oversight

Oneida Housing Authority, Oneida, Wisconsin, Did Not Properly Recognize and Use Program Income from Native American Housing Assistance and Self-Determination Act-Assisted 1937 Act Housing Projects

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-02-20.

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

                                                                Issue Date
                                                                       February 20, 2008
                                                                Audit Report Number
                                                                         2008-SE-1002




TO:         Kevin Fitzgibbons, ONAP Administrator, Eastern Woodlands Office of Native
              American Programs, 5API



FROM:       Joan S. Hobbs, Regional Inspector General for Audit, Region X, 0AGA

SUBJECT: Oneida Housing Authority, Oneida, Wisconsin, Did Not Properly Recognize and
           Use Program Income from Native American Housing Assistance and Self-
           Determination Act-Assisted 1937 Act Housing Projects


                                   HIGHLIGHTS

 What We Audited and Why

      We audited Oneida Housing Authority (Authority) as part of our review of the Office of
      Native American Programs’ guidance on calculating program income for United States
      Housing Act of 1937 (1937 Act) housing projects assisted by the Native American
      Housing Assistance and Self-Determination Act of 1996 (NAHASDA). The objective of
      the audit was to determine whether the Authority calculated program income for
      NAHASDA-assisted 1937 Act properties in accordance with applicable U.S. Department
      of Housing and Urban Development (HUD) guidance, regulations, and requirements and
      to observe uses of revenue from NAHASDA-assisted 1937 Act properties.

 What We Found


      The Authority did not implement its accounting policies and procedures for allocating
      income from 1937 Act properties receiving NAHASDA Indian Housing Block Grant
      (Block Grant) program assistance between its local and Block Grant programs. It failed
      to track Block Grant rehabilitation or capital expenses for each property and restrict
      nonprogram income from its Mutual Help program. As a result, more than $2.2 million
      in combined low-rent and Mutual Help housing receipts were inappropriately classified
      as nonprogram income during the period July 1, 2002, through June 30, 2007, and the
     proceeds from the sale of Mutual Help units were not restricted to eligible uses. These
     conditions occurred because management in place before 2007 did not ensure that
     policies and procedures for determining and administering program income were
     implemented.

     The Authority’s financial auditor identified from $60,000 to $100,000 in local fund
     disbursements for 2006 board expenses as abusive. Those costs, paid from the local
     fund, which contained nonprogram income from 1937 Act units, included excessive
     board meetings and training sessions and travel and lodging costs for meetings and
     conventions at locations which were more costly than alternatives that would have been
     appropriate. The independent auditor also noted excessive per diem payments, payments
     of hotel costs for days with no business activities, room upgrades, and vehicle upgrades.

     In response, the Oneida Business Committee adopted a resolution using emergency
     action to amend the Oneida Housing Ordinance, dissolved the Authority’s board, and
     placed supervision of the Authority under the tribe’s general manager.

What We Recommend


     We recommend that HUD (1) require the Authority to implement policies and procedures to
     determine program income in accordance with HUD requirements, (2) evaluate the
     Authority’s computation of low rent program income and determine whether the estimated
     unit labor costs are adequate to document the total cost of rehabilitation or capital costs or
     reclassify the $990,590 in nonprogram income as Block Grant program income, (3) evaluate
     the Authority’s computation of Mutual Help program income and determine whether the
     estimated unit labor costs are adequate to document the total cost of rehabilitation or capital
     costs or reclassify the $1,238,290 in nonprogram income as Block Grant program income,
     (4) require the Authority to implement policies and procedures restricting the use of
     nonprogram income from Mutual Help proceeds of sale to eligible activities, and (5) require
     the Authority to restrict nonprogram income from Mutual Help proceeds of sale to eligible
     activities.

