oversight

The Housing Authority of DeKalb County Improperly Used Its Net Restricted Assets

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-08-23.

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

                                                                   Issue Date

                                                                         August 23, 2010
                                                                   Audit Report Number

                                                                           2010-AT-1010




TO:         Ada Holloway, Director, Atlanta Office of Public and Indian Housing


             //signed//
FROM:       James D. McKay, Regional Inspector General for Audit, Atlanta Region, 4AGA

SUBJECT: The Housing Authority of DeKalb County Improperly Used Its Net Restricted
          Assets


                                    HIGHLIGHTS

 What We Audited and Why

             We audited the Housing Authority of DeKalb County’s (Authority) use of its net
             restricted assets based on a request from the Atlanta Office of Public Housing.
             The request indicated that a significant amount of net restricted assets was used to
             pay for items other than the required housing assistance payments.

             Our audit objective was to determine how the Authority expended its net
             restricted assets and what controls were in place to ensure that net restricted assets
             were not used for non–housing assistance payments.

 What We Found

             The Authority used more than $2.5 million of its net restricted assets to pay
             ineligible program and administrative expenses for other assisted housing
             programs. This condition occurred because the Authority did not (1) maintain
             separate bank accounts, (2) properly track its net restricted asset funds, and (3)
             have proper policies and controls in place. As a result, it misused net restricted
             asset funds that could have provided assistance to eligible families in its housing
             voucher program.
What We Recommend

           We recommend that the Director of Public and Indian Housing require the
           Authority to (1) reconcile its books and records to determine the amount of net
           restricted asset funds used to pay program and administrative expenses for various
           housing programs, (2) reimburse the net restricted assets fund account from non-
           Federal funds the $2.5 million or the current amount owed from various housing
           programs, and (3) implement its established policy for the use of net restricted
           assets to ensure that net restricted assets are properly used and bank accounts
           remain separated for the various programs.

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


Auditee’s Response

           We discussed our review results with Authority officials during the audit. We
           provided a copy of the draft report to the Authority on July 9, 2010, for their
           comments and discussed the report with Authority officials at the exit conference
           on July 16, 2010. The Authority provided written comments on July 23, 2010,
           and generally agreed with the finding.

           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 Objective                                                              4

Results of Audit
      Finding 1: The Authority Used Net Restricted Assets To Pay for Other Assisted   5
                 Housing Programs

Scope and Methodology                                                                 8

Internal Controls                                                                     9

Appendixes
   A. Schedule of Questioned Costs                                                    11
   B. Auditee Comments and OIG’s Evaluation                                           12




                                            3
                     BACKGROUND AND OBJECTIVES

The Housing Authority of DeKalb County (Authority), located in Decatur, GA, was established
in December 1955 in accordance with State and Federal law to serve the citizens and
communities of DeKalb County, GA, by promoting quality affordable housing and related
economic development.

The Authority’s six-member board of commissioners oversees the direction of the Authority.
The board of commissioners is appointed by the chief executive officer of DeKalb County. The
board of commissioners is responsible for hiring the Authority’s executive director to manage
daily operations and the Authority’s annual operating budget.

The Authority has had two executive directors since 2004. The former executive director was
appointed in October 2004, but that appointment was terminated by the Authority’s board of
commissioners on October 13, 2006. The executive director in place when we started our audit
served as interim executive director and was permanently appointed on May 2, 2007. However,
he resigned on June 11, 2010, and an interim executive director was chosen to serve during the
transitional period.

The Authority administers 6,070 housing assistance vouchers in DeKalb County, GA, and its
vicinity. The annual housing assistance payments and administrative fees approved were $33.8
million for fiscal year 2005, $33.5 million for fiscal year 2006, $32.6 million for fiscal year
2007, $32.9 million for fiscal year 2008, and $29.5 million for fiscal year 2009.

The U.S. Department of Housing and Urban Development’s (HUD) Georgia State Office of
Public Housing in Atlanta, GA, is responsible for overseeing the Authority.

HUD designated the Authority as a high-performing Section 8 public housing authority for fiscal
years 2005, 2006, and 2009. It designated the Authority as standard performing for fiscal years
2007 and 2008.

In August 2009, HUD identified possible misuse of net restricted assets. In response, the
executive director indicated that the funds were misappropriated because of the Authority’s poor
internal accounting process, weak controls, and staff turnover.

Our audit objective was to determine how the Authority expended its net restricted assets and
what controls were in place to ensure that net restricted assets were not used for non–housing
assistance payments.




                                                4
                                 RESULTS OF AUDIT

Finding 1: The Authority Used Net Restricted Assets To Pay for Other
Assisted Housing Programs
The Authority used more than $2.5 million of its net restricted assets to pay ineligible program
and administrative expenses for other assisted housing programs. This condition occurred
because the Authority did not (1) maintain separate bank accounts, (2) properly track its net
restricted asset funds, and (3) have proper policies and controls in place. As a result, it misused
net restricted asset funds that could have provided assistance to eligible families in its housing
voucher program.



 Net Restricted Assets Were
 Improperly Used


               HUD defines the net restricted assets balance as the difference between housing
               assistance payment funding provided to the Authority and the Authority’s
               validated housing assistance payment expenses reported in HUD’s Voucher
               Management System each month.

               HUD’s public and Indian housing notices for calendar years 2005-2009,
               Implementation of Federal Fiscal Year Funding Provisions for the Housing
               Choice Voucher Program, state that authorities may only use housing assistance
               payment funding for housing assistance payments for current calendar year and
               future calendar year housing assistance payment needs. Authorities may not use
               housing assistance payment funds or housing assistance payment net restricted
               assets for Section 8 administrative expenses, public housing expenses or
               development costs, or any other costs of the authority.

               We computed the difference between the housing assistance payment funding the
               Authority received and the Authority’s validated housing assistance payment
               expenses reