Issue Date
October 20, 2008
Audit Report Number
2009-AT-1001
TO: Ron Larkin, Acting Director, Office of Public Housing, 4APH
Henry S. Czauski, Acting Director, Departmental Enforcement Center, CV
FROM: James D. McKay, Regional Inspector General for Audit, 4AGA
SUBJECT: The Housing Authority of the City of Conyers, Georgia, Did Not Maintain
Adequate Controls over its Federal Funds
HIGHLIGHTS
What We Audited and Why
As part of the U.S. Department of Housing and Urban Development (HUD),
Office of Inspector General’s (OIG) strategic plan, we reviewed the Housing
Authority of the City of Conyers’ (Authority) administration of its disbursements
and procurement procedures. The Georgia State Office of Public Housing
requested the audit due to concerns regarding the use of its funds and violation of
its procurement procedures.
Our objective was to determine whether the Authority used its federal funds in
compliance with HUD regulations and other requirements.
What We Found
The Authority used $891,468 in federal funds to pay ineligible and unsupported
costs. It did not establish effective controls to protect its assets. The Authority’s
board did not ensure that the former executive director expended funds in
accordance with Authority and HUD requirements, adequately documented
expenditures, and followed procurement policies. This condition occurred
because the former executive director controlled all expenditure functions and did
not establish proper separation of duties.
What We Recommend
We recommend that the Director of the Office of Public Housing require the
Authority to repay $185,764 to its public housing operating and capital
improvement programs for ineligible payments made to or on behalf of the former
board chairman, support $182,369 in payments made to or on the behalf of the
former executive director and the former lease enforcement officer, provide
documentation to support $523,335 in payments made for various purchases or
repay its public housing program, review and implement internal controls for
purchasing goods and services, and ensure that its board performs its oversight
duties in a responsible manner. We also recommend that the Acting Director of
the Departmental Enforcement Center, in coordination with the Director of the
Office of Public Housing, take appropriate administrative action against the
Authority officials responsible for the improper disbursements.
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 our review results with the Authority and HUD officials during the
audit. We provided a copy of the draft report to Authority officials on September
15, 2008, for their comments and discussed the report with the officials at the exit
conference on September 17, 2008. The Authority provided written comments on
September 19, 2008, and agreed with the finding and recommendations.
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 Used More Than $891,000 in Federal Funds for 5
Ineligible and Unsupported Costs
Scope and Methodology 15
Internal Controls 16
Appendixes
A. Schedule of Questioned Costs 18
B. Auditee Comments 19
3
BACKGROUND AND OBJECTIVES
The Housing Authority of the City of Conyers (Authority) was established in 1960 in accordance
with state and federal law. The Authority’s primary objective is to serve the citizens and
communities of Rockdale County, Georgia, by providing decent, safe, and sanitary housing.
The Authority’s five-member board of commissioners oversees the direction of the Authority.
The mayor of the City of Conyers, Georgia, appoints the board of commissioners, which in turn
selects an executive director. Currently, an interim executive director is responsible for the
Authority’s daily operations.
The Authority administers 290 units of public housing situated in a scattered-site setting in
Conyers, Georgia. The U. S. Department of Housing and Urban Development (HUD) provided
more than $1.3 million to the Authority in operating subsidies from fiscal years 2003 to 2006 and
more than $1.8 million in capital improvement grants as follows.
Operating Capital
Fiscal year subsidy grant improvement grant
2003 $301,316 $476,543
2004 321,639 460,177
2005 302,076 484,285
2006 414,220 470,471
HUD’s Georgia State Office of Public Housing, located in Atlanta, Georgia, is responsible for
overseeing the Authority.
Our objective was to determine whether the Authority used its federal funds in compliance with
HUD regulations and other requirements.
The issues identified in our report deal with administrative and internal control activities that we
believe must be brought to the attention of HUD officials. Other matters regarding the
Authority’s management may remain of interest to our office as well as other federal agencies.