     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 to the Authority and HUD’s Eastern Woodlands Office
     of Native American Programs on January 15, 2008, and held an exit conference on
     January 25, 2008. The Authority generally agreed with our recommendations. 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 Could Not Properly Account for Block Grant Program   5
              Income

Scope and Methodology                                                            11

Internal Controls                                                                13

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use             14
   B. Auditee Comments and OIG’s Evaluation                                      15




                                            3
                     BACKGROUND AND OBJECTIVES

On April 20, 1963, the Oneida Tribal Council passed a tribal ordinance establishing the Oneida
Housing Authority (Authority). The mission of the Authority is to develop, maintain, and
operate affordable housing in safe, sanitary, and healthy environments on the Oneida Tribe of
Indians of Wisconsin Reservation for occupancy by low-income Oneida families and
elderly/disabled residents. On March 26, 1998, the Oneida Business Committee designated the
Oneida Housing Authority as the tribally designated housing entity for the purpose of receiving
assistance under the Native American Housing Assistance and Self-Determination Act of 1996
(NAHASDA).

The Authority developed, maintained, and operated low-rent and Mutual Help program units
assisted under the United States Housing Act of 1937 (1937 Act), as amended. On October 1,
1997, NAHASDA reorganized the system of housing assistance provided to Native Americans
by the U.S. Department of Housing and Urban Development (HUD), eliminating several
separate programs of assistance, and replaced them with a NAHASDA Indian Housing Block
Grant (Block Grant) program. For those units previously assisted under the 1937 Act, the Block
Grant program provided for continued operating and maintenance assistance.

The Authority used Block Grant program funds to operate and maintain low-rent units and
rehabilitate Mutual Help units that were previously assisted under the 1937 Act. In fiscal year
2007, the Authority had 194 low-rent and 67 Mutual Help units. Regulations at 24 CFR [Code
of Federal Regulations] 1000.62(a) govern how rents collected from low-rent units and proceeds
of sale from Mutual Help units are allocated between the Block Grant program income and the
Authority as nonprogram income. The regulation states that Block Grant program income does
not include any amounts generated from the operation of 1937 Act units unless the units are
assisted with grant amounts and the income is attributable to such assistance. Public and Indian
Housing (PIH) Notice 2000-18 provides guidance on accounting for program income generated
by the use or disbursement of Block Grant funds.

On July, 18, 2007, the Oneida Business Committee adopted a resolution using emergency action
to amend the Oneida Housing Ordinance, dissolved the Authority’s board, and placed
supervision of the Authority under the tribe’s general manager. This action was taken after the
committee considered the fiscal year 2006 independent auditor’s report on the Authority,
questions from HUD, results of tribal audits of the Authority as directed by the tribe’s audit
committee, and the audit committee’s recommendations for action.

Our objective was to determine whether the Authority calculated program income for Block
Grant-assisted 1937 Act properties in accordance with applicable HUD guidance, regulations,
and requirements and to observe uses of revenue from Block Grant-assisted 1937 Act properties.




                                               4
                                RESULTS OF AUDIT

Finding 1: The Authority Could Not Properly Account for Block Grant
Program Income
The Authority did not implement its accounting policies and procedures for allocating income from
1937 Act properties receiving Block Grant program assistance between its local and Block Grant
programs. It failed to track Block Grant rehabilitation or capital expenses for each property and
restrict nonprogram income from its Mutual Help program. Authority officials told us that this
condition occurred because prior officials did not ensure that policies and procedures for
determining program income and its use were implemented. As a result, more than $2.2 million in
combined low-rent and Mutual Help housing receipts were inappropriately classified as nonprogram
income during the period July 1, 2002, through June 30, 2007, and the proceeds from the sale of
Mutual Help units were not restricted to eligible uses.



 HUD Requirements



       Regulations at 24 CFR 1000.62(a) state that program income does not include amounts
       generated from the operation of 1937 Act units unless the units are assisted with grant
       funds and the income is attributable to such assistance. For low-rent units receiving
       Block Grant program assistance, PIH Notice 2000-18 provides that the tribally designated
       housing entity may retain as nonprogram income the lesser of total income or 46 percent
       of the allowable expense level for the recipient times the number of units. For Mutual
       Help units receiving Block Grant program assistance, the notice provides that the tribally
       designated housing entity may retain the proceeds of the sale of units as nonprogram
       income. However, HUD restricts the use of nonprogram income from Mutual Help unit
       sales to housing activities, community facilities, or economic development activities that
       benefit the community.

       Section 3.4 of the notice also states that all income from a 1937 Act low-rent or Mutual
       Help unit is NAHASDA program income once cumulative NAHASDA funding for
       rehabilitation and capital expenditure meets or exceeds 40 percent of the maximum
       allowable dwelling construction and equipment cost, effective with the October 1, 1997,
       enactment of NAHASDA. According to the notice, the 40 percent threshold is only a
       concept for accounting for program income and has no effect in determining what is
       eligible formula current assisted stock under the Block Grant formula.

