oversight

The Housing Authority of the County of Ventura, Payment-in-Lieu-of-Taxes Obligations

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-11-25.

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

                                                                  Issue Date
                                                                      November 25, 2008

                                                                  Audit Report Number
                                                                      2009-LA-1003




TO:         K.J. Brockington, Director, Los Angeles Office of Public Housing, 9DPH



FROM:       Joan S. Hobbs, Regional Inspector General for Audit, Region IX, 9DGA

SUBJECT: The Area Housing Authority of the County of Ventura, California, Did Not
         Comply with HUD Requirements In Its Annual Contributions Contract


                                   HIGHLIGHTS

 What We Audited and Why

      We audited the Area Housing Authority of the County of Ventura’s (Authority) Payment-
      in-Lieu-of-Taxes obligations for its Low Rent Public Housing program. We initiated the
      audit based on concerns over the Authority’s compliance with its annual contributions
      contract. Our audit objective was to determine whether the Authority fulfilled its
      Payment-in-Lieu-of-Taxes obligations for its Low Rent Public Housing program and if
      not, whether applicable funds were used in accordance with U.S. Department of Housing
      and Urban Development (HUD) requirements.

 What We Found


      The Authority disregarded its Low Rent Public Housing program’s Payment-in-Lieu-of-
      Taxes obligations to the County of Ventura (County), including the cities of Ojai,
      Moorpark, Camarillo and Thousand Oaks (Cities), contrary to its consolidated annual
      contributions contract and cooperation agreements. Without the required approval from
      the County, the Cities, and HUD, the Authority’s accounting records indicated that it
      stopped payment of its Payment-in-Lieu-of-Taxes obligations in 2001 and instead
      allocated $637,428 in reserves between 2001 and 2007, which it maintained in an interest
      bearing bank account. Additionally, although the Authority had not made an attempt to
     pay this obligated amount, it continued to report this obligation as an expense in its
     audited financial statements (except for 2004 and 2005). It also requested and received
     additional funding from HUD to make this Payment-in-Lieu-of-Taxes obligation as part
     of an additional expense incurred for calendar years 2007 and 2008 in the amount of
     $195,643. Further, despite not being paid, the County and the Cities have continued to
     provide public services and facilities for the Authority’s Low Rent Public Housing
     program units.

What We Recommend


     We recommend that HUD require the Authority to comply with HUD’s requirements
     regarding the use of Payment-in-Lieu-of-Taxes funds with the County and the Cities by
     settling its Payment-in-Lieu-of-Taxes obligations to the County in the amount of
     $637,428 or reimburse HUD $736,315.

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


Auditee’s Response


     We provided the Authority a discussion draft report on October 17, 2008, and held an
     exit conference with the Authority’s officials on October 23, 2008. The Authority
     provided written comments on November 13, 2008, and generally disagreed with our
     findings.

     The complete text of the auditee’s response, along with our evaluation of that response,
     can be found in appendix B of this report.




                                             2
                            TABLE OF CONTENTS

Background and Objectives                                                            4

Results of Audit
      Finding 1: The Authority Disregarded Its Payment-in-Lieu-of-Taxes Obligation   5

Scope and Methodology                                                                8

Internal Controls                                                                    9

Appendixes
   A. Schedule of Funds to Be Put to Better Use                                      10
   B. Auditee Comments and OIG’s Evaluation                                          11
   C. Criteria                                                                       22




                                            3
                     BACKGROUND AND OBJECTIVES

The Area Housing Authority of the County of Ventura (Authority) is an independent, nonprofit
agency serving the unincorporated areas of Ventura County and the cities of Camarillo, Fillmore,
Moorpark, Ojai, Simi Valley, and Thousand Oaks. It is governed by a locally appointed board of
15 commissioners, appointed by each jurisdiction.

The Authority administers the U.S. Department of Housing and Urban Development (HUD)-
funded Low Rent Public Housing and Section 8 Housing Choice Voucher programs. It owns,
manages, and maintains 355 housing units within its Low Rent Public Housing program. It was
awarded $702,325 under the Low Rent Public Housing program, $23,146,722 under the Housing
Choice Voucher program, and $459,914 under the Public Housing Capital Fund program for
fiscal year 2007.

