oversight

The Taunton Housing Authority, Taunton, Massachusetts, Needs to Improve Accounting for Its Interprogram Funds

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-10-01.

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

                                                                 Issue Date
                                                                          October 1, 2008
                                                                 Audit Report Number
                                                                              2009-BO-1001




TO:        Robert P. Cwieka, Acting Director, Office of Public Housing, Boston Hub, 1APH


FROM:      John Dvorak, Regional Inspector General for Audit, Boston Region, 1 AGA


SUBJECT: The Taunton Housing Authority, Taunton, Massachusetts, Needs to Improve
         Accounting for Its Interprogram Funds


                                   HIGHLIGHTS

 What We Audited and Why

             We audited the Housing Choice Voucher (Voucher) program at the Taunton
             Housing Authority (Authority) as part of our annual audit plan. The overall audit
             objective was to determine whether the Authority efficiently administered its
             Voucher program in compliance with its annual contributions contract and U.S.
             Department of Housing and Urban Development (HUD) regulations. Our specific
             objectives were to determine whether the Authority used Voucher program funds
             only for the administration of the program and whether interprogram fund
             transactions were properly accounted for and reported.


 What We Found


             The Authority generally administered the Voucher program efficiently and
             effectively and in compliance with its annual contributions contract and HUD
             regulations. However, it could not readily identify whether Voucher program
             funds were used only for the administration of the program because it did not
             properly account for and report interprogram fund transactions. The Authority
             did not properly account for and report interprogram fund transactions between its
           federal and state programs, resulting in $593,418 in unsupported transactions
           recorded in its program accounts.


What We Recommend


           We recommend that HUD require the Authority to provide support for $593,418 in
           interprogram fund transactions that were out of balance between federal and state
           programs and implement procedures for recording and reconciling interprogram
           transactions and correcting imbalances. We also recommend that HUD require the
           Authority to establish controls to ensure that all interprogram transactions are
           recorded and reconciled monthly.

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



Auditee’s Response


           We provided the Authority a draft report on September 10, 2008, and held an exit
           conference with officials on September 17, 2008. The Authority provided written
           comments on September 26, 2008. It generally agreed with our recommendations
           and has taken corrective actions that should eliminate the condition noted in this
           report. The complete text of the auditee’s response, along with our evaluation of
           that response, can be found in appendix B of this report.




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                             TABLE OF CONTENTS

Background and Objectives                                                             4

Results of Audit
        Finding 1: The Authority’s Accounting for Interprogram Funds Was Inadequate   5


Scope and Methodology                                                                 7

Internal Controls                                                                     8


Appendixes
   A.   Schedule of Questioned Costs                                                  9
   B.   Auditee Comments and OIG’s Evaluation                                         10
   C.   Schedule of Interprogram Funds 2006-2007                                      12
   D.   Selected Criteria for the Voucher Program                                     13




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                          BACKGROUND AND OBJECTIVES


The United States Housing Act of 1937 established the federal framework for government-
owned affordable housing. This act also authorized public housing as the nation’s primary
vehicle for providing jobs and building and providing subsidized housing. The U.S. Department
of Housing and Urban Development (HUD) was created in 1965 to disperse funds to public
housing agencies under annual contributions contracts to provide subsidy payments or housing
assistance payments for participating low-income families.

In addition, the United States Housing Act of 1937, as amended by the Quality Housing and
Work Responsibility Act of 1998, created the Section 8 Housing Choice Voucher tenant-based
program (Voucher program). The Voucher program is funded by HUD and allows public
housing authorities to pay HUD subsidies directly to housing owners on behalf of the assisted
family.

The Voucher program and a low-rent housing program are administered by the Taunton Housing
Authority (Authority) for the City of Taunton, Massachusetts. HUD contracts with the Authority
to administor 665 low-income units through annual contributions contracts.1 The Authority
received $14.3 million in Voucher program funds during the period January 1, 2006, through
December 31, 2007, and earned approximately $1.2 million in administrative fees. The annual
contributions contract requires the Authority to follow appropriation laws, HUD requirements
including public housing notices, and the Authority’s administrative plan.

