oversight

The Housing Authority of Travis County, Austin, Texas, Could Not Adequately Account For or Support Its Use of Federal Program Funds

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-08-17.

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

                                                                 Issue Date
                                                                          August 17, 2009
                                                                 Audit Report Number
                                                                          2009-FW-1015




TO:         David Pohler, Director, Office of Public Housing, 6JPH

            Henry S. Czauski, Acting Director, Departmental Enforcement Center, CV
            //signed//
FROM:       Gerald R. Kirkland
            Regional Inspector General for Audit, Fort Worth Region, 6AGA

SUBJECT: The Housing Authority of Travis County, Austin, Texas, Could Not Adequately
         Account For or Support Its Use of Federal Program Funds


                                   HIGHLIGHTS

 What We Audited and Why

             We audited the Housing Authority of Travis County (Authority) due to several
             problem indicators including the U. S. Department of Housing and Urban
             Development’s (HUD) rejecting the Authority’s 2005 and 2006 audited financial
             statements and noting that the Authority’s 2007 financial statements contained
             $4.1 million in interprogram transfers and a negative $579,783 administrative fee
             reserve. Further, the Authority’s related entities recently developed three new
             properties. Our objectives were to determine (1) whether the Authority and/or its
             related entities followed HUD procurement regulations for nonprofit development
             or procurement activities, if required, and (2) whether the Authority used federal
             funds only for eligible program activities.

 What We Found

             The Authority did not use HUD funding for its new developments and was not
             required to follow HUD procurement regulations for them. However, in violation
                 of its annual contributions contract and federal regulations,1 the Authority could
                 not adequately account for its use of federal program funds or support that it used
                 program funds only for eligible program activities. Specifically, the Authority
                 haphazardly transferred more than $2.5 million between its federal and nonfederal
                 programs and activities without proper support or justification. Further, its books
                 and records were not auditable, and it did not properly allocate costs. Limited
                 testing also showed that it could not support more than $600,000 in costs charged
                 to federal programs, spent more than $3,000 on ineligible costs, and did not
                 always follow procurement requirements. These violations occurred because the
                 Authority disregarded HUD requirements in order to keep its programs
                 functioning and lacked financial controls. Consequently, HUD did not have a true
                 understanding of the Authority’s financial position, which was deteriorating.

    What We Recommend


                 We recommend that the Director of HUD’s San Antonio Office of Public Housing
                 require the Authority to (1) correct its books and records; (2) hire an outside
                 accounting firm to perform a comprehensive review of the $2.5 million in
                 transfers; (3) provide support for or repay the $600,000 in unsupported costs; (4)
                 repay the $3,084 in ineligible costs; and (5) develop policies, procedures, and
                 controls to ensure that federal funds are only used for eligible program activities
                 and that interprogram balances are reconciled and paid in a timely manner. We
                 also recommend that the Acting Director, Departmental Enforcement Center, take
                 appropriate administrative actions against Authority officials, as applicable.

                 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

                 On July 1, 2009, we provided a draft report to the Authority with written
                 comments due by July 20, 2009. We extended the response date to July 27, 2009.
                 The Authority’s former executive director, who resigned effective July 31, 2009,
                 provided written comments on July 27, 2009. The chairman of the board of
                 commissioners (board chairman) provided comments on July 30, 2009. The
                 Authority generally disagreed with the report. The board chairman generally
                 agreed with the report. The Authority’s board of commissioners is responsible for
                 the agency’s operations. The complete text of both responses, along with our
                 evaluation of them, can be found in appendix B of this report. We did not include
                 voluminous documents provided by the former executive director but will make
                 them available upon request.
1
     24 CFR (Code of Federal Regulations) Parts 982 and 85.

                                                       2
                            TABLE OF CONTENTS

Background and Objectives                                                            4

Results of Audit
      Finding:   The Authority Could Not Adequately Account For or Support Its Use   5
                 of Federal Program Funds

Scope and Methodology                                                                13

Internal Controls                                                                    15

Appendixes
   A. Schedule of Questioned Costs                                                   16
   B. Auditee Comments and OIG’s Evaluation                                          17
   C. Schedule of Interprogram Balances                                              47




                                            3
                         BACKGROUND AND OBJECTIVES

The Housing Authority of Travis County (Authority) is governed by a five-member board of
commissioners appointed by the county commissioners. It is an independent, government-funded
agency charged with the responsibility of providing an adequate supply of low income housing
to help meet the housing needs of the residents of Travis County, Texas. The Authority exists to
provide safe, decent, and sanitary housing for low income families in Travis County. It also
administers and receives grant funds from the U. S. Department of Housing and Urban
Development (HUD) for the benefit of low income persons. The Authority administers a low rent
public housing program consisting of 105 units, a Housing Choice Voucher program with 564 units,
and a Disaster Housing Assistance Program with approximately 16 vouchers. In addition, the
Authority administers Shelter Plus Care grants2 and a Public Housing Capital Fund (Capital Fund)
grant received from HUD each year. For fiscal year 2007, HUD awarded the Authority more than
$5.8 million.

HUD expressed concern over the Authority’s financial status when it rejected the Authority’s
fiscal years 2005 and 2006 audited financial statements and when it flagged in 2005 and froze in
2007 grant drawdowns for the Shelter Plus Care grants. HUD’s Real Estate Assessment Center
performed a quality control review of the fiscal year 2006 independent auditor’s work papers and
noted several deficiencies in the Authority’s operations. The Authority’s fiscal year 2007
audited financial statements cited $4.1 million in interprogram transfers and a negative $579,783
administrative fee reserve. Further, shortly after our audit started, HUD formally designated the
Authority as “Troubled,” based on the Authority’s Public Housing Assessment System
designation, after it received and approved the Authority’s fiscal year 2007 audited financial
statements in 2008.

The Authority operates three related entities. Strategic Housing Finance Corporation qualifies as
an instrumentality under Texas law but does not meet the four indications of control set forth in
HUD Public and Indian Housing (PIH) Notice 07-15. Strategic Housing Finance Corporation
was recently involved in the development of three new properties. Travis County Development
Corporation and Travis County Facilities Corporation however do meet the four indications of
control and are considered to be instrumentalities of the Authority.

The Authority’s executive director during our audit, Wiley Hopkins, tendered his resignation on
June 23, 2009, effective September 1, 2009. However, the board of commissioners accepted his
resignation effective July 31, 2009.

Our objectives were to determine (1) whether the Authority and/or its related entities followed
HUD procurement regulations for development or procurement activities, if required, and (2)
whether the Authority used federal funds only for eligible program activities.




2
    These grants provide assistance to homeless persons for 67 units.

                                                         4
                                       RESULTS OF AUDIT

Finding:          The Authority Could Not Adequately Account For or
                  Support Its Use of Federal Program Funds
In violation of its annual contributions contract (ACC) and federal regulations,3 the Authority
could not adequately account for its use of federal program funds or support that it used program
funds only for eligible program activities. These violations occurred because the Authority
disregarded HUD requirements in order to keep its programs functioning and lacked financial
controls. Consequently, the Authority haphazardly transferred funds totaling more than $2.5
million between its federal and nonfederal programs and activities without proper support or
justification, its books and records were not auditable, it did not properly allocate costs, it could
not support more than $600,000, it spent more than $3,000 on other ineligible costs, and it did
not always follow procurement requirements. As a result, HUD did not have a true
understanding of the Authority’s financial position, which was deteriorating.




    The Authority Improperly
    Transferred Funds between
    Programs

                  The Authority haphazardly transferred funds totaling more than $2.5 million
                  between its federal and nonfederal programs and activities without proper support or
                  justification. The resulting interfund balances consisted of more than $1.3 million4
                  owed to HUD programs, $830,221 owed to non-HUD programs by HUD programs,
                  $108,221 in potentially unrecorded receivables (discussed later in this finding), and a
                  $205,560 payable between the Capital Fund and the Housing Choice Voucher
                  program that was improperly written off (discussed later in this finding).

                  According to the Authority’s fiscal year 2007 general ledger, HUD program
                  receivables totaled more than $1.2 million. This balance included $732,421 owed to
                  HUD programs from non-HUD programs and $554,317 owed to HUD programs
                  from other HUD programs.5 A limited review of the fiscal year 2008 general
                  ledger6 found an additional $87,000 transferred from the Authority’s Housing
                  Choice Voucher savings account to other HUD and non-HUD programs. HUD
                  payables to non-HUD programs totaled $830,221. The transfers were improper
3
     24 CFR Parts 982 and 85.
4
     This includes $1,286,738 according to the fiscal year 2007 general ledger and an additional $87,000 noted in the
     fiscal year 2008 general ledger.
5
     Title 42 U.S.C. (United States Code) 1437(g), chapter 8, subchapter I, allows public housing agencies with less
     than 250 units that are not designated as “Troubled” to commingle their capital and low-rent funds. Therefore,
     we did not include receivables between the low-rent and Capital Fund programs in our calculations or analyses.
6
     At the time of the review, the fiscal year 2008 independent audit was not completed.

