Issue Date
January 9, 2009
Audit Report Number
2009-SE-1001
TO: Harlan Stewart, Director, Region X Office of Public Housing, 0APH
FROM: Joan S. Hobbs, Regional Inspector General for Audit, Seattle, Region X, 0AGA
SUBJECT: The Housing Authority of Douglas County, Roseburg, Oregon, Needs to
Strengthen Its Internal Controls
HIGHLIGHTS
What We Audited and Why
We audited the Housing Authority of Douglas County (Authority) at the request of the
U.S. Department of Housing and Urban Development’s (HUD) Region X Office of
Public Housing to determine whether the Authority procured goods and services in
accordance with HUD regulations and its procurement policy, accounted for HUD funds
in accordance with HUD’s administrative requirements, and managed its Housing Choice
Voucher program in accordance with HUD regulations.
What We Found
The Authority did not sufficiently document procurement actions, adequately maintain
source documentation, properly ensure that HUD funds were spent for allowable costs, or
always accurately calculate and pay housing assistance. These deficiencies were caused
by a lack of adequate procedures and practices. As a result, HUD did not have
reasonable assurance that the Authority fully complied with HUD and other federal
requirements.
What We Recommend
We recommend that HUD require the Authority to implement policies and practices that
will provide reasonable assurance of compliance with HUD requirements. We also
recommend that the Authority repay $2,197 in ineligible expenses from nonfederal funds.
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 December 11, 2008, and held an
exit conference with Authority’s officials on December 23, 2008. The Authority
provided written comments on December 29, 2008. It generally agreed with our findings.
The complete text of the auditee’s response can be found in appendix B of this report.
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TABLE OF CONTENTS
Background and Objective 4
Results of Audit
Finding 1: The Authority Had Internal Control Weaknesses 5
Scope and Methodology 8
Internal Controls 9
Appendixes
A. Schedule of Questioned Costs 10
B. Auditee Comments 11
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BACKGROUND AND OBJECTIVE
Housing Authority of Douglas County, Oregon
The Housing Authority of Douglas County (Authority), located in Roseburg, Oregon, was
established in 1944 to provide the opportunity for decent, safe, and sanitary housing that is free
from discrimination. The Authority’s board of commissioners, appointed by the board of
commissioners of Douglas County, is responsible for all activities of the Authority. The
executive director is responsible for the daily functioning of the Authority. Annually, the U.S.
Department of Housing and Urban Development (HUD) provides the Authority about $3 million
to administer about 650 housing choice vouchers and about $700,000 to operate 155 public
housing units. The Authority also operates low-income tax credit and rural development
properties and administers Family Self Sufficiency and homeownership education programs.
Housing Choice Voucher Program
The Housing Choice Voucher program is the federal government’s major program for helping
very low-income families, the elderly, and the disabled to afford decent, safe, and sanitary
housing in the private market. Public housing agencies administer the HUD-funded program,
which pays a housing subsidy to the landlord on behalf of the participating family.
Objective
Our objective was to determine whether the Authority procured goods and services, accounted
for HUD funds, and managed its Housing Choice Voucher program in accordance with HUD
requirements.
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RESULTS OF AUDIT
Finding 1: The Authority Had Internal Control Weaknesses
The Authority did not sufficiently document procurement actions, adequately maintain source
documents, fully ensure that HUD funds were spent for allowable costs, or always accurately
calculate and pay housing assistance. These deficiencies were caused by a lack of adequate
procedures and practices. As a result, HUD did not have reasonable assurance that the Authority
fully complied with HUD and other federal requirements.
Documentation of Four
Procurement Actions Was
Incomplete
We reviewed 10 selected procurement actions based on the dollar amounts and number of
payments. Contrary to HUD regulations at 24 CFR 85.36, Procurement, and the
Authority’s procurement policy, the Authority did not document a sufficient number of
bids or the justification for a sole source procurement when it
Obtained the services of an accounting firm for the Authority’s annual audit,
Contracted for the foundation repair of a public housing unit,
Contracted for an environmental assessment on seven public housing units, and
Obtained an energy audit for public housing units.
Since the Authority did not properly document the procurement actions in accordance
with HUD regulations, we could not determine whether it received the best price for
these goods and services. Authority records showed that the contractors completed the
work satisfactorily, and the cost of the procurement actions did not appear to be
excessive.
Supporting Documentation
for Some Expenditures Was
Inadequate
HUD regulations at 24 CFR 85.20(b)(6) require that accounting records be supported by
such source documentation as cancelled checks, paid bills, payroll, time and attendance
records, contract and subgrant award documents, etc. We reviewed 62 of the Authority’s
expenditures and found that the Authority did not have receipts documenting the amounts
paid for eight employee purchase reimbursements totaling about $3,000, six of which
were travel related. This deficiency occurred because Authority policy did not
specifically require receipts for travel expenditures or other purchases by employees.
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The Authority had alternate documentation in lieu of the required receipts, such as an e-
mail from the hotel showing the room rate and an Internet Web page showing an item’s
price.
The Authority also donated $2,000 in public housing funds to a local charity and
provided $197 in public housing funds for a party for public housing residents, contrary
to Office of Management and Budget (OMB) Circular A-87, Cost Principles for State,
Local, and Tribal Governments, which states that donations and social activities are
unallowable expenses. The unallowable charges occurred because Authority
management was unfamiliar with the applicable requirements. As a result, $2,197 was
not available to provide housing services to public housing residents and should be
repaid.