The principal staff member of the Authority is the executive director, who is appointed by the
Authority’s board of commissioners (board). The executive director is directly responsible for
carrying out the policies established by the board and is delegated the responsibility for hiring,
training, and supervising the remainder of the Authority’s staff to manage the day-to-day
operations of the Authority and to ensure compliance with federal and state laws and directives
for the programs managed.

Our overall audit objective was to determine whether the Authority effectively and efficiently
administered its Voucher program in compliance with its annual contributions contracts and
HUD regulations. Specifically, we wanted to determine whether the Authority used Voucher
program funds only for the administration of the program and whether interprogram fund
transactions were properly accounted for and reported.




1
    As of December 1, 2007.

                                                 4
                                 RESULTS OF AUDIT

Finding 1: The Authority’s Accounting for Interprogram Funds Was
Inadequate

The Authority’s interprogram receivables and payables accounts among the various programs
administered by the Authority were routinely out of balance. These imbalances occurred because
the Authority did not see the necessity of reconciling the interprogram account balances among
programs monthly. Therefore, it did not have written procedures in place to reconcile the
interprogram accounts or to analyze and correct imbalances. As a result, it did not have support for
$593,418 recorded in the interprogram accounts between its federal and state programs. This
deficiency could result in a misstatement of program revenues or expenses.




 The Authority Did Not Properly
 Account for Interprogram
 Funds


               The Authority used its Voucher program account as a revolving fund to make all of
               its vendor payments. All other federal and state programs made monthly advances
               of funds based on budgeted allocations to the revolving fund to make the vendor
               payments. These other programs also reimbursed the revolving fund monthly in
               arrears for a share of the monthly expenditures. However, this practice resulted in a
               buildup of due from/due to amounts because the expenditures and revenues were not
               reconciled back to the other program accounts. Therefore, the Authority’s
               accounting procedures did not always readily identify whether the Authority used
               its Voucher program funds only for the administration of the program because it
               did not properly account for and report interprogram fund transactions. The
               Authority’s interprogram receivables and payables accounts among the various
               programs administered by the Authority were routinely out of balance.

               The Authority had an ongoing issue with regard to balancing the interprogram
               receivables and payables among its federal and state programs. However, an equal
               interprogram payable on another program’s ledger should have offset each
               interprogram receivable. Our review disclosed that at the end of fiscal years 2006
               and 2007, the average owed due from/due to the revolving fund for the federal and
               state programs totaled $593,418 as outlined in appendix C.

               The Authority’s fee accountant and the director of finance acknowledged that there
               was approximately $593,418 ($290,509 in 2006 and $302,909 in 2007) in
               interprogram fund transfers that were out of balance between the federal and state
               programs. They also agreed that for every program with a receivable due from

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             another program, the other program should have a corresponding payable and vice
             versa.

             The imbalances in the interprogram accounts occurred because the Authority did not
             initially see the necessity of reconciling the interprogram account balances among
             programs monthly. Therefore, it did not have written procedures in place to
             reconcile the interprogram accounts or analyze and correct imbalances. As a result,
             the Authority did not have support for $593,418 in interprogram account balances
             that were out of balance between its federal and state programs. These imbalances
             could result in a misstatement of program revenues or expenses.



Conclusion


             The Authority needs to implement stronger controls over interfund transfers
             between its federal and state accounts by conducting a monthly reconciliation of
             the interfund transfers. These controls will help to ensure that the Authority
             properly accounts for all of its federal funds and provide assurance to HUD that
             the Authority has appropriately allocated all of its costs to its respective federal or
             state programs.


Recommendations

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

             1A. Provide support for $593,418 in interprogram transactions that were out of
                 balance between federal and state programs.

             1B. Implement procedures for recording and reconciling interprogram transactions
                 and to correct imbalances.