       On July 9, 2002, HUD issued guidance to remind grant recipients of the program income
       requirements pertaining to 1937 Act units supported with Block Grant funds. The guidance
       noted that, in the absence of an accounting system meeting the requirements of PIH Notice

                                               5
     2000-18 to allocate income attributable to the 1937 Act and Block Grant programs, all
     income would be program income and would be required to be used for Block Grant
     program purposes. PIH Notice 2000-18 also requires that the accounting system track the
     total income by project and the total Block Grant-funded rehabilitation by unit.


HUD Program Income
Requirements Not Followed



     In March 2002, HUD’s Eastern Woodlands Office of Native American Programs
     (EWONAP) conducted a monitoring review of the Authority. The review found that the
     Authority did not determine program income or apply income toward eligible
     NAHASDA expenses in accordance with PIH Notice 2000-18. EWONAP recommended
     that the Authority determine the amount of program income currently on hand and set up
     financial systems that track the receipt and use of funds to identify program income. In
     response, the Authority completed its first computation of program income and
     established policies and procedures for allocating income from 1937 Act properties
     between the local and Block Grant programs. Those policies and procedures included (1)
     tracking Block Grant rehabilitation or capital expenses for each 1937 Act unit and (2)
     restricting the use of funds derived from the proceeds of sale of 1937 Act Mutual Help
     units.
Policies Not Implemented



     Between July 2002 and June 2007, the Authority computed program income from rents
     collected from its low-rent units and sales proceeds of its Mutual Help units, but it did not
     ensure that required internal reviews and approvals were completed, nor did it properly
     track the Block Grant-funded rehabilitation or capital expenses provided to those units.
     The Authority’s failure to implement its policies and procedures for program income was
     recognized after the tribe’s general manager started supervising the Authority on July 18,
     2007. Current Authority officials told us that the best evidence available indicated that
     the policies and procedures were adopted in July 2002 but were not implemented, and the
     actual cumulative labor costs for 1937 Act unit rehabilitation were not tracked by the
     Authority.

     Further, the Authority’s updated record of unit rehabilitation and capital costs did not
     include insurance proceeds used for rehabilitation or capital expenses as Block Grant
     funded. There had been only one insurance claim made since the start of the Block Grant
     program. That claim was made in August 2004 for fire damage. The Authority received
     the insurance proceeds, credited them to the Block Grant program as required, and used
     the proceeds, totaling about $28,000, to repair the unit. The repairs exceeded 40 percent
     of the applicable dwelling construction and equipment costs of about $25,000. Once

                                               6
     rehabilitation and/or capital expenses exceeded 40 percent of the dwelling construction
     and equipment costs, PIH Notice 2000-18 required the Authority to recognize all income
     from the unit as program income. Instead, it continued to classify about $1,000 per year
     as nonprogram income from the unit.

     The Authority recently hired a consultant to update the calculation of program income,
     including the reconstruction of cumulative Block Grant-funded rehabilitation or capital
     items provided to 1937 Act units. However, since labor costs had not been tracked by
     unit, the consultant had to use estimated unit labor costs, developed by the Authority and
     based on a cost allocation computed from the total rehabilitation labor costs and
     estimated number of hours to complete the work at each size unit.


Calculation of Nonprogram
Income

     For the period July 2002 through June 2007, the Authority collected more than $2.4
     million in gross income from its low-rent units and more than $1.2 million from sales of
     Mutual Help units. Based on the updated calculation, the Authority classified as
     nonprogram income $990,590 from the low-rent program and over $1.2 million from the
     Mutual Help program for a total of more than $2.2 million. However, as noted above, the
     cumulative actual unit rehabilitation labor costs were not available for the updated
     computation, thus the updated computation did not meet the requirements established in
     PIH Notice 2000-18 and Office of Native American Programs Guidance No. 2002-12.