We initiated the audit over concerns that the Authority may not have been in compliance with its
annual contributions contract, specifically its Payment-in-Lieu-of-Taxes obligations. Our
objective was to determine whether the Authority fulfilled its Payment-in-Lieu-of-Taxes
obligations for its Low Rent Public Housing program and if not, whether applicable funds were
used in accordance with HUD requirements.




                                               4
                                RESULTS OF AUDIT

Finding 1: The Authority Disregarded Its Payment-in-Lieu-of-Taxes
Obligation

The Authority disregarded its Payment-in-Lieu-of-Taxes obligation contrary to its consolidated
annual contributions contract and cooperation agreement requirements. It also continued to
report its Payment-in-Lieu-of-Taxes obligations as an expense in its audited financial statements
and financial submissions to HUD. Authority management disregarded HUD regulations and
agreements due to concerns over funding. It also continued to inaccurately report Payment-in-
Lieu-of-Taxes expenses. As a result, the Authority received HUD funding for the operation of
its Low Rent Public Housing program that it did not expend for the continued operation of that
program, thus obligating HUD funds which could have been used to subsidize additional housing
expenses.



 Payment-in-Lieu-of-Taxes
 Obligation Requirements Were
 Ignored


       In May 2002, the Authority determined that it would no longer pay its Payment-in-Lieu-
       of-Taxes obligation to the County of Ventura (County), including its cities of Ojai,
       Moorpark, Camarillo and Thousand Oaks (Cities). The Authority claimed that due to
       many new restrictions and requirements regarding its operations imposed by HUD, along
       with reduced funding, its ability to maintain its program would face uncertainty if its
       Payment-in-Lieu-of-Taxes obligation was paid. However, the County requested that the
       Authority reconsider its position as the County also had continuing and increasing
       financial obligations, which could only be met if all of its partners met their
       commitments. No agreement was reached between the County and the Authority on the
       waiver of the Payment-in-Lieu-of-Taxes obligation in question. The County has also
       continued to provide public services and facilities for the Authority’s Low Rent Public
       Housing program units, despite not being paid.

       Further, the Authority had not requested or received written approval from HUD for the
       amendment of its cooperation agreements as required in its annual contributions contract.
       Therefore, it ignored both its cooperation agreements with the County, its Cities, and its
       annual contributions contract (see appendix C).




                                               5
The Payment-in-Lieu-of-Taxes
Obligation Was Used to
Determine Operating Subsidy



     The Authority’s Low Rent Public Housing program operating subsidy funding was
     determined by including a Payment-in-Lieu-of-Taxes expense in its calculation. The
     Authority reported an expense for Payment-in-Lieu-of-Taxes in the amount of $96,756
     for fiscal year 2007, $95,891 for fiscal year 2006, and $87,800 for fiscal year 2003 in its
     financial submissions to HUD. Therefore, it incorrectly certified that it incurred
     $280,447 in Payment-in-Lieu-of-Taxes expenses in its electronic filing of financial
     information to HUD’s Real Estate Assessment Center system.

     Further, it accrued the following Payment-in-Lieu-of-Taxes expenses for fiscal years
     2001 through 2007:


                       Fiscal year                 Payment-in-Lieu-of-Taxes
                         ending                       due to the County
                      June 30, 2001                                   $85,746
                      June 30, 2002                                    87,294
                      June 30, 2003                                    87,800
                      June 30, 2004                                    91,246
                      June 30, 2005                                    92,695
                      June 30, 2006                                    95,891
                      June 30, 2007                                    96,756
                          Total                                      $637,428

     None of the amounts were paid to the County or the Cities. Moreover, although the
     Authority accrued these amounts in its accounting records, it wrote the amounts off its
     books, leaving no accrued liability to the County or the Cities for its Payment-in-Lieu-of-
     Taxes obligations. This action was taken upon at the direction of Authority management
     as the Authority had no intention of fulfilling it Payment-in-Lieu-of-Taxes obligations.
     However, as the Authority did not seek or receive the approval from the County or HUD
     for the waiver of its Payment-in-Lieu-of-Taxes obligation, it remained liable for
     $637,428 in Payment-in-Lieu-of-Taxes fees to the County and the Cities. Nevertheless,
     the Authority had been accruing this obligation in an interest bearing bank account.