Release of this report does not immunize any individual or entity from future civil, criminal, or
administrative liability or claim resulting from action by HUD and/or other authorities.
4
RESULTS OF AUDIT
Finding 1: The Authority Used More Than $891,000 in Federal Funds
for Ineligible and Unsupported Costs
The Authority used $891,468 in federal funds to pay ineligible and unsupported costs. It did not
establish effective controls to protect its assets. Its board did not ensure that the former
executive director expended funds in accordance with Authority and HUD requirements,
adequately documented expenditures, and followed procurement policies. This condition
occurred because the former executive director controlled all expenditure functions and did not
establish proper separation of duties. As a result, funds were not available to improve the living
conditions of the Authority’s units as intended, and the Authority had no assurance that its
purchases were the most economical for project operation.
The Authority Paid $368,133 to the
Former Authority Officials
We reviewed Authority disbursements and supporting documentation from July 1,
2003, to June 30, 2007, and payments to the former board chairman from 2000 to
2006. The Authority paid $368,133 to the former Authority officials. We
identified $185,764 in ineligible and unsupported payments to the former board
chairman, $73,128 to the former executive director, and $109,241 to the former
lease enforcement officer. The former executive director approved and signed all
disbursements. The Authority did not use its administrative employees for the
separation of duties. The former executive director had complete control over the
expenditure function. She could prepare, sign, and code the checks for
accounting purposes. Only one signature was required on the checks. She also
reviewed and approved invoices for payment along with her assistant director.
The board did not review any of the expenditures, nor did the former executive
director provide the board a list of expenditures. The Authority used a fee
accountant to maintain the general ledger and the cash receipts and disbursements
ledgers. The fee accountant prepared the records based on information provided
by the former executive director.
5
The Former Board Chairman
Received $185,764 in
Ineligible Costs
The former board chairman received $185,764 in ineligible payments. Although
ineligible to receive any form of compensation, the former board chairman was
hired as an Authority employee, while he was an active board member, and paid
$168,748 in wages from 2000 to 2006. The Authority paid him $12,908 in
benefits and provided him with an Authority credit card that he used to purchase
personal items costing $1,129. The Authority also paid $2,979 for health
insurance premiums that he was not entitled to receive. The Authority’s action
not only created a conflict of interest, but also violated both HUD’s and the
Authority’s policies and regulations that prohibited payments to board members.
The Authority did not seek a HUD waiver of the prohibition on hiring board
members or conflict-of-interest provisions.
Part A of the annual contributions contract (contract), section 14, Employer
Requirements, (B), provides that no funds of any project may be used to pay any
compensation for the services of members of the Authority’s board.
Section 19 of the contract, Conflict of Interest, (A)(1)(i), provides that the
Authority cannot enter into any contract or arrangement with any present or
former member or officer of the Authority’s governing board or any member of
the officer’s immediate family.
Examples of payments received by the former board chairman follow:
$50,000 for installing 200 commodes at $250 per commode. This amount
did not include the cost of the commodes, the cost of assembling each
commode, or the costs of Authority’s maintenance employees used to
assist with the installations. The installation cost of $250 per commode
was well in excess of the cost quoted by a local plumbing supplier of $90
to assemble and install each commode. At the $90 per unit rate, the
former board chairman overcharged the Authority by $32,000.
$31,250 to install closet doors and stops in 124 units. The former board
chairman charged the Authority $250 per installation. We inspected
several of the doors and determined that since the doorjambs were already
in place, the installation was simple and involved attaching the hinges to
the doors and jambs and gluing the stops in place. In addition to the
payments to the former board chairman, the former executive director and
former lease enforcement officer received payment for installing the
doors. The payments to all three Authority officials increased the cost of
6
installation to more than $528 per door. This amount did not include the
cost of the doors, other materials, and maintenance personnel used during
the installation. The original cost estimate for the doors and installation
was $31,000. This estimate was increased by $44,208 one year later to
$75,208; however, the number of doors did not increase. There was no
documentation to support that the Authority requested bids from other
companies to justify the costs.