                                                          5
            because according to the ACC, program funds are not fungible, and the Authority
            should not withdraw funds for a specific program in excess of the funds available on
            deposit for that program. In addition, Office of Management and Budget (OMB)
            Circular A-87 states that any cost allocable to a particular federal award or cost
            objective may not be charged to other federal awards to overcome fund deficiencies,
            to avoid restrictions imposed by law or terms of the federal awards, or for other
            reasons. The Authority was aware that HUD regulations do not allow the
            commingling of funds. However, the Authority claimed that it disregarded HUD
            requirements in order to keep the programs functioning.

The Authority Made Transfers
in a Haphazard Manner

            The Authority made the improper transfers in a haphazard manner. For example, it
            did not maintain a subsidiary ledger for its different voucher-related subsidies,
            including its Disaster Housing Assistance Program, Housing Choice Voucher
            assistance, Housing Choice Voucher administrative fees, and Shelter Plus Care
            assistance. Instead, it combined all of the revenue for these forms of assistance into
            one bank account, but it did not track how much each program had available in
            funds as expenses were paid. It also did not maintain a subsidiary ledger for the
            different years of its Capital Fund grant, which could also result in problems because
            the Authority may not be able to properly differentiate to which grant year to charge
            expenses. In addition, the Authority used equity accounts in the general ledger to
            make the programs show liquidity and balance at year end. The Authority also made
            adjustments to the general ledger based on calculations from a HUD system after it
            entered unaudited data rather than attempting to determine why the Authority’s data
            and HUD’s information did not match.

The Authority Intentionally
Used HUD Funds for Ineligible
and Unsupported Activities


            To keep its various programs operating, the Authority admitted that it disregarded
            HUD’s requirements and made improper transfers. For example, in 2007, HUD’s
            Office of Community Planning and Development froze the Authority’s Shelter
            Plus Care grant due to issues with the Authority’s accounting for the funds. The
            Authority used its Housing Choice Voucher funds to keep the Shelter Plus Care
            program operating although it knew this was a prohibited use of Housing Choice
            Voucher funds.

            Other examples of the Authority’s failure to follow OMB Circular A-87 and its
            ineligible uses of HUD funds were clearly visible in the fiscal year 2007 general
            ledger. The low rent public housing program owed the Housing Choice Voucher



                                              6
                   program; Carson Creek,7 Travis County Facilities Corporation,8 and the
                   lease/purchase program9 all owed the Housing Choice Voucher program; the
                   Shelter Plus Care program owed the low rent public housing program and the
                   Housing Choice Voucher program; Manor Town Apartments,10 Travis County
                   Facilities Corporation, and the lease/purchase program all owed the low rent
                   public housing program; family self-sufficiency funds were transferred to
                   Sweetwater Apartments;11 and the general fund owed the Shelter Plus Care
                   program. Appendix C represents a schedule of the interfund balances recorded in
                   the general ledger.

     The Authority Made Transfers
     without Proper Support or
     Justification

                   The Authority’s records did not show that transfers between the programs were
                   valid, supported, or justified. For example, a stratified variable sample of 166
                   general ledger transactions, from 302 transactions in the interprogram balance
                   accounts, was selected to determine the validity of the payables balances.
                   However, the Authority was only able to provide supporting documentation for
                   four of the sample items, and the documentation for those items was voluminous.
                   Two of the four transactions had sufficient support, and two were unsupported.
                   Further, the support used for one of the unsupported items consisted of prior
                   period costs dating as far back as 2002 to support the 2007 payable transaction.

                   In addition, the Authority’s 2007 general ledger showed an $83,925 payable from
                   the low rent fund to the Capital Fund. However, HUD regulations12 allow public
                   housing agencies with less than 250 units that are not designated as “Troubled” to
                   commingle their capital and low rent funds. Therefore, the Authority should not
                   have recorded any payables or receivables between the low rent and Capital Fund.
                   This improper payable balance occurred because the Authority was not familiar
                   with HUD requirements.

                   Testing of payments in 2007 to five different vendors disclosed that the Authority
                   was inconsistent in tracking its interfund receivables. For example, if a HUD
                   program paid an expense on behalf of another program, the Authority did not
                   always record the HUD program receivable in the general ledger. The Authority
                   claimed that it netted the payments at month end because it was too cumbersome
                   to record all of the transactions as they occurred. However, limited testing
                   showed several incidents in which the HUD program receivable was not recorded.

7
      Private property owned by the Authority that was sold in October 2007.
8
      Instrumentality of the Authority.
9
      Housing program operated by the Authority but not HUD funded.
10
      Private property owned by the Authority.
11
      Private property owned by the Authority.
12
      Title 42 U.S.C. 1437(g), chapter 8, subchapter I.

                                                         7
                   The Authority paid at least $108,221 in nonprogram expenses with HUD funds,
                   but the amounts may not have been recorded as HUD program receivables.

     The Authority’s Books and
     Records were Unauditable

                   Because the Authority was not able to provide supporting documentation for the
                   166 sample items, its program payables and receivables amounts could not be
                   verified, and the amounts did not appear to be valid, supported, or justified.
                   Further, the Authority’s check writing system did not interface with its accounting
                   system, which resulted in an increased possibility of errors. The Authority also
                   did not implement controls over its fee accountant to ensure that transactions were
                   recorded properly, and instances were noted in which transactions appeared to
                   have been recorded improperly. In addition, the Authority could not support
                   $476,572 in salary expenses paid with various HUD funds because it did not
                   require staff to track activity as required by OMB Circular A-8713 until fiscal year
                   2008. As a result, the Authority was unable to support whether the salary costs
                   charged to HUD programs were reasonable. These conditions affected both HUD
                   program and nonprogram interfund payables and receivables, expenses, and
                   disbursements. As a result, the Authority’s books and records were unauditable.

     The Authority’s Corrective
     Actions Did Not Prevent
     Ineligible and Unsupported
     Costs

                   The Authority stated that it took corrective action during fiscal year 2007 to
                   correct deficiencies noted in the Real Estate Assessment Center quality assurance
                   review and the fiscal year 2006 independent financial statement audit. However,
                   the Authority’s actions were not sufficient to prevent additional ineligible and
                   unsupported costs from being paid by HUD programs.

                   The Real Estate Assessment Center quality assurance review cited the Authority
                   for not using competitive procurement procedures14 when it executed a contract
                   for landscaping services. The Authority still cannot provide support that it
                   followed competitive pricing requirements for expenses paid to the contractor
                   during fiscal year 2007. In addition, the Authority could not provide a copy of
                   the contract. As a result, the Authority paid $107,136 in unsupported contract
                   costs with low rent funds.


13
      OMB Circular A-87, attachment B, section 8(h), states that there should be supporting documentation to justify
      why salaries are allocated in the manner in which they are allocated.
14
      Title 24 U.S.C. Part 85, section 36(c)(1), requires all procurement transactions be conducted in a manner
      providing full and open competition.

                                                          8
                    In the fiscal year 2006 independent financial statement audit, the auditors noted
                    that the Authority reimbursed board of commissioner members for travel
                    expenses without appropriate documentation. To ensure that the
                    recommendations had been implemented, we tested fiscal year 2008 travel
                    expenses.15 While the Authority implemented specific recommendations related
                    to travel expenses, some of the commissioners’ meal expenses were excessive and
                    included costs for a travel companion, which was in direct violation of the
                    Authority’s travel policy.16 The Authority stated that if it paid for travel
                    companions, it must have been an oversight, and it provided support that those
                    commissioners reimbursed the Authority for travel companions’ air travel.
                    However, costs for companions’ meals were not reimbursed. Further, the
                    Authority allocated 100 percent of the commissioners’ travel expenses to the
                    Section 8 program without justification.

                    The Authority also allocated almost all additional administrative costs charged to
                    its credit card (including food for board meetings, emergency lights for the
                    administration building, background checks for new and recently promoted
                    employees, etc.) solely to the Section 8 program without justification. These
                    ineligible and unsupported costs occurred because the Authority did not have an
                    effective cost allocation plan and its financial controls over disbursements were
                    weak, vague, and outdated. For example, the Authority’s check signing policy
                    requires two signatures for nonroutine expenditures over $5,000. However, we
                    found checks for more than $7,000 written to the Authority’s credit card with only
                    one signature. The Authority claimed that credit card payments were considered
                    routine. Although the credit card payments may have been routine disbursements,
                    these payments were more than $5,000, and the charges on the credit card
                    statements included nonroutine expenses, such as commissioners’ flight
                    reservations and emergency lights for the administration building. Further, the
                    Authority admitted to HUD that its check signing policy was outdated. Of the
                    $41,895 in travel and credit card expenses reviewed, $20,591 was unsupported,
                    and $3,084 was ineligible.