     For the calculation of the Authority’s Low Rent Public Housing program’s operating
     subsidy for the years 2001 through 2006, a Payments-in-Lieu-of-Taxes expense was
     included in computing its allowable expense level for the calculation of its yearly
     operating subsidy. For calendar year 2007, the Authority requested and received
     additional funding in the amount of $98,887 as an additional expense. The Authority
     requested additional funding for its 2008 calendar year operating subsidy request, which
     had not been finalized, yet had been distributed to the Authority in the amount of


                                              6
         $96,756. HUD provided additional funding for calendar years 2007 and 2008 for the
         Payment-in-Lieu-of-Taxes expense for the Low Rent Public Housing program’s
         operating subsidy. Thus, the Authority received HUD funding for the operation of its
         Low Rent Public Housing program that it had not expended for the continued operation
         of the program. As a result, the Authority received funding from HUD for Payment-in-
         Lieu-of-Taxes obligations that it had not met or otherwise spent on the operation of the
         Low Rent Public Housing program.


    Conclusion


         The Authority disregarded its Payment-in-Lieu-of-Taxes obligations and requirements for
         fiscal years 2001 through 2008. Since this obligation was used to determine the
         Authority’s operating subsidy, it was not only essential but required that HUD be notified
         of any amendments made to the Authority’s cooperation agreements. Instead, the
         Authority ceased all Payment-in-Lieu-of-Taxes payments and continued to report and
         request funding for its Payment-in-Lieu-of-Taxes obligations. As a result, it incorrectly
         certified that it had submitted accurate and complete financial data to HUD.
         Consequently, the Authority received HUD funding for the operation of its Low Rent
         Public Housing program that it did not expend for the continued operation of that
         program, thus obligating HUD funds which could have been used to subsidize additional
         housing expenses.

    Recommendations



         We recommend that the Director of the Los Angeles Office of Public Housing

         1A. Require the Authority to comply with the annual contributions contract and
             cooperation agreements with the County and the Cities by either settling its
             Payment-in-Lieu-of-Taxes obligations to the County and the Cities in the amount of
             $637,428 or reimbursing HUD $736,3151 for funding provided for years 2001
             through 2008.




1
 $637,428 includes a Payment-in-Lieu-of-Taxes obligation for the fiscal year ending June 30, 2007, in the amount
of $96,756. However, the Authority requested $98,887 for the calendar year ending December 31, 2007; therefore,
we adjusted the total amount due to the County and HUD in the amount of $2,131 to reflect actual funding provided
by HUD. The Authority also requested $96,756 from HUD to pay its Payment-in-Lieu-of-Taxes obligation for the
calendar year ending December 31, 2008.


                                                        7
                        SCOPE AND METHODOLOGY

We performed our on-site audit work from June 9 through July 8, 2008, at the Authority located
in Newbury, California. The audit generally covered the period July 2003 through June 2008.
We expanded our scope when necessary.

To accomplish our objectives, we

              Reviewed applicable HUD regulations at 24 CFR [Code of Federal Regulations]
              Parts 982 and 990, HUD’s Program Accounting Handbook 7420.6, and HUD’s
              Low-Rent Technical Guide 7510.1G.

              Obtained an understanding of the Authority’s procedures, including its controls to
              ensure that it paid its Payment-in-Lieu-of-Taxes obligation.

              Reviewed HUD’s Los Angeles Office of Public and Indian Housing files relating
              to the Authority’s operating subsidy funding.

              Reviewed the Authority’s independent public accountant reports for fiscal years
              2003 through 2007.

              Interviewed Authority finance personnel to acquire an understanding of the
              Authority’s financial operations, practices, tracking, and controls.

