oversight

The Richland Housing Authority, Richland, Washington, Did Not Adequately Account for Housing Choice Voucher Funds

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-07-07.

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

                                                                Issue Date
                                                                        July 7, 2008
                                                                Audit Report Number
                                                                        2008-SE-1006




TO:        Harlan Stewart, Director, Region X, Office of Public Housing, 0APH



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

SUBJECT: The Richland Housing Authority, Richland, Washington, Did Not Adequately
           Account for Housing Choice Voucher Funds


                                   HIGHLIGHTS

 What We Audited and Why

      At the request of the Region X Office of Public Housing, we audited the Housing Choice
      Voucher program (program) of the Richland Housing Authority (Authority). The Office
      of Public Housing was concerned about the results of an audit of the Authority performed
      by the Washington State Auditor’s Office. Our objective was to determine whether the
      Authority made ineligible purchases with program funds.


 What We Found


      The Authority did not track its program expenses. Also, it charged more than $57,000 in
      unsupported and ineligible costs to the program.
What We Recommend


     We recommend the Director, Region X, Office of Public Housing, require the Authority
     to implement controls to ensure that it tracks its program expenses, reconcile its program
     accounts, and repay its program from nonfederal funds for ineligible expenses. We also
     recommend the Director require the Authority to provide supporting documentation for
     unsupported expenses or repay its program from nonfederal funds.

     For each recommendation without a management decision, please respond and provide
     status reports in accordance with United States Department of Housing and Urban
     Development (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 findings with the auditee and HUD officials during the audit. We
     provided a copy of the draft report to the auditee on June 16, 2008, and discussed the
     report with the auditee at the exit conference held on June 19, 2008. The auditee
     provided its written comments to our draft report on June 30, 2008, and generally agreed
     with our findings. The complete text of the auditee’s 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 Did Not Adequately Account for Program Funds         5
   Finding 2: The Authority Used More Than $42,000 in Program Funds to Build a   7
              Coffee Shop
   Finding 3: The Authority Did Not Support More Than $15,000 in Labor Charges   9

Scope and Methodology                                                            11

Internal Controls                                                                12

Followup on Prior Audits                                                         13

Appendixes
   A.   Schedule of Questioned Costs                                             14
   B.   Auditee Comments                                                         15
   C.   Coffee Shop Expenditures                                                 17
   D.   Labor Costs                                                              18




                                           3
                      BACKGROUND AND OBJECTIVES

The Richland Housing Authority’s (Authority) 2005 accountability audit, performed by the
Washington State Auditor’s Office, found that the Authority used restricted Housing Choice
Voucher program (program) funds to build a coffee shop. It also found that the Authority had
violated Washington State conflict-of-interest laws.

Richland Housing Authority
The Authority was formed with five commissioners in 1981 to remedy the shortage of safe and
sanitary housing for low-income persons in the city of Richland, Washington. The Authority
administers about 400 housing choice vouchers and 138 moderate rehabilitation vouchers for
which the U.S. Department of Housing and Urban Development (HUD) provided more than $1.7
million and $884,098, respectively, in 2007. The Authority also manages U.S. Department of
Agriculture low-income projects, a tax credit project for senior citizens, single-family and duplex
units for a local community housing development organization, and some properties for the
Benton-Franklin Department of Housing Services. The Authority also owns and operates its
own units and oversees a Family Self Sufficiency program that provides supportive services such
as child care, transportation, educational guidance, and job training to help program participants
achieve economic independence.

Housing Choice Voucher Program
This program is the federal government’s major program for helping very low-income families,
the elderly, and the disabled to afford decent, safe, and sanitary housing in the private market.
Public housing agencies administer the HUD-funded program, which pays a housing subsidy to
the landlord on behalf of the participating family. HUD provides public housing agencies with
an administrative fee to operate the program.

Family Self-Sufficiency Program
The Family Self Sufficiency program promotes the development of local strategies to coordinate
public and private resources that help Housing Choice Voucher program participants obtain
employment that will enable them to achieve economic independence. Supportive services most
commonly provided to program participants are child care, transportation, remedial education,
and job training.

Objective
Our objective was to determine whether the Authority spent program funds for ineligible
purposes.




                                                4
                                 RESULTS OF AUDIT

Finding 1: The Authority Did Not Adequately Account for Program
Funds
The Authority did not adequately track its program expenses. As a result, its senior management
and board of commissioners did not know how much housing assistance payment funds or
administrative fees remained in its accounts, nor did it have all of the information needed to make
financial decisions. This occurred because the Authority did not have adequate internal controls.