$21,750 for annual unit inspections performed in 2003, 2004, and 2005.
He was paid a rate of $25 per unit. The Authority did not document the
need for the inspections since a private contractor performed the annual
inspections. Moreover, the payments were not reasonable because the $25
per unit rate exceeded the private contractor’s price of $11.90 per unit by
$13.10. The former board chairman also performed other housekeeping
inspections at the $25 rate. Authority staff usually performed these
inspections.
$12,650 in numerous payments ranging from $500 to $1,400 based on an
hourly pay rate of $25 per hour. However, the documentation did not
identify the work performed. The former executive director or a
nonsupervisory employee prepared the time sheets for the former board
chairman. The former board chairman did not sign the time sheets.
In addition, the Authority purchased a new lawn tractor and traded in one of the
older lawn tractors for $1,000. The former board chairman purchased the used
lawn tractor from the dealer for $1,000. According to maintenance staff, the
Authority delivered the old mower to the former board chairman’s home directly
from the Authority’s garage. The Authority did not document that it made the old
mower available for sale to the public as required by the Authority’s disposition
policy. After the lawn tractor was traded, the former board chairman used the
Authority’s credit card to purchase a new seat and wheel assemblies totaling
$475. The maintenance staff stated that the parts were installed in the Authority’s
maintenance shop.
Finally, since the former board chairman was hired as an employee, the Authority
paid his Social Security and Medicare taxes totaling $12,908.
7
The Former Executive
Director Received $73,128 in
Unsupported Costs
The Authority made a number of questionable payments, totaling $73,128,
directly to or on behalf of the former executive director. The unsupported
payments were for personal items.
The following are examples of the unsupported payments made by the former
executive director:
$15,410 for seven trips, which included her husband, daughter, mother
(the former board chairman’s wife), aunt, and husband’s parents. The
trips included three trips to Disney World, Florida, and trips to Pigeon
Forge, Tennessee; Myrtle Beach, South Carolina; Tybee Island, Georgia;
and Helen, Georgia. Although the trips were allegedly for business-
related activities, there was no documentation of conferences attended,
training received, or payments for registration fees. One voucher had a
flyer attached for training near Disney World, Florida. However, the
company sponsoring the training informed the current executive director
that the former executive director did not register for or attend the training.
Another voucher was for a microcomputer user group meeting in Myrtle
Beach, South Carolina. Information provided by the secretary for the user
group showed that the former executive director did not sign attendance
records, and the minutes from the meeting did not show that she was in
attendance. Except for the vacation to Tybee Island, Georgia, she did not
claim any vacation leave.
Immediately before her vacation to Myrtle Beach, South Carolina, the
former executive director used Authority funds to purchase DVD movies
and to install a $1,300 video system in her Authority-furnished sport
utility vehicle. There was nothing in the Authority’s files to show that the
purchase of this video equipment was necessary for Authority operations.
$16,015 that included meals for her and her family, clothes, landscaping
for her home, televisions, digital and video cameras, toys and items for her
daughter, Christmas decorations for her home, dog food, a waterslide for
her home, veterinarian fees, payments on personal credit cards, and other
items.
$12,450 for priming, sealing, and sanding closet doors, doorframes, stops,
and catches. Documents attached to the check voucher did not support the
dates or times when the former executive director performed the work.
We interviewed maintenance staff employed during the time the former
8
executive director was paid for the work. Based on our interviews, we
were unable to conclusively confirm that she performed any of the work.
$4,000 and $5,000 in bonuses for 2004 and 2005, respectively. The
supporting documentation for the $4,000 bonus included a copy of altered
and unsigned board minutes. Conversely, the signed copy of those board
minutes did not discuss the $4,000 bonus, and the board did not sign the
minutes authorizing the $5,000 bonus. Therefore, the bonuses were not
official.
$5,000 downpayment on a $7,577 utility building erected at her home.