     HUD was Unaware of the
     Authority’s True Financial
     Position

                    HUD was unaware of the Authority’s true financial position as the Authority’s
                    financial statements were rejected by HUD for two consecutive years, and
                    although the fiscal year 2007 audit contained a qualified opinion on the
                    Authority’s major programs and a significant internal control deficiency, it did not
                    disclose a significant finding related to the Authority’s ineligible interprogram

15
       We tested 2008 travel expenses because commissioners did not travel during fiscal year 2007.
16
       The Authority’s travel policy states that commissioners are expected to exercise prudent care in incurring
       expenses, and travel costs incurred by individuals that are not employees or commissioners must have prior
       written approval by the executive director or a commissioner-approved written contract.

                                                           9
             transfers. Further, the Authority’s interprogram balances have been steadily
             increasing since at least 2002. Between 2002 and 2004, the interprogram
             balances increased from $327,571 to more than $1.2 million. By fiscal year 2007,
             the interprogram balances were more than $4.1 million.

             The Authority’s fiscal year 2007 audited financial statements submitted to HUD
             downplayed its financial problems. Although the independent audit reported
             more than $4.1 million in interprogram balances, it did not report findings
             regarding the ineligible use of HUD funds. However, the independent auditor
             disclosed in the management letter to the Authority that the Authority appeared to
             be using housing assistance funds for administrative expenses, which is an
             ineligible use of Section 8 funds, and it should have been reported as a finding.
             Further, Note K in the 2007 audited financial statements stated that the Authority
             wrote off $205,560 in “non-existent” payables between the Capital Fund and the
             Voucher program. However, the audit report did not report as a finding that the
             payable was the result of an ineligible use of Section 8 funds, nor did it require
             reimbursement of this ineligible payable from nonfederal funds. As a result, the
             Authority’s ineligible uses of Section 8 funds were not brought to HUD’s
             attention.


The Authority’s Financial
Position was Deteriorating


             The Authority’s lack of financial controls and its deliberate disregard for HUD
             requirements caused its financial position to deteriorate. According to the
             Authority’s financial records for its Section 8 administrative fee revenue, it spent
             $114,371 more than it received during fiscal year 2007, and it spent $123,196
             more than it received during fiscal year 2008. The Authority’s Section 8
             administrative fee reserve was a negative $579,783 in the fiscal year 2007 audited
             financial statements. The Authority stated that at the end of fiscal year 2008, it
             transferred equity between the accounts that had interfund balances and the
             negative administrative fee reserve balance was significantly reduced. However,
             this practice will not correct the underlying the problems. By moving equity,
             funds are not replaced or repaid, and the continual program cost overruns in
             excess of program revenues will not be corrected. As a result, the Authority’s
             entire operations are at risk as it has not taken sufficient action to ensure that its
             operating costs do not exceed its revenues.

Conclusion


             The Authority could not adequately account for its use of program funds or
             support that it used program funds only for eligible program activities. These
             violations occurred because the Authority disregarded HUD requirements in order

                                               10
          to keep its programs functioning and lacked financial controls. Consequently,
          HUD did not have a true understanding of the Authority’s financial position,
          which was deteriorating.

Recommendations



          We recommend that the Director of HUD’s San Antonio Office of Public Housing
          require the Authority to

          1A. Correct its books and records and maintain them in accordance with the
              ACC and other HUD requirements.

          1B. Hire an independent firm to perform a comprehensive review of the
              $1,373,738 recorded as HUD program receivables and the $830,221
              recorded as HUD program payables to determine the nature and validity of
              the balances, and require reimbursements or write offs where appropriate.

          1C. Develop policies and procedures, including subsidiary cash ledgers, to
              ensure that the program funds are only used for eligible program activities
              and that interprogram balances are paid in a timely manner.

          1D. Include the $83,925 low rent payable to the Capital Fund in the analysis
              recommended in recommendation 1B to determine its validity. If the
              balance is valid, require the Authority write off the balance since it was
              allowed to transfer capital funds to the low rent program.

          1E. Provide evidence to HUD that the $108,221 in potentially unrecorded
              receivables was recorded. If the Authority can show that the receivables
              were recorded, include the amount in the analysis recommended in
              recommendation 1B. If the Authority cannot show that the receivables were
              recorded, reimburse the appropriate programs from nonfederal funds.

          1F. Support with adequate documentation all of its payroll expenses charged to
              HUD programs during fiscal year 2007 or reimburse the HUD programs
              $476,572.

          1G. Reimburse $107,136 to the low rent fund from nonfederal funds for the
              unsupported contract costs.