 The Authority Did Not Know
 Its Program Account Balances

       Under the annual contributions contract, HUD gives the Authority housing assistance
       payment funds that may only be used to make housing assistance payments to landlords.
       HUD also pays the Authority an administrative fee that may only be used to cover costs
       incurred for program operations. Each month, HUD deposited the housing assistance
       payment funds and administrative fee in the Authority’s designated bank account. Each
       month, the Authority assigned the housing assistance payment funds and the administrative
       fee to the respective accounting system account. However, when the Authority used these
       funds for housing assistance payments to landlords and for the various expenses incurred to
       administer the program, the Authority did not subtract those amounts from the accounting
       system balances so it did not know how much housing assistance payment funds or
       administrative fees remained. This is contrary to HUD regulations at 24 CFR (Code of
       Federal Regulations) 982.158 which require the Authority to keep complete and accurate
       accounts and records for the program. Since program funds may only be used for
       designated purposes, the Authority’s records must show that the funds were spent for those
       purposes. To adequately support charges to the program, the Authority’s records must show
       that the activity benefited the program.

 Conclusion

       The Authority did not adequately account for program funds. This condition occurred
       because the Authority had inadequate internal controls for its financial management system.
       As a result, it did not know whether it spent more than it had and Authority management
       and board of commissioners did not have all of the information needed to make financial
       decisions about the operation of the program.

       The Authority states they have implemented a process that they believe will help them more
       accurately track and analyze their expenses.



                                                 5
Recommendation

    We recommend the Director, Region X, Office of Public Housing, require the Authority to

    1A. Implement internal controls to ensure that it tracks its program expenses and

    1B. Reconcile its Housing Choice Voucher and related administrative fee accounts to
        ensure program funds are spent properly.




                                             6
Finding 2: The Authority Used More Than $42,000 in Program Funds to
Build a Coffee Shop
The Authority spent more than $42,000 in program funds to build a coffee shop to provide on-the-
job training for its Family Self-Sufficiency program participants. As a result, these program funds
were not available for program purposes. This condition occurred because the Authority’s
management and board of commissioners were not aware of program requirements.



 The Authority Built a Coffee
 Shop with Program Funds

       In October 2004, the Authority’s board of commissioners approved $20,000 to establish a
       coffee shop to provide training and job experience for Family Self Sufficiency program
       participants. In October 2005, the board approved an additional $10,000 due to
       unanticipated expenditures. In 2005 and 2006, the Authority spent more than $42,000 in
       program funds to build the coffee shop. Among these expenses was $4,000 for an espresso
       machine, almost $4,000 for plumbing work, almost $4,000 for asphalt work, more than
       $3,000 for excavation for sewer and electrical work, more than $2,000 for concrete work,
       almost $2,000 for a shed, and more than $1,000 for an ice machine (see appendix C for the
       complete list).

 HUD Must Approve the Family
 Self-Sufficiency Action Plan

       The United States Housing Act of 1937, as codified in 42 United States Code 1473u(g),
       requires public housing agencies participating in the Family Self Sufficiency program to
       submit an action plan to the local HUD office that must describe how the program will
       deliver the services and activities for program participants. The Authority’s Family Self-
       Sufficiency program action plan included job training as a service to be provided to program
       participants but did not state that the Authority would build a business as the means of
       providing it.

       HUD’s Program Integrity Bulletin for public housing agency commissioners states an
       Authority’s board of commissioners has the ultimate responsibility for housing authority
       operations and must ensure that expenditures comply with federal and local laws and
       other requirements. The board delegates responsibility for maintaining overall
       compliance with federal, state, and local laws to the executive director. However, neither
       the board of commissioners nor the executive director ensured that the Authority’s action
       plan included detail sufficient to describe how the program would deliver the services
       and activities for program participants. Therefore, the costs of building the business as a
       means of providing the services and activities are ineligible.

                                                 7
Conclusion

     The Authority inappropriately spent more than $42,000 in program funds to build a coffee
     shop. This condition occurred because the Authority’s management and board of
     commissioners did not know HUD program requirements and believed that the coffee shop
     was an eligible use of program funds. As a result, these funds were not available for
     program use.

     The Authority has proposed a method to repay the funds.

Recommendations

     We recommend the Director, Region X, Office of Public Housing, require the
     Authority’s management and board of commissioners to

     2A.     Attend training regarding program requirements.

     2B.     Certify that they understand and will comply with HUD program requirements.

     We also recommend that the Director, Region X, Office of Public Housing, require the
     Authority to

     2C.     Repay its program account $42,183 from nonfederal funds for its ineligible use of
             program funds.




                                             8
Finding 3: The Authority Did Not Support More Than $15,000 in Labor
Charges
The Authority used program funds to pay the salary and benefits of an employee whose time-
keeping records showed that he charged his time to non-HUD activities. This condition occurred
because the Authority mistakenly charged the employee’s time to the wrong account. As a result,
more than $15,000 was not available for program use.


 The Authority Charged the
 Program for Non-related
 Activities

       From September 2005 through June 2006, the Authority used program funds to pay an
       employee more than $14,000 in salary and more than $1,000 in benefits even though the
       employee’s time-keeping records showed no work related to the program. HUD
       regulations at 24 CFR 982.158 require the Authority to keep complete and accurate
       accounts and records for the program. Since the program funds may only be used for
       designated purposes, the Authority’s records must show that the funds were spent for
       those purposes. To adequately support labor charges to a HUD program, time-keeping
       records must show that an employee performed activities benefiting that program.