             1C. Conduct followup reviews periodically to ensure that monthly reconciliations
                 are performed as needed.




                                                6
                         SCOPE AND METHODOLOGY

We conducted the audit between March and August 2008. Our fieldwork was conducted at the
Authority’s main office located at 30 Olney Street, Taunton, Massachusetts. In addition, we
performed a sample of physical inspections of tenant units throughout the city of Taunton. Our
audit covered the period January 1, 2006, to December 31, 2007, and extended when necessary
to meet our objective. To accomplish our audit objective, we

   •   Interviewed the Authority’s executive director, finance director, fee accountant, and
       independent public accountant to determine policies and procedures to be tested;

   •   Reviewed the financial statements, general ledgers, and cost allocation plans as part of
       our testing for control weaknesses;

   •   Reviewed program requirements including federal laws and regulations, Office of
       Management and Budget circulars, the consolidated annual contributions contract
       between the Authority and HUD, and the Authority’s administrative plan to determine its
       compliance with applicable HUD procedures;

   •   For the period January 2006 through December 2007, developed an Excel spreadsheet by
       month(s) that provides (1) amount of advances to federal/state programs, (2) amount of
       interfund receivables, (3) amount of interfund payables, and (4) disbursements made
       against these accounts to determine whether monthly adjustments were made to the
       interprogram accounts.

   •   For the period January 2006 through December 2007, reviewed the Authority’s
       accounting controls over cost allocations and interprogram borrowing to determine
       whether the Authority had accounting controls in place to safeguard its assets; and

   •   Summarized the results of our analyses.


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




                                                 7
                             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:

               •    Controls over expenditures to ensure that they were eligible, necessary, and
                    reasonable and
               •    Controls over accounting for cost allocations and interprogram receivables and
                    payables.


              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:

              •      Control over accounting for interprogram receivables and payables (see
                      finding 1).




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                                   APPENDIXES

Appendix A

                SCHEDULE OF QUESTIONED COSTS

                    Recommendation number                    Unsupported 1/

                             1A                                    $593,418


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.




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Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         10
                        OIG Evaluation of Auditee Comments

Comment 1   The Authority agreed with our audit and recommendations. The Authority has
            taken steps to correct the deficiency and plans to work with HUD on the
            corrective action needed to resolve the recommendations.




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Appendix C

               SCHEDULE OF INTERPROGRAM FUNDS 2006 -2007




Fiscal year              Federal programs                           State programs2                Average
  ending                                                                                            total
                   17C       Section 8      Mobility    201A       State      4001       Other
                                                                   Mod                    State
    Dec. 31,     $189,784   $-106,375       $ 3,734    $28,017   $348,675   $-232,803   $ 59,477   $290,509
     2006
    Dec. 31,     $ 86,743   $- 37,345       $ 3,734    $29,221   $ 69,829   $ 56,684    $ 94,043   $302,909
     2007
     Totals                                                                                        $593,418




2
    State Programs Other (689-1, MRVP, 689-2 Development, Transitional, and SRO).

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Appendix D

    SELECTED CRITERIA FOR THE VOUCHER PROGRAM


Low Rent Consolidated Annual Contributions Contract

   • Section 9(C) states, “the HA [housing authority] shall maintain records that identify the
   source and application of funds in such a manner as to allow HUD to determine that all funds
   are and have been expended in accordance with each specific program regulation and
   requirement. The HA may withdraw funds from the general fund only for: (1) the payment
   of costs of development and operations of the project under the Annual Contributions
   Contract with HUD; (2) the purchase of investment securities as approved by HUD; and (3)
   such other purposes may not be made for specific program in excess of funds available on
   deposit for that program.”

   • Section 10(C), states, “the HA shall not withdraw from any of the funds or accounts
   authorized amounts for the projects under the Annual Contributions Contract, or for the other
   projects or enterprises in excess of the amount then on deposit in respect thereto.”




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