The Authority’s files did not document the need to purchase the building
or its benefit to the Authority.
$2,769 paid for unused 2004 leave. The computation for the payment
showed only 40 hours of leave taken by the former executive director for
2004. Based on the time spent on vacations, she was actually absent from
work for 120 hours during 2004. If the computation had been calculated
using the actual leave taken of 120 hours, the former executive director
would not have qualified for unused leave compensation.
$1,586 to purchase farm fencing and a solar powered automatic gate
opener for personal use at her home.
The Former Lease Enforcement
Officer Received $109,241 in
Unsupported Costs
The former lease enforcement officer, who is also the former executive director’s
husband, received payments of $109,241.
Following are examples of the unsupported payments to the former lease
enforcement officer:
$45,875 paid for painting various units and other fixtures. We interviewed
maintenance staff employed during the time the former officer was paid
for the painting. Based on our interviews, we were unable to conclusively
confirm that the former lease enforcement officer performed any of the
painting.
$24,059 paid for landscaping and related work. The payments included
reimbursements for two payments of $3,000 to a trucking company for
loads of dirt. The former lease enforcement officer, however, did not
provide cancelled checks or receipts to support the payments to the
9
trucking company. He also received other payments for cutting grass,
landscaping, and designing playgrounds. The documentation supporting
these payments did not include the date and time when the work was
performed. For the playground design work, the former lease enforcement
officer was paid $4,000 for 36 hours of work. This equates to a rate of
$111 per hour. His salary at that time was $28 per hour. The Authority
did not have files to support the design work. Also, we visited the
playground site and did not see any evidence of significant design work.
We noted only one swing that appeared to have been in place for some
time.
$21,750 for installing 124 closet doors. The former board chairman and
the former executive director also received payments associated with the
installation of these doors (see discussion of the former board chairman
and the former executive director). The documentation for the payments
does not show when the former lease enforcement officer performed the
work.
$13,150 for assembling 263 commodes at $50 per commode. The
documentation attached to the payments did not state the time or date
when the work was performed. Moreover, the $50 cost to assemble the
commodes was in addition to the $250 per commode that the Authority
paid the former board chairman (see discussion of the former board
chairman above). According to a local plumbing supplier, the cost to
assemble and install a commode was $90.
$1,917 for questionable credit card purchases made by the former lease
enforcement officer. These purchases included food, alcohol, hotel
charges, gasoline, and other miscellaneous items while on vacation.
$1,832 paid for unused 2004 leave. The computation for the payment
showed only 40 hours of leave taken during 2004. The former executive
director maintained the Authority’s leave records. Based on the non-
Authority related trips he and the former executive director took, the
former lease enforcement officer was actually absent from work for 120
hours during 2004. If the computation had been calculated using the
actual leave taken of 120 hours, the employee would not have qualified for
compensation.
10
Various Vendors and Relatives
Received $523,335 in
Unsupported Costs
. The Authority improperly procured goods and services totaling $523,335 from
various individuals and suppliers. It did not document the procurement process it
followed and did not provide support for the reasonableness and necessity of the
procurements. The procurements included payments for dirt hauling; landscape
work; tree removal; filter replacement; and purchases of vehicles, equipment, and
other items. Some of the individuals providing services were related to Authority
employees.
The Authority established a written procurement policy consistent with HUD
requirements; however, it did not implement working-level procedures to carry
out the policy. The Authority’s procurement policy at the time of the purchases
required the Authority to follow the sealed bidding or competitive proposal
method of procurement for all purchases over $25,000.
Office of Management and Budget Circular A-87 establishes principles and
standards for determining the allowable costs incurred by state and local
governments receiving federal awards carried out through grants, cost
reimbursement contracts, and other agreements. Basic guidelines stipulate that
costs, to be allowable, must be necessary and reasonable for proper and efficient
performance and administration of federal awards. Office of Management and
Budget Circular A-87 also states that for costs to be allowable, they must be
adequately documented.
