the expenses
            categorized as unsupported were approved by the Board, Authority officials
            lacked evidence of any negotiation or contract to support the scope of services or
            payment terms for these expenses.

Comment 5   While the Authority’s consultant provided training on annual plan requirements at
            the 2002 meeting, the Board minutes for the other years’ meetings document that
            routine Authority issues were discussed, as opposed to any required training.
            Further, the expenses for the 2000 and 2001 meetings were not supported by
            adequate documentation. Therefore, if HUD determines, during the audit
            resolution process, that these expenses were justified, Authority officials will have
            to provide additional documentation to adequately support the expenses.

Comment 6   The budget would not represent a written methodology to support the basis for the
            allocation of costs among various programs; rather, it serves merely to document
            the proposed allocation of these costs. The time studies mentioned as having been
            available to support the methodology for the allocations were not provided during
            the course of our audit work, were not made available at the exit conference, and
            were not provided with the auditee’s comments.

Comment 7   The Authority’s action to have time studies for justifying the allocation of salary
            costs in the future will be responsive to our recommendation going forward.
            However, HUD will have to review the documentation that Authority officials

                                             20
              state are available to determine if they are adequate to support the salary
              allocations made in the past.

Comment 8     The costs are regarded as unsupported because, although paid, the Authority
              lacked documentation for the basis upon which the costs were allocated.

Comment 9     The Authority lacked documentation for the basis upon which the costs were
              allocated to the nonprofit; moreover, although properly recorded as a receivable to
              the Authority, the costs are regarded as ineligible because the use of low-rent
              program funds for the Authority’s nonprofit activities represent an unallowable
              cost.

Comment 10 The report was changed to recommend that any unsupported costs paid from
           Section 8 funds should be returned to the Section 8 program.

Comment 11 The Authority’s action is responsive to our recommendation, therefore if HUD
           approves the policy modifications based on the documentation submitted, it will
           result in a management decision and closure of the recommendation.

Comment 12 The Authority needs to provide evidence of an executed Declaration of Trust.




                                               21
Appendix C

             EVALUATION OF COMPLAINT ALLEGATIONS
Allegation #1. The Authority Contracted with the Former Executive Director
              without Obtaining a HUD Waiver

This issue has merit. After the retirement of the executive director on December 31,
2006, the Authority contracted with the director to serve as a consultant, effective
January 1, 2007, without HUD approval. Part A, section 515, 4 of the Authority’s annual
contributions contract prohibits entering into any contract, subcontract, or arrangement
with any employee who formulates policy or influences decisions with respect to
housing authority projects during his/her tenure or for one year thereafter. The contract
provides that HUD may waive this prohibition for “good cause.”

The Authority’s legal counsel requested a waiver from HUD for this action on
December 8, 2006. However, on February 5, 2007, the HUD New York City field office
denied the waiver and required that the contract with the former director be terminated.
On March 29, 2007, the Authority appealed this denial to the Assistant Secretary, Public
and Indian Housing, who also denied the appeal on May 4, 2007. At that time, the
Authority terminated the contract (see finding 1).

Allegation #2. The Authority Held Off-Site Public Meetings and Other Social
              Events

This issue has merit. During the years 2000 through 2003, the Authority held annual off-site
board of commissioners’ meetings. In addition, it annually conducted a “Family Day” and a
children’s Christmas party; no other major social events were found to have been funded by the
Authority.

The timing, location, and nature of the board of commissioners’ meetings are not subject to HUD
regulations but, rather, to New York State law, which requires that the meetings be conducted
openly and minutes be published of the results. The off-site meetings were approved by the
board, and the business conducted was recorded in published minutes. However, while not
specifically prohibited, we question the costs incurred for out-of-town meetings and consider this
to be an unnecessary expense (see finding 1).

Part A, section 4, of the annual contributions contract provides that the mission of the housing
authority, in addition to providing decent, safe, and sanitary housing, is to provide for the
economic and social well-being of the tenants. HUD has historically interpreted this mission as
allowing a housing authority to fund social activities such as Family Day for the social benefit of
its tenants. Therefore, we are not taking exception to the expenses incurred for the social events.

4
 This prohibition is found in part A, section 19(A)(1)(ii), in the most recent version of a HUD annual contributions
contract.

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These activities were held on the grounds of the Authority until 2003, when the Authority
stopped conducting them for financial reasons.

Allegation #3. The Authority Engaged an Out-of-State Attorney to Whom Travel
              Reimbursement Was Made

This issue has merit. In response to a solicitation for bids for legal services, the board approved
a contract for the period October 2002 through September 2004 with a law firm located in New
York. Beginning in June 2004, the monthly retainer was forwarded to an out-of-state address of
the firm’s assigned attorney. The board renewed this contract for another two-year period
beginning October 2004, and Authority officials executed the agreement and sent it to the
attorney’s out-of-state address. Although the board again renewed the contract for another two-
year period beginning October 2006, the attorney resigned in June 2007. While the attorney
resided out-of-state, the only documented payment for travel-related costs was $472. During the
contract periods, there is no indication that the attorney was unable to fulfill the requirements of
the contract due to the out-of-state location.

Allegation #4. The Authority Had Not Executed a Voluntary Compliance
              Agreement in Accordance with the Rehabilitation Act of 1973.

This issue has merit but was resolved as of January 15, 2008, when a voluntary
compliance agreement was executed.

Regulations at 24 CFR (Code of Federal Regulations) Part 8 implement the provisions
of Section 504 of the Rehabilitation Act of 1973 and require that public housing
authorities conduct a needs assessment and develop a transition plan to address
identified needs of residents and applicants with disabilities. Further, 24 CFR Part 8
generally requires that a public housing authority make its program readily accessible
and usable by the disabled. The Authority and HUD’s Office of Fair Housing and Equal
Opportunity have negotiated since 2003 on ways to best accomplish this requirement.
The process was protracted because the Authority initially did not follow prescribed
procedures to request a waiver, and HUD officials differed with the Authority over the
cost to comply.

The Authority consists of two complexes. Authority officials submitted a needs
assessment transition plan in June 1992 proposing converting one unit for the hearing
impaired in the first complex and converting one unit for the hearing impaired and three
units for the disabled/handicapped in the second complex. The Authority sought a
waiver for disabled/handicapped accessibility in the first complex, the renovation of
which it argued would create an undue financial hardship due to structural limitations.
In October 1993, HUD provided $375,967 for the proposed conversions, which were
completed in March 1996. However, the Authority and HUD’s Office of Fair Housing
and Equal Opportunity have taken different positions on what modifications the
regulations require and whether a waiver could be granted for accessibility at the first
complex. Various proposals and counterproposals for a voluntary compliance
agreement have been submitted since 2004, and a voluntary compliance agreement was

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executed between HUD and the Authority on January 15, 2008. This agreement
specifies the physical work required to achieve Section 504 compliance at the first
complex and stipulates that the Authority will appoint a Section 504 reasonable
accommodations coordinator and implement a reasonable accommodations policy.




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