Proceeds of Sale Not Restricted
to Eligible Uses


     The Authority did not implement its accounting policies and procedures for restricting the
     use of funds derived from the proceeds of sale of 1937 Act Mutual Help units. During
     the period July 1, 2002, through June 30, 2007, the Authority classified as nonprogram
     income more than $1.2 million of proceeds of sale from the Mutual Help program. HUD
     established restrictions on the use of proceeds of sale from Mutual Help units in the
     NAHASDA Notice of Revised Transition Requirements, published April 1, 1999, on
     page 15778 of the Federal Register. HUD restricted the use of these funds to housing
     activities, community facilities, or economic development activities that benefit the
     community. However, after classification as nonprogram income, the Authority
     commingled the $1.2 million in restricted use nonprogram income with unrestricted
     nonprogram income.




                                              7
    Uses of Nonprogram Income1

         The independent auditor’s report on management advisory comments, dated November 9,
         2006, provided in connection with the fiscal year 2006 Authority audit, identified abusive
         local fund expenditures totaling from $60,000 to $100,000. The report noted examples of
         board abuse in the use of local funds, including

             •    Excessive board meetings and training sessions,
             •    Travel and lodging costs for meetings and conventions at locations which were
                  more costly than alternatives that would have been appropriate to satisfy the
                  business objectives,
             •    Excessive per diem payments,
             •    Payment of hotel costs for days with no business activities,
             •    Room upgrades, and
             •    Vehicle upgrades that did not appear proper.

         Our review of Authority records obtained from HUD identified abusive expenditures that
         were consistent with the findings of the independent auditor. Those records showed that

             •    $120,000 was paid in stipends for board meetings and board member participation
                  in appeals, interviews, bids, screenings, and training during calendar year 2006.
                  There were a total of 987 stipends paid to the seven board members during the
                  year, an average of more than 11 meetings per month.
             •    During calendar year 2006 training in Honolulu, Hawaii, board members were
                  paid $200 a day per diem for meals and incidental expenses, twice the federal rate
                  of $100.
             •    During calendar year 2006 training in Honolulu, Hawaii, six board members
                  stayed an extra three days, at Authority expense, when no training was conducted.
             •    Four of the five board members that attended calendar year 2006 ethics training in
                  New England rented cars. The costs ranged from $216 to $1,067 for a premium
                  automobile.

         In response to the independent auditor’s report and questions from HUD, the tribe’s audit
         committee directed a series of audits of the Authority. After completion of phase I of the
         audits, the audit committee submitted the first 11 reports and recommendations to the
         tribe’s business committee for action. The business committee dissolved the Authority’s
         board and placed the Authority under the supervision of the tribe’s general manager. The
         general manager appointed an interim executive director. Under the interim executive
         director, the Authority updated its computation of program income and was in the process
         of implementing policy and procedures for program income and the local fund.

1
  Since the Housing Authority failed to track Block Grant rehabilitation or capital expenses for each property and
restrict nonprogram income that it removed from its Mutual Help program, all of the income from the 1937 Act
properties should be considered as program income. Therefore, the use of this income is reported.

                                                         8
     The source of the local funds used for abusive expenditures was primarily the
     nonprogram funds collected from low-income Native Americans renting or purchasing
     units previously assisted under the 1937 Act. The units being rented were developed
     with HUD assistance and received NAHASDA operating assistance, and the Block Grant
     program includes restrictions on the use of Mutual Help proceeds of sale from units being
     purchased.


Conclusion


     Since the Authority did not have a system in place to track actual dwelling construction
     and equipment costs for its 1937 Act units at the unit level, it could not ensure the
     accuracy of its program income calculation for its 1937 Act units assisted with Block
     Grant funds. Further, this deficiency errs in favor of attributing income to the 1937 Act,
     resulting in more funds becoming nonprogram income since the 40 percent threshold for
     dwelling construction and equipment costs is cumulative. Any failure to identify
     dwelling construction and equipment costs for its 1937 Act units delays transition of
     1937 Act unit rentals to 100 percent Block Grant program income. Unless the records
     can be accurately reconstructed for all units, the effect of the failure is permanent.

     According to HUD guidance on the required accounting system, more than $2.2 million
     in nonprogram income from the 1937 Act low-rent and Mutual Help units must be
     reclassified as program income unless the program income accounting system is shown to
     be accurate and complete. Any expenditure from these funds must be restricted to Block
     Grant-eligible activities.