              Reviewed the Authority’s annual contributions contract and cooperation
              agreement to determine Payment-in-Lieu-of-Taxes obligations and requirements.

              Reviewed communication between the Authority and the County to determine
              whether the Authority’s Payment-in-Lieu-of-Taxes obligations were properly
              administered.

              Reviewed bank statements, check registers, cash journal, and supporting
              documentation related to the accrual and payment of Payment-In-Lieu-of-Taxes
              for years 2001 through 2008.

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




                                               8
                              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:

                   Policies, procedures, and accounting controls that management has
                   implemented to ensure compliance with its Payment-in-Lieu-of-Taxes
                   obligation.

                   Policies and procedures that management has implemented to ensure
                   accurate, current, and complete disclosure of financial results.

       We assessed the relevant controls identified above.

       A significant weakness exists if management controls do not provide reasonable assurance
       that the process for planning, organizing, directing, and controlling program operations will
       meet the organization’s objectives.


 Significant Weaknesses


       Based on our review, we believe the following item is a significant weakness:

                   The Authority did not have sufficient controls in place to ensure that it paid
                   its Payment-in-Lieu-of-Taxes obligation in accordance with applicable laws
                   and regulations (see finding 1).




                                                 9
                                           APPENDIXES

Appendix A

         SCHEDULE OF FUNDS TO BE PUT TO BETTER USE

                 Recommendation number                  Funds to be put to better use 1/
                            1A                                     $736,3152



1/      Recommendations that funds be put to better use are quantifiable savings that are
        anticipated to occur if an Office of Inspector General (OIG) recommendation is
        implemented. This includes reductions in outlays, deobligation of funds, withdrawal of
        interest subsidy costs not incurred by implementing recommended improvements,
        avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
        which are specifically identified. In this instance, if HUD implements our
        recommendation, $736,315 in Low Rent Public Housing funds the Authority received
        from HUD to be used for its Payment-in-Lieu-of-Taxes obligations would be put to better
        use by allowing HUD to recapture the funds rather than allowing the funds to sit idle in a
        bank account.




2
 $637,428 includes a Payment-in-Lieu-of-Taxes obligation for the fiscal year ending June 30, 2007, in the amount
of $96,756. However, the Authority requested $98,887 for the calendar year ending December 31, 2007; therefore,
we adjusted the total amount due to the County and HUD to $2,131 to reflect actual funding provided by HUD. The
Authority also requested $96,756 from HUD to pay its Payment-in-Lieu-of-Taxes obligation for the calendar year
ending December 31, 2008.


                                                      10
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         11
12
Comment 1




Comment 2




            13
Comment 3


Comment 4


Comment 1




Comment 4




Comment 5




            14
Comment 1
Comment 3




Comment 1

Comment 3
Comment 5



Comment 6




            15
Comment 7




            16
Comment 8




            17
                         OIG Evaluation of Auditee Comments

Comment 1   We disagree that the Authority complied with applicable laws and agreements.
            The Authority passed a resolution contrary to the provisions of its cooperation
            agreement(s) requirements and annual contributions contract with HUD.
            Although Section 34401 of the California Health and Safety Code states that an
            Authority is exempt from taxes and “may agree to make payments to any city,
            county, or political subdivision of the State for services,” the Authority is also
            subject to its annual contributions contract with HUD. Section 6 of the contract
            stipulates that the Authority will “perform and comply with all applicable
            provisions of the Cooperation Agreement(s), in the form prescribed by HUD,
            including the making of payments in lieu of taxes.” In our opinion, the term “may
            agree” indicates that the Authority has the opportunity to enter into such
            cooperative agreements with its jurisdictions, not whether it has the option to
            actually make the payments after entering into the agreement. Additionally, the
            Authority has entered into cooperation agreements with its respective jurisdictions
            and has not provided any amendments thereof. HUD entered into an agreement
            with the Authority and provided funding for the intent of paying Payment-In-
            Lieu-Of-Taxes obligations, but the Authority chose not to make the payments.
            Therefore, the Authority is not in compliance with its annual contributions
            contract with HUD and its cooperation agreements with its respective
            jurisdictions. We also noted that at no time did the Authority approach HUD and
            either inform HUD that it was no longer going to make payments, or obtain a
            written waiver or approval to do so.