          1H. Provide support for the $20,591 in unsupported travel and credit card
              allocations or reimburse the appropriate HUD funds from nonfederal
              sources.




                                          11
1I.   Reimburse $3,084 to the appropriate HUD funds for the ineligible travel and
      credit card allocations from nonfederal sources.

1J.   Implement an effective and logical cost allocation plan that is in compliance
      with HUD and OMB requirements.

1K. Reverse the inappropriate write off of the interfund balance between the
    Capital Fund and Section 8 totaling $205, 560 and include the amount in the
    analysis recommended in recommendation 1B. If the balance is found to be
    valid, reimburse the Section 8 fund from nonfederal funds for the ineligible
    loan to the Capital Fund.

1L. Suspend the Authority’s authorization to “pool its funds” as authorized
    under section 10 of the ACC and either require the Authority to segregate its
    ACC funds from other funds or suspend its authority to obtain advances
    from HUD’s Electronic Line Of Credit Control Subsystem and operate on a
    reimbursement basis.

We recommend that the Acting Director, Departmental Enforcement Center,

1M. Take appropriate administrative actions against the Authority’s former
    executive director and others, as applicable, that caused the conditions cited
    in this report.




                                 12
                         SCOPE AND METHODOLOGY

Our initial audit objectives were to determine (1) whether the Authority and/or its related entities
followed HUD procurement regulations for development or procurement activities, if required,
and (2) determine the amount of interprogram payables owed to each HUD program and whether
these transfers affected the family self-sufficiency program. However, as audit field work
progressed, we revised our objectives to determine (1) whether the Authority and/or its related
entities followed HUD procurement regulations for development or procurement activities, if
required, and (2) whether the Authority used federal funds only for eligible program activities.
To accomplish our objectives, we

           Reviewed background information for the Authority, including audited financial
           statements for fiscal years 2005-2007 and previous HUD reviews.
           Reviewed applicable HUD regulations and OMB circulars.
           Interviewed HUD Offices of Public and Indian Housing and Community Planning
           and Development management and staff.
           Interviewed Authority management and staff.
           Interviewed the Authority’s fee accountant.
           Reviewed the articles of incorporation and internal financing documents for the
           different related entities of the Authority.
           Tested the reliability of the computerized fiscal year 2007 general ledger provided by
           Authority staff, using Audit Command Language (ACL) and control totals provided
           by the Authority.
           Pulled a stratified variable sample of 166 transactions out of a universe of 302
           transactions representing HUD program payables. In addition, we added one
           transaction to the sample, the $205,560 payable in the Capital Fund account that was
           inappropriately written off (discussed in the finding), which increased the sample size
           to 167 transactions. Since the Authority only provided 4 of the 167 sample items, we
           ceased sampling and were not able to verify or project the results.
           Performed a limited review of the Section 8 accounts in the 2008 general ledger.
           Used ACL to sort and summarize the Authority’s financial data and determine the
           amount of HUD program receivables.
           Reviewed fiscal year 2007 payments to five vendors whose invoices were likely
           allocable among all Authority programs to determine whether the Authority
           consistently recorded interfund transactions when one program paid for an allocable
           cost.
           Reviewed 2007 salary expenses charged to HUD accounts.
           As a result of the fiscal year 2006 audit report, reviewed travel expenses incurred by
           members of the board of commissioners during fiscal year 2008 and additional costs
           charged to the Authority credit card when travel expenses were allocated, and the
           check exceeded $1,000.
           Reviewed payments to a landscaping services contractor as a result of the Real Estate
           Assessment Center quality assurance review.


                                                13
We conducted the audit between October 21, 2008, and April 23, 2009, at the HUD San Antonio
Field Office and the Authority offices in Austin, Texas. The Authority provided electronic
financial records for fiscal years 2006 through 2008. However, we expanded our review to prior
periods as necessary to accomplish our objectives. We verified the reliability of the data, using
control totals and comparative analysis to the audited financial statements, and found that we
received all of the data. We also found that the Authority did not always record its payables and
receivables and could not provide supporting documentation for transactions. Thus, we
determined that the Authority’s books and records were unauditable. However, we reported the
amounts of interfund receivables and payables in the Authority’s general ledger in our finding,
although those amounts may be unreliable as no other verifiable sources of information exist.
Therefore, the results of our testing of the interfund balances are based on the Authority’s
records. The results of our testing of travel and credit card expenses are based on our review of
source documentation, check vouchers, invoices, and bank records.

We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.