Recommendations

     We recommend that HUD

     1A   Require the Authority to implement policies and procedures to determine program
          income in accordance with HUD requirements.

     1B   Evaluate the Authority’s updated computation of program income for low rent
          units, including the Block Grant-funded rehabilitation and/or capital expenses, and
          determine whether the estimated unit labor costs are adequate to document the total
          cost of Block Grant-funded rehabilitation and/or capital expenses, by 1937 Act unit,
          from 2002 forward or reclassify $990,590 of nonprogram income as Block Grant
          program income.

     1C   Evaluate the Authority’s updated computation of program income for Mutual Help
          units, including the Block Grant-funded rehabilitation and/or capital expenses, and
          determine whether the estimated unit labor costs are adequate to document the total

                                              9
     cost of Block Grant-funded rehabilitation and/or capital expenses, by 1937 Act unit,
     from 2002 forward or reclassify $1,238,291 of nonprogram income as Block Grant
     program income.

1D   Require the Authority to reduce the number of 1937 Act units capable of producing
     nonprogram income by the one unit that received insurance proceeds during 2004,
     resulting in Block Grant-funded rehabilitation or capital expenses exceeding 40
     percent of the dwelling, construction, and equipment costs.

1E Require the Authority to implement policies and procedures restricting the use of
   nonprogram income from Mutual Help proceeds of sale to those eligible activities
   specified in HUD’s requirements.

1F Require the Authority to restrict nonprogram income from Mutual Help proceeds of
   sale earned through June 30, 2007, including amounts classified as nonprogram
   income from July 2002 through June 2007, to the eligible activities specified in
   HUD’s requirements.




                                       10
                         SCOPE AND METHODOLOGY

Our objective was to determine whether the tribe complied with criteria for program income
from Block Grant-assisted 1937 Act housing projects and to observe uses of revenue from Block
Grant-assisted 1937 Act properties. The criteria are contained in NAHASDA implementing
regulations found in 24 CFR 1000.62, HUD’s Office of Native American Programs’ guidance,
and external requirements such as those from the General Accounting Office and the Office of
Management and Budget. The audit steps were designed to gain an understanding of the 1937
Act income and related use restrictions, the accounting for associated program income, and
support relied upon to calculate program and nonprogram income.

To accomplish our objectives, we reviewed the Authority’s calculation of program income from
Block Grant-assisted 1937 Act housing projects and related supporting data at its offices in
Oneida, Wisconsin. We reviewed sufficient cost accounting system information to confirm
whether the accounting system was capable of tracking rehabilitation and/or capital expenditures
at the housing unit level, as required, when the tribe chose to recognize nonprogram income. We
also reviewed the system to track the transition of unit income from a 1937 Act identity to a
Block Grant identity. Finally, we observed the use of nonprogram income generated from Block
Grant-assisted 1937 Act units. Our observations included review of the Authority’s fiscal year
2006 financial audit and the independent auditor’s report on management advisory comments.
We determined the scope, quality, and timing of the independent auditors’s work was adequate
for our intended use. We included comments by the independent auditor in our finding.

We reviewed the Authority’s dwelling construction and equipment cost report for program
income calculation and identified 144 Mutual Help and low-rent units which had rehabilitation
and/or capital expenses. The report did not identify any units that exceeded the 40 percent
dwelling construction and equipment cost limit. We then randomly selected a sample of 12 low-
rent and Mutual Help units, six low-rent units that had rehabilitation work performed, two low-
rent units that did not have rehabilitation work performed, two Mutual Help conveyed units, and
two nonconveyed Mutual Help units. We then performed site visits to the sample units to verify
that the rehabilitation work shown in the Authority’s dwelling construction and equipment cost
report had been performed for the six low-rent units and to determine whether there had been any
rehabilitation work performed on the 12 sample units that was not shown on the Authority’s
dwelling construction and equipment cost report.

The results of the site visits showed that the rehabilitation work shown on the Authority’s
dwelling construction and equipment cost report had been performed for the six low-rent units
and no rehabilitation work had been performed on the 12 sample units that were not shown on
the Authority’s dwelling construction and equipment cost report. We also identified one
insurance claim for fire damage. We found that the cost of the rehabilitation for this unit
exceeded the 40 percent dwelling construction and equipment cost limit; however, the Authority
did not include the rehabilitation costs in the dwelling construction and equipment cost report or
increase the number of units producing only program income.