The Authority Calculated or Paid
Incorrect Housing Assistance
The Authority adequately administered HUD’s housing quality standards program,
properly chose applicants from the waiting list, and met HUD’s rent reasonableness
requirements. We reviewed Housing Choice Voucher program tenant files for 10 of 215
new admissions and 10 of 768 recertifications. The Authority properly determined the
eligibility of the tenants reviewed and recertified the tenants in a timely manner.
However, it made minor errors in calculating or paying housing assistance in four of the
files reviewed.
HUD regulations at 24 CFR (Code of Federal Regulations) Part 982 require housing
agencies to compute a family’s housing assistance payment based on a local payment
standard that reflects the cost to lease a unit in the local housing market. If the rent is less
than the payment standard, the family generally pays 30 percent of its adjusted monthly
income for rent.
In one of the 20 tenant files reviewed, the Authority calculated the tenant’s annual
income using the wrong amount of Supplemental Security Income. This error resulted in
a $6 per month undercalculation of the housing assistance payment. For another Section
8 recipient, the Authority paid the landlord an extra month’s housing assistance payment
of $149. In the third case, the Authority made a minor error when it calculated the
prorated assistance amount, resulting in a one-time $3 underpayment. For a fourth
Section 8 recipient, the Authority used the wrong payment standard to compute the
housing assistance payment, resulting in a $174 total overpayment.
The four deficiencies were due to errors made by Authority staff. Three of the
deficiencies occurred while the Section 8 director was the acting executive director. The
additional duties as acting executive director interfered with the Section 8 director’s
normal supervisory reviews that might have detected and prevented the errors and
miscalculations in the tenant files.
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The Authority later hired a new executive director, and the Housing Choice Voucher
program became the sole responsibility of the Section 8 director.
While these specific deficiencies are not monetarily significant, the number of errors
could adversely affect the Authority’s ability to attain high performer status in its Section
8 Management Assessment Program which in turn could mean the Authority would not
get competitive advantages in certain notices of funding availability.
Conclusion
OMB Circular A-133, Audits of States, Local Governments, and Non-Profit
Organizations, requires that an entity receiving and expending federal funds maintain
internal controls that provide reasonable assurance that the entity is managing its federal
awards in compliance with laws, regulations, and grant agreements. The deficiencies
identified in our audit occurred because some essential characteristics of the Authority’s
internal controls had weaknesses. To address these weaknesses, the Authority should (1)
improve the supervisory review of procurements and housing assistance payment
calculations; (2) ensure that required source documentation is created and maintained for
procurements, purchases, and reimbursements; and (3) ensure that staff are
knowledgeable about requirements relating to the allowability of expenditures.
Recommendations
We recommend that the Region X Director of the Office of Public Housing require the
Authority to
1A. Revise Authority policy to require that receipts for purchases be maintained.
1B. Conduct training regarding procurement documentation requirements and the
allowable uses of federal funds.
1C . Revise Authority policy to include management review of procurements for
compliance with HUD regulations and Authority policy
1D. Arrange for supervisory reviews of housing assistance payment calculations when
the Section 8 director is unavailable to perform the reviews.
1E. Repay $2,197 in ineligible expenses from nonfederal funds.
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SCOPE AND METHODOLOGY
We conducted our fieldwork at the Authority’s office in Roseburg, Oregon, in September and
October 2008. To achieve our objectives, we reviewed applicable criteria; interviewed Authority
staff; and reviewed Authority procedures, tenant files, and financial records. Our review covered
the period April 2006 through March 2008.
We reviewed a representative sample of tenant files to test the Authority’s process for admitting
and recertifying housing choice voucher tenants. The sample consisted of 10 of 215 new
admissions and 10 of 768 recertifications from October 1, 2007, through August 31, 2008.
We reviewed 10 procurement files based on the dollar amounts and number of payments to test
the Authority’s compliance with HUD’s procurement regulations and its own policy. We chose
the sample from the Authority’s public housing operating account check register from April 1,
2006, through March 31, 2008. We did not include payments that appeared to be for normal
operating expenses such as utilities and insurance.
For the period April 1, 2006, through March 31, 2008, we also reviewed
Five of seven expenditures for legal fees that exceeded $200;
A consulting fee of more than $14,000, four maintenance contracts exceeding $1,000,
and both architectural and engineering services fees listed in the general ledger;
Payments to a representative sample of 10 of the 461 recipients of housing assistance
payment funds;
Checks written on the Authority’s HUD program bank accounts to 27 recipients whose
eligibility appeared questionable (e.g., grocery stores and charities); and
4 of 25 credit card payments that exceeded $2,000.
We reviewed these expenditures to test whether they were for eligible purposes and whether the
Authority had adequate support for the expenditures. We did not project the results of any
samples.
We performed our review 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
objective. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.
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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:
Policies and procedures intended to ensure that the Authority pays the correct
housing assistance for eligible tenants to live in decent, safe, and sanitary units.
Policies and procedures intended to ensure that HUD funds are safeguarded and
used only for authorized purposes.
We assessed the relevant controls identified above.
A significant weakness exists if management controls do not provide reasonable assurance
that the process for planning, organizing, directing, and controlling program operations will
meet the organization’s objectives.
Significant Weaknesses
Based on our review, we believe that the following item is a significant weakness:
The Authority did not always correctly calculate and pay housing assistance,
appropriately document procurement actions, adequately maintain supporting
source documents for its financial records, or ensure that HUD funds were spent
for allowable costs.
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APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
Recommendation number Ineligible Costs1/
1E $2,197
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.
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Appendix B
AUDITEE COMMENTS
Auditee Comments
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The Housing Authority of Douglas County, Roseburg, Oregon, Needs to Strengthen Its Internal Controls
Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-01-09.
Below is a raw (and likely hideous) rendition of the original report. (PDF)