                                               14
                              INTERNAL CONTROLS

Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following controls are achieved:

       Program operations,
       Relevance and reliability of information,
       Compliance with applicable laws and regulations, and
       Safeguarding of assets and resources.

Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. They include the processes and procedures for planning,
organizing, directing, and controlling program operations as well as the systems for measuring,
reporting, and monitoring program performance.



 Relevant Internal Controls
              We determined that the following internal controls were relevant to our audit
              objectives:

                  Controls over compliance with laws and regulations,
                  Controls over disbursements, and
                  Controls over financial reporting.

              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 that the following items are significant weaknesses:

                  Controls over compliance with laws and regulations were ineffective or
                  nonexistent.
                  Controls over disbursements did not ensure that program funds were expended
                  for only reasonable and necessary expenses.
                  Controls over financial reporting did not ensure that expenses, receivables,
                  payables, and cash were recorded appropriately.



                                               15
                                               APPENDIXES

Appendix A

                     SCHEDULE OF QUESTIONED COSTS
                    AND FUNDS TO BE PUT TO BETTER USE

             Recommendation                       Ineligible 1/                Unsupported 2/
                    number

                              1B                                                    $2,203,959
                              1D                                                        83,925
                              1E                                                       108,221
                              1F                                                       476,572
                              1G                                                       107,136
                              1H                                                        20,591
                               1I                         3,084
                              1K                                                        205,560

                      TOTALS                            $3,084                      $3,205,964




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 the 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




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                         OIG Evaluation of Auditee Comments

Comment 1   The Authority stated that the fee accountant was not involved in the process of
            transferring funds between accounts and only recorded the transactions. After the
            exit conference, we notified the board chairman and the Authority that we would
            remove references to the fee accountant from the report as the Authority lacked a
            contract with and bore ultimate responsibility for the fee accountant. All
            references to the fee accountant have been removed from the body of the report.

Comment 2   The Authority disagreed that it used equity accounts to make programs show
            liquidity and balance during the year. However, the board chairman stated that
            the Authority staff failed to provide proof for their argument. We agree with the
            chairman and note that the Authority’s response included statements that refute
            their argument. The Authority stated in its response that it adjusted interfund
            transactions throughout the year to fund various program activities and it reduced
            and increased equity when it wrote off interfund balances. Further, the Authority
            stated in its discussion of interfund receivables and payables that it used up to 10
            bank accounts and transferred cash between programs to manage cash flow.

Comment 3   The Authority stated that it recorded interfund payables and receivables between
            the Capital Fund and Low Rent account in order to track expenditure information.
            We agree that the Authority can separately track expenditure information for
            these accounts. However, the Authority should not have created interfund
            payables and receivables between these accounts as any transfer of funds from the
            Capital Fund to the Low Rent fund is considered an eligible use of Capital Funds

Comment 4   The Authority stated the report totally misrepresented the facts by stating the
            Authority netted payments at month end because it was too time consuming to
            record all of the transactions as they occurred. The Authority further asserted that
            at no time was a HUD payable or receivable not recorded and it provided a March
            2007 report that it claimed would clear the issue. The board chairman stated that
            these are the sole opinions of the fee accountant and were not reviewed or
            discussed by key Authority staff. The board chairman requested the statements be
            nullified. We affirm our original testing and conclusions. The Authority’s
            accounting records did not support its claim that all payables and receivables were
            recorded. Further, the Authority’s response stated that it did not record
            interprogram receivables and payables at the time a check was posted because a
            check could have as many as 40 lines of entry or more. We revised the report to
            state that the Authority netted the payments at month end because it was too
            burdensome to record all of the transactions as they occurred.

Comment 5   The Authority stated that its books and records have been maintained in
            accordance with the ACC and other HUD requirements. The board chairman
            stated that these are the sole opinions of the fee accountant and were not reviewed
            by Authority staff. We disagree with the Authority. The Authority could not
            adequately account for its use of federal program funds or support that it used

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               program funds only for eligible program activities; and, thus, it violated its ACC
               and other HUD requirements.

Comment 6      The Authority agreed that HUD should require the Authority to hire an
               independent firm to perform a comprehensive review of the recorded HUD
               program receivables and payables. Further, the Authority had already solicited at
               least one proposal for the task. The board chairman stated that these statements
               were inaccurate. We assert that the Authority must hire a firm to perform a
               review to determine the nature and validity of the interprogram balances.

Comment 7      The Authority stated that it has taken steps toward corrective action, and
               established separate cash accounts, and will reimburse interprogram balances
               within 60 days. We acknowledge the Authority’s actions.