Comment 2   The Authority’s Executive Director is responsible for the Authority’s compliance
            with the Annual Contributions Contract with HUD. If the amount of the HUD
            subsidy left the Authority in a position in which it was unable to fully comply
            with the Annual Contributions Contract, the Executive Director should have
            sought guidance from HUD and/or written approval to discontinue making the
            agreed upon payments.

Comment 3   The Authority did not provide any documentation outlining the verbal agreement
            with its respective jurisdictions for the approval to withhold its Payment-In-Lieu-
            Of-Taxes obligations. In our opinion, this does not make sense that the
            jurisdictions would agree to continue providing services, but not expect to be
            paid. Additionally, correspondence between the Authority and the County of
            Ventura, one of its jurisdictions, shows there was never an agreement made for
            the withholding of Payment-In-Lieu-Of-Taxes payments. Contrary, the County
            requested that the Authority reconsider its decision to withhold its required
            Payment-In-Lieu-Of-Taxes payments as they too had continuing and increasing
            financial obligations, which could only be met if all of its partners met their
            commitments. Given the above, we also question why the Authority chose not to
            make any payments at all, and why partial payments were not considered.




                                             18
Comment 4   The Authority’s cooperation agreements all require that “an annual Payment in
            Lieu of Taxes (PILOT) will be made at the end of each fiscal year in the amount
            of ten percent (10%) of the Shelter Rent charged by the HA to its tenants or the
            amount permitted by applicable state law, whichever amount is lower.” Further, in
            section 9 of the agreements, it states that the “agreement shall not be abrogated,
            changed, or modified without the consent of the Government.” The Authority
            claims to have entered into a mutual agreement with its jurisdictions to amend,
            change the amount of Payment-In-Lieu-Of-Taxes paid by withholding such
            payments. Thus, the Authority did in fact amend its cooperation agreements if it
            attained the required approval from each of its jurisdictions and therefore requires
            written approval from HUD. Nonetheless, the Authority decided to withhold its
            Payment-In-Lieu-Of-Taxes obligations and continued to receive (for years 2001
            through 2008) and request additional funding (for 2007 and 2008) for the payment
            of this obligated amount.

Comment 5   We disagree. While the Authority may not have suffered any material
            consequences, both the jurisdictions and HUD did. As acknowledged by the
            Authority, the jurisdictions continued to provide the agreed upon services, but at
            its own expense. This provided an additional financial burden on these
            jurisdictions. In addition, HUD provided funding to the Authority, which was not
            used as intended. The Authority provides an operational budget to HUD every
            year for the funding of its Low Rent Public Housing program where according to
            Chapter 2, Section 6, of the Public and Indian Housing Low-Rent Technical
            Accounting Guide, 7510.1, “the budget constitutes the approved plan for
            expenditure of those funds.” Moreover, “HA[s] must use the HUD-prescribed
            categories for the budget estimates and for subsequent financial transactions. The
            line item identification of the costs defines the approved use of the HUD funds to
            be provided, and the approved spending level for the HA in that program area.”
            HUD provided funding for the Authority’s Payment-In-Lieu-Of-Taxes obligations
            for years 2001 through 2008; funds that were not expended by the Authority as
            such. Thus, Low Rent Public Housing funds the Authority received from HUD
            funding to be used for its Payment-in-Lieu-of-Taxes obligations could have been
            used to subsidize other HUD programs rather than allowing the funds to sit idle in
            an interest bearing bank account.

Comment 6   We acknowledge that the Authority utilizes the accrual method of accounting in
            accordance with Generally Accepted Accounting Principles as the basis of its
            financial reporting. Further, we also recognize that the Authority's fiscal year
            ends on June 30. The Authority also waits until all rent revenue is recorded for its
            respective fiscal year, which occurs after June 30th, to accurately calculate its
            Payment-In-Lieu-Of-Taxes obligation. We did not take issue with any of these
            practices. However, we do take issue with the fact that the accruing and reporting
            of a liability that the Authority has no intention of paying is considered to be
            inaccurate financial reporting.