HUD stipulates that the Authority must conduct all procurement transactions in a
manner providing full and open competition consistent with the standards
established in federal regulations at CFR [Code of Federal Regulations] 85.36.
HUD Handbook 7460.8, REV-2, requires the Authority to use its own
procurement procedures, which reflect applicable state and local laws and
regulations, provided that the procurements conform to applicable federal law and
the standards identified in this section. Authorities must maintain records
sufficient to detail the significant history of procurement.
We selected four procurements based on large contract amounts. The purchases
were improperly procured. The files for the purchases did not document the
Authority’s compliance with the requirements. Also the Authority’s board
minutes did not document that the board discussed or reviewed the purchases.
We reviewed the four largest procurements as follows:
Tree removal - The Authority paid a local vender $45,000 to remove trees.
11
Dump truck - The Authority purchased a dump truck valued at $48,800 to haul
trash to a local dump. The Authority’s new administration determined that the
City would pick up the trash at no cost to the Authority. The Authority has found
another use for it.
Chevrolet Tahoe SUV - The Authority purchased a 2006 Chevrolet Tahoe SUV
from a nonlocal dealer for $48,780. The vehicle was for the executive director’s
use. The vehicle was fully equipped and included a video system for watching
movies and a navigation system.
Landscaping - The Authority paid a local vendor $65,134 for hauling dirt and
general landscape work. Payments ranged from $300 to $9,300. The vendor was
the nephew of the former assistant director who reviewed and approved the
invoices for payment.
The Authority did not support the remaining procurement activities. The
Authority did not document the bidding for the purchases as required. Evidence
did not support that the Authority obtained price quotes, sealed bids, or
competitive proposals before making the purchases. Supporting documents for
these purchases sometimes lacked signatures, did not show what good or service
was purchased, and did not show that the good or service was actually received by
the Authority.
Overall, the Authority did not establish the controls it needed to protect its assets.
It did not ensure that its federal funds were used for eligible, supported housing-
related activities that were reasonable and necessary for its operations. This
condition occurred because the former board chairman, former executive director,
and former lease enforcement officer chose to forego established competitive
procurement requirements. Consequently, more than $891,000 in Authority funds
was not available to improve the Authority’s units and living conditions of its
tenants as intended.
During our audit, the Authority’s board, under the guidance of a new chairman
and the Authority’s interim executive director, focused on improving oversight.
The Authority has engaged a new accounting firm to prepare its annual financial
reports and statements. It replaced its board chairman, various board members,
the former executive director, the former assistant executive director, the former
lease enforcement officer, and other Authority employees.
The Authority’s board currently meets each month and encourages residents and
the public to attend. Official minutes of the board meetings are prepared in a
timely manner, approved, and signed. The Authority plans to have training for
board members. The board established a finance committee and a personnel
committee to review monthly reports of receipts, disbursements, and audits. It
12
considers purchases in advance to determine their reasonableness and necessity.
It has restricted credit card use to the interim executive director and the assistant
executive director. The Authority established separation of duties outlined in its
new purchase procedure policy. Its new office manager reviews invoices for
payment and prepares the disbursement checks. Afterward, the interim executive
director reviews the supporting documentation and signs the disbursement checks.
Although the new Authority board has focused on improving its oversight of
Authority operations, further consideration is needed. We have specific concerns
about two recent board actions.
The board currently requires two signatures for checks over $10,000, and
one signature must be the board chairman’s. However, few individual
Authority purchases in our scope exceeded $10,000. This control likely
would not have detected or prevented many of the ineligible and
unsupported payments to the former Authority officials, and a lower
threshold should be considered.
The new board also increased the small purchase threshold from $25,000
to $100,000. This threshold increase means that the Authority will not
have to publicly advertise and accept competitive sealed bids from the
public for projects costing less than $100,000. Instead, the Authority is
permitted to obtain three price quotes from vendors of its own choosing.