 Conclusion

       The Authority did not support more than $15,000 in labor charges. This condition occurred
       because the Authority’s bookkeeper mistakenly charged an employee’s labor costs to the
       wrong account. As a result, these funds were not available for program use. In addition, the
       bookkeeper no longer works for the Authority and a certified public accountant now reviews
       the Authority’s accounting records.

       The Authority states they have implemented payroll review procedures that it believes
       will help them more accurately track and analyze their payroll expenses. The Authority
       has also proposed a method to repay the labor charges.

 Recommendations

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

       3A. Review its payroll accounting system to ensure the labor costs are properly allocated.



                                                9
3B. Provide adequate supporting documentation for the labor charges or repay its program
    $15,391 from nonfederal funds.




                                       10
                        SCOPE AND METHODOLOGY

The audit period covered January 2005 through December 2007. We performed the fieldwork
from February through May 2008.

To accomplish our objective, we reviewed program criteria, reviewed Authority financial records
and interviewed Authority staff.

We reviewed all 2005 through 2007 general ledger transactions related to the Authority’s Family
Self Sufficiency program. We also reviewed all accounts in the Authority’s chart of accounts
that appeared to be inconsistent with Section 8 programs.

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




                                              11
                              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 objective:

            •   Policies and procedures that management has implemented to ensure that the
                Authority pays the correct housing assistance payments to eligible families to
                live in decent, safe, and sanitary units.
            •   Policies and procedures that management has implemented to ensure that HUD
                funds are safeguarded and used for eligible purposes.

       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 items are significant weaknesses:

            •   The Authority did not adequately track program expenditures (finding 1).




                                                12
                     FOLLOWUP ON PRIOR AUDITS

Accountability Audit Report
Number 71823 - City of
Richland Housing Authority

     On December 1, 2006, the Washington State Auditor’s Office issued an accountability
     audit report for the period January 1 through December 31, 2005. The State Auditor
     found that the Authority spent more than $45,000 that was not allowable under program
     guidelines for case management services and to build a coffee shop. The State Auditor
     also found a conflict of interest involving the Authority’s executive director and a
     member of the board of commissioners regarding the Authority’s Family Self Sufficiency
     program.

     In the subsequent report (number 73686) issued December 10, 2007, the Washington
     State Auditor’s Office repeated the conflict of interest issue relating to the executive
     director and this finding remains open. It stated that the finding related to unallowable
     expenditures for building the coffee shop was resolved. However, this meant that the
     State Auditor found no unallowable expenditures for the current audit period not that
     funds were returned to the program. The State Auditor will review the conflict of interest
     issue during the next scheduled audit.

     Our audit confirmed ineligible expenditures of program funds (see finding 2) that had not
     been repaid. Regarding the conflict of interest, Authority management officials stated
     that they believed the process they used to procure the services avoided a conflict of
     interest. In addition, the conflict of interest relationships have been dissolved.




                                             13
                                   APPENDIXES

Appendix A

                SCHEDULE OF QUESTIONED COSTS


        Recommendation number            Ineligible costs 1/     Unsupported costs 2/
                   2C                         $42,183
                   3B                                                   $15,391


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.




                                            14
Appendix B

             AUDITEE COMMENTS




                    15
16
Appendix C

             COFFEE SHOP EXPENDITURES
             Payee                                      Amount
             Almond & Sons Asphalt                   $ 3,820.00
             American Express                            655.71
             Apollo Sheet Metal                          190.00
             Avalanche Distributing                      790.00
             Benton – Franklin Title                     295.00
             City of Richland                            798.06
             Coffey Refrigeration                         60.00
             Construction Management                   1,537.14
             Department of Labor and Industries           95.80
             Emmons Plumbing                           7,218.24
             Family Self-Sufficiency Center            9,222.50
             Frontier Fence                              576.00
             Galasource                                1,281.78
             Housing Authority Risk Retention Pool       435.00
             Petty cash                                  132.30
             Authority maintenance personnel             412.51
             Lowe's Hardware                           4,983.71
             Lumbermens                                  539.05
             Mediterranean Espresso                    4,250.00
             Mobile Storage Units                      1,980.00
             Pacific Steel                               203.95
             Patnode's True Value                        105.53
             Pro-Cut Concrete                            480.00
             Stoneway Electric Supply                    902.39
             Tri City Sign and Barricade                  40.80
             Trustworthy Hardware                        414.16
             Western Materials                           763.23
                                             Total   $42,182.86




                                      17
Appendix D

                              LABOR COSTS


             Month/year              Salary    Benefits         Total
             September 2005    $   1,272.00   $ 97.68     $ 1,369.68
             October 2005          1,344.00     103.22      1,447.22
             November 2005         1,328.00     102.00      1,430.00
             December 2005         1,462.25     112.30      1,574.55
             January 2006          1,466.08     112.60      1,578.68
             February 2006         1,380.80     142.22      1,523.02
             March 2006            1,532.72     157.87      1,690.59
             April 2006            1,332.80     137.28      1,470.08
             May 2006              1,532.72     157.87      1,690.59
             June 2006             1,466.08     151.01      1,617.09
             Total                                        $15,391.50




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