                                             19
            Based on general ledger reports for the Authority’s Payment-In-Lieu-Of-Taxes
            liability account, it had accrued for each year's Payment-In-Lieu-Of-Taxes
            obligation since 2001. However, it wrote off accruals for 2001 through 2004 at
            the decision of its management team as they had no intention of making the
            obligated Payment-In-Lieu-Of-Taxes payments. The accruals/liability were never
            recorded for fiscal year 2005 and the Authority resumed its Payment-In-Lieu-Of-
            Taxes accrual for fiscal years 2006 and 2007. The accrual for fiscal year 2006
            was written off in fiscal year ended 2007. As a result, the liability account for its
            Payment-In-Lieu-Of-Taxes obligation had a balance of $96,756, its Payment-In-
            Lieu-Of-Taxes calculation for fiscal year 2007, as of June 4, 2008. Because our
            audit coincided with the Authority’s fiscal year end, it was in the process of
            calculating and recording its Payment-In-Lieu-Of-Taxes obligation for its fiscal
            year 2008.

            As a result, the Authority has incorrectly reported Payment-In-Lieu-Of-Taxes
            expenses incurred for fiscal years 2007, 2006 and 2003 in its audited financial
            statements. Additionally, it has also reported to HUD Payment-In-Lieu-Of-Taxes
            expenses for fiscal years 2007, 2006 and 2003 it had not incurred as they had no
            intention of making the obligated Payment-In-Lieu-Of-Taxes payments.

Comment 7   At both the entrance conference with the Authority and meetings with Authority
            personnel during the audit fieldwork, the Authority assured us that all funds
            accrued and received for the payment of its Payment-In-Lieu-Of-Taxes
            obligations were accounted for and set aside in a bank account. At no time during
            the fieldwork did the Authority inform us that, or provide any documentation
            showing that Payment-In-Lieu-Of-Taxes funds were used to cover operational
            shortfalls. Authority management asserted it had maintained all funds and had
            not used such funds for any other purpose. The Authority also provided us with
            bank statements to an investment account showing that it maintained the
            Payment-In-Lieu-Of-Taxes funds in that account, with a total balance of $7.9
            million.

            Additionally, we noted in Chapter 2, Section 6, of the Public and Indian Housing
            Low-Rent Technical Accounting Guide, 7510.1 it states that “the program area
            budget is based on the objectives of the program and the projected availability of
            funds for program outlays. Since funds provided by HUD for a particular
            program or purpose must be used only for that program or purpose, the budget
            constitutes the approved plan for expenditure of those funds.” Moreover, “HA[s]
            must use the HUD-prescribed categories for the budget estimates and for
            subsequent financial transactions. The line item identification of the costs defines
            the approved use of the HUD funds to be provided, and the approved spending
            level for the HA in that program area. Once approved, a budget becomes both a
            blueprint for action and a control mechanism.” Finally, Section 7 also outlines
            that all funds provided by HUD to a Housing Authority are for a particular
            program or purpose where “in each instance, the use of those funds is governed




                                             20
            by the program regulations, the program budget which constitutes the approved
            plan for expenditures of those funds.”

            A Payments-in-Lieu-of-Taxes expense was included in computing the Authority’s
            allowable expense level for the calculation of its yearly operating subsidy for the
            years 2001 through 2006 and for calendar years 2007 and 2008 they requested
            and received additional funding for the payment of its Payments-in-Lieu-of-Taxes
            expense they had no intention of fulfilling. In addition, even though the Authority
            claims it expended a portion of the accrued funds intended for the fulfillment of
            its Payments-in-Lieu-of-Taxes obligation, HUD provided funding specifically for
            the intention of the payment of the Authority’s Payments-in-Lieu-of-Taxes
            obligation. Therefore, they did not use the funds in a manner consistent with
            HUD regulations. As a result, $736,315 in Low Rent Public Housing funds the
            Authority received from HUD to be used for its Payment-in-Lieu-of-Taxes
            obligations could have been used to subsidize other HUD programs rather than
            allowing the funds to sit idle in an interest bearing bank account.