Comment 8      The Authority believed that its payroll allocations were adequate and accurate.
               However, the board chairman stated that the accounting issues will be corrected.
               We acknowledge the chairman’s statements.

Comment 9      The Authority stated that its response included documentation to support the fact
               that a request for proposal was undertaken and the $107,136 landscaping contract
               was awarded in accordance with HUD requirements. We disagree as there was no
               documentation regarding this contract in the Authority’s response.

Comment 10 The Authority stated that it submitted documentation to support the questioned
           travel and credit card allocations; and it disagreed with the ineligible costs as they
           were the result of a judgment call. The board chairman stated any ineligible costs
           will be reimbursed. We acknowledge the chairman’s statements.

Comment 11 The Authority disagreed with our recommendation to develop an effective cost
           allocation plan that is in compliance with HUD requirements because of the
           excessive cost to develop such a plan. The board chairman stated that the
           Authority is working with HUD to implement this recommendation. We
           acknowledge the chairman’s statements.

Comment 12 The Authority claimed that it already reversed the inappropriate write off between
           the Capital Fund and Section 8 and agreed that the Section 8 fund should be
           reimbursed from nonfederal funds. We acknowledge the Authority’s actions.

Comment 13 The Authority agreed that HUD should suspend its authorization to pool its funds
           and indicated it had already created separate bank accounts. The board chairman
           stated the Authority will work to be in compliance with the recommendation. We
           acknowledge the Authority’s and board chairman’s statements.

Comment 14 The Authority stated that it had done nothing wrong to warrant administrative
           actions against the former executive director and others. In addition, the
           Authority stated that it has “cancelled” interfund balances, reducing them to

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              approximately $2 million. The board chairman agreed that administrative action
              should be taken. We affirm our original recommendation. Further, we question
              the Authority’s cancellation of interprogram balances.

Comment 15 The Authority disagreed that it did not maintain a subsidiary ledger for various
           programs and that it combined all of the revenue for these forms of assistance into
           one bank account. The Authority claimed that there was a separate bank account
           and cost center for Shelter Plus Care and separate general ledger accounts for the
           Disaster Housing Assistance Program and Voucher payments. We disagree. The
           Authority did not provide evidence of a separate bank account for the Shelter Plus
           Care program. Regardless of separate general ledger accounts for recording
           income and expenses, the Authority admitted in an email that it did not have
           subsidiary ledgers to track the cash balances of the different funds.

Comment 16 The Authority claimed that it provided documentation to support all 167 sample
           items and stated it provided the documentation a second time in its response. We
           disagree. The Authority provided voluminous documentation to support only 4 of
           the 167 sample items during the field work and the box of documents provided
           with its response does not appear to include any new information.




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Appendix C

                   Schedule of Interprogram Balances

           FY 2007 HUD Program Receivables from Nonfederal Programs
                                                    Travis
                                                    County
                   Carson Bond                     Facilities    Lease/
                   Creek Program         Manor       Corp       Purchase     TOTAL
         Low                                                                   19,418
         Rent                            15,227         2,154       2,037
         Voucher 271,391                               71,612     171,366      514,369
         Shelter                                                               198,634
         Plus
         Care                  195,634                  3,000
         TOTAL                                                                 732,421


           FY 2007 HUD Program Receivables from other HUD Programs
                              Low Rent    Shelter Plus Capital              TOTAL
                                          Care/Family Fund
                                          Self
                                          Sufficiency
         Low Rent                                15,879                         15,879
         Voucher                  221,618       246,516      69,510            537,644
         Shelter Plus Care                          794                            794
         II
         TOTAL                                                                 554,317


TOTAL HUD RECEIVABLES FY 2007: $1,286,738

                             FY 2008 HUD Receivables Reviewed
                                                     Shelter Plus
                                                     Care/Family
                                     Sweetwater     Self Sufficiency        TOTAL
         Voucher                             20,000           67,000           87,000

TOTAL HUD RECEIVABLES FY 2007 AND 2008: $1,373,738




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    FY 2007 HUD Program Payables to Nonfederal Programs
                                               Strategic
                                               Housing
            Carson  Bond                       Finance
            Creek Program     Manor Sweetwater   Corp    TOTAL
Low Rent     19,184  86,155             37,004   14,452 156,795
Voucher             153,676   16,773   167,253 206,846 544,548
Shelter
Plus Care    5,500               100     56,609   1,128    63,337
Capital
Fund           250   58,370               6,355     566    65,541
TOTAL                                                     830,221




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