                                                11
The audit was conducted between August 6 and December 18, 2007. Our review covered the
period July 1, 2002, to June 30, 2007, which corresponds to the financial reporting period
restated by the Authority in 2007 to reclassify Block Grant program income as nonprogram
income.

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:

               •   The system for calculating and tracking the use of program income and
                   nonprogram income.

               •   The cost accounting system dedicated to identifying and collecting the cost of
                   individual tasks and assigning those costs to an end unit of production.

       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 did not implement its policies and procedures for determining
               program income, and its accounting system did not track cumulative NAHASDA
               rehabilitation labor expenses for each property, as required, to properly allocate the
               property’s share of income attributable to the Block Grant program.




                                                 13
                                   APPENDIXES

Appendix A

                SCHEDULE OF QUESTIONED COSTS

                       Recommendation              Unsupported 1/
                           number
                             1B                      $ 990,590
                             1C                      $1,238,290

1/   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. The finding questions the Authority’s $990,950
     calculation of low rent nonprogram income for the period July 1, 2002, through June 30,
     2007, and $1,238,290 calculation of Mutual Help nonprogram income for the period July
     1, 2002 through June 30,2007. Until the Authority sets up an accounting system to track
     rehabilitation labor costs for its 1937 Act low rent and Mutual Help units, at the unit
     level, back to 2002, all income associated with the Block Grant-assisted 1937 Act low
     rent and Mutual Help units must be considered program income. The questioned
     amounts represents the revenue generated by Block Grant-assisted 1937 Act low rent
     housing and Mutual Help housing units which were classified as nonprogram income.




                                            14
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         15
Comment 1



Comment 1



Comment 1




Comment 1




            16
Comment 2




Comment 3

Comment 1



Comment 1




            17
Comment 1

Comment 4




            18
                         OIG Evaluation of Auditee Comments

Comment 1   We changed the terminology used in the report from removed, return and repaid
            to recognized, classify, and reclassified. The unspent nonprogram income
            recognized by the Authority makes reclassification of the funds a viable method
            to resolve the recommendations included in the report. The recommendations
            were reworded to reflect the changed terminology.

Comment 2   As indicated in the report, the Authority received insurance proceeds for one unit,
            credited them to the Block Grant program as required, and used the proceeds,
            totaling about $28,000, to repair the unit. Once the proceeds were credited to the
            Block Grant program they were to be treated like Block Grant funds and used in
            accordance with NAHASDA requirements. Accordingly, the rehabilitation work
            must be treated as NAHASDA funded. Question and answer 15 in NAHASDA
            Guidance No. 2001-03T states

                   Q.15: Are insurance proceeds from an IHBG assisted unit owned by
                   the recipient (e.g., from a house owned by the recipient that was
                   destroyed by a fire) considered program income?
                   A. 15: No, insurance proceeds are not considered program income.
                   However, the insurance proceeds from an IHBG assisted unit are
                   considered applicable credits to the recipient's IHBG program in
                   accordance with OMB Circular A-87, Section C.4 and must be treated like
                   IHBG funds and used in accordance with NAHASDA requirements.
                   Insurance proceeds from an IHBG assisted unit are considered applicable
                   credits regardless of which funds (IHBG or non-IHBG) were used to
                   purchase the insurance.

Comment 3   At the time of our audit, HUD had not made a determination on the adequacy of
            the Authority’s reconstruction of the program income computation and supporting
            documentation. Accordingly, recommendation 1B was retained but was restated
            as two separate recommendations, 1B addressing 1937 Act low rent units and 1C
            addressing 1937 Act Mutual Help units.

Comment 4   The Authority did not have procedures in place to track uses of nonprogram
            income recognized from Mutual Help proceeds of sale separately from uses of
            nonprogram income recognized from rental of low rent units. Accordingly, the
            program that generated program income used by the Authority cannot be
            specifically identified. Therefore, we did not revise recommendation 1D.
            However, as noted in comment 1 we revised the terminology in the report. Also,
            we recognized that the remaining balance of nonprogram income recognized by
            the Authority exceeded the total amount of nonprogram income from Mutual
            Help proceeds of sale.




                                            19