Although the increase from $25,000 to $100,000 is permitted by HUD
procurement guidelines, the Authority board should consider the budget
and operations of the Authority. None of the Authority’s individual
purchases within our audit scope exceeded $100,000. This change by the
new board would not have been sufficient to detect many of the ineligible
and unsupported disbursements of the former Authority officials.
Therefore, lower thresholds should be considered.
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Recommendations
We recommend that the Director, Office of Public Housing, require the Authority
to
1A. Repay $185,764 to it public housing operating and capital improvement
programs for ineligible payments made to or on behalf of the former board
chairman from nonfederal funds.
1B. Provide support for $182,369 in payments made to or on behalf of the
former executive director and former lease enforcement officer or repay
any unsupported costs to its public housing operating and capital
improvement programs from nonfederal funds.
1C. Provide support for $523,335 in payments made for various purchases or
repay any unsupported costs to its public housing operating and capital
improvement programs from nonfederal funds.
1D. Review and implement internal controls to ensure that the Authority
complies with HUD procurement regulations and its own local
procurement policy approved by HUD and its board for purchasing goods
and services.
1E. Ensure that the board is provided training and establishes procedures to
perform its oversight duties in a responsible manner.
We also recommend that the Acting Director of the Departmental Enforcement
Center in coordination with the Director, Office of Public Housing
1F. Take appropriate administrative action against the Authority officials
responsible for the disbursement of federal funds in noncompliance with
HUD requirements.
14
SCOPE AND METHODOLOGY
To achieve our audit objectives, we reviewed
Applicable laws, regulations, and other HUD program requirements relating to
disbursements and procurement;
Authority standard operating policies, procedures, and board minutes;
Payments and supporting documentation provided by Authority staff and officials;
The Authority’s financial management and procurement system, including controls over
cash receipts, disbursements, purchases, contracts, and operations;
Management control systems pertaining to procurement; and
Information and records maintained by HUD’s Georgia state office pertaining to the
Authority and the most recent U.S. Army Corps of Engineers report.
We reviewed various Authority documents including contract files, financial statements, check
vouchers, invoices, and reports from the independent public accountant. In addition, we gained
an understanding of the Authority’s purchase and accounting system as it related to our review
objective.
We interviewed the Atlanta, Georgia, Office of Public Housing program officials and Authority
management and staff. We reviewed HUD files and records, the Authority’s bank records,
records of disbursements, draws from HUD, and the general ledgers.
We reviewed all disbursement transactions from July 1, 2003, through June 30, 2007. We
expanded our review period as necessary to accomplish our objectives. We also expanded our
review to include all Authority payments to the former board chairman after he retired from the
Authority as executive director in June 2000. We also considered procurements that occurred
after June 30, 2007.
We performed our on-site work from July through December 2007 at the Authority, located at
1214 Summers Circle, NW, Conyers, Georgia, and at the HUD Office of Public Housing, located
at 40 Marietta Street, Atlanta, Georgia.
We performed our review in accordance with generally accepted government auditing standards.
15
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:
Compliance with laws and regulations – Policies and procedures that
management has implemented to reasonably ensure that its resources are used in
accordance with laws and regulations.
Safeguarding of 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 internal controls do not provide reasonable
assurance that the processes for planning, organizing, directing, and controlling
program operations will meet the organization’s objectives.
16
Significant Weaknesses
Based on our review, we believe the following item is a significant weakness:
The Authority did not adequately monitor its disbursement of federal funds to
ensure that payments were for eligible and supported housing activities (see
finding 1).
17
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
Recommendation
number Ineligible 1/ Unsupported 2/
1A $185,764
1B $182,369
1C _______ $523,335
Total $185,764 $705,704
1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
that the auditor believes are not allowable by law; contract; or federal, state, or local
policies or regulations.
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.
18
Appendix B
AUDITEE COMMENTS
19
20
The Housing Authority of the City of Conyers Gerogia did not maintain Adequate Controls over its Federal Funds
Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-10-20.
Below is a raw (and likely hideous) rendition of the original report. (PDF)