Comment 8   We disagree. As stated in the Internal Controls section of the report, internal
            control is an integral component of an organization’s management that provides
            reasonable assurance that the organization complies with applicable laws and
            regulations. We concluded that there was a significant weakness in the
            Authority’s internal controls because it did not ensure that it paid the Payment-In-
            Lieu-Of-Taxes obligations as required by the Annual Contributions Contract with
            HUD and the cooperative agreements with its jurisdictions. The Authority passed
            a resolution contrary to its Cooperation Agreement(s) requirements and Annual
            Contributions Contract with HUD. The Authority’s Board of Commissioners
            passed a resolution to stop its Payment-In-Lieu-Of-Taxes payments; however,
            failed to provide documentation of the waiver/ agreement of such action from
            each of its jurisdictions.




                                             21
Appendix C

                                         CRITERIA
Consolidated Annual Contributions Contract, Number SF-568, March 21, 2002, states as
follows:

       Section 6, Cooperation Agreement(s), states that the Authority must perform and
       comply with all applicable provisions of the cooperation agreement(s) including the
       making of payments in lieu of taxes. The Authority may not terminate or amend the
       cooperation agreement(s) without the written approval of HUD.

       Section 9(C)(1), Depository Agreement and General Fund, states that the Authority
       may only use funds outlined under the annual contributions contract for payment of
       expenses related to the development and operation of projects controlled under the
       provisions of the annual contributions contract.

The cooperation agreement between the County and the Authority, section 9, requires the
Authority to pay an annual Payment-in-Lieu-of-Taxes to the County at the end of each fiscal
year in the amount of 10 percent of the shelter rent received from its tenants or the amount
permitted by applicable state law, whichever amount is lower. Additionally, it states that the
agreement cannot be modified without the consent of HUD.

24 CFR 982.153, PHA [public housing authority] Responsibilities, requires public housing
authorities to “comply with the consolidated ACC [annual contributions contract], the
application, HUD regulations and other requirements, and the PHA administrative plan.”

24 CFR 982.156, Depositary [sic] for Program Funds, states that a “PHA [public housing
authority] may only withdraw deposited program receipts for use in connection with the program
in accordance with HUD requirements.”

24 CFR 990.105(a), Computation of Base Year Expense Level, states that Payments-in-Lieu-
of-Taxes required by an authority’s cooperation agreement are to be included as part of the base
year expense level used to compute its allowable expense level for the calculation of an
authority’s yearly operating subsidy.

24 CFR 990.190(c), Other Formula Expenses (add-ons), states that in addition to calculating a
public housing authority’s operating subsidy based on the project and utilities expense level, an
authority’s eligible formula expenses, used to calculate its operating subsidy, may be increased
by allowed add-on expenses. An amount for payment in lieu of taxes in accordance with section
6(d) of the United States Housing Act of 1937 may be added as an eligible expense in
determining the authority’s annual operating subsidy.

PIH [Public and Indian Housing] Low-Rent Technical Accounting Guide 7510.1G, chapter
2-13, requires housing authorities to establish sufficient controls to ensure proper accounting for
cash and fill identification of audit trails. “Accounting controls ensure that the accounting


                                                22
system used by the HA [housing authority] accurately identifies the source, use, and remaining
balance of individual program cash resources.” Additionally, all funds received from HUD
program funding are “restricted to the specific purposes authorized in the program budgets.”
Chapter 2-15, stipulates that although funds may be pooled together for any expenditures
chargeable to the housing authority’s programs, program funds are not fungible, and “funds shall
not be withdrawn for a program in excess of the amount of funds on deposit for that particular
program.” All funds pooled together that result in “due to/due from” transactions must be
“reconciled at the end of each reporting period to ensure that they are in balance.” Further,
chapter 11-16 specifies that all funds provided by HUD are to be used by the housing authority
only for the purposes for which the funds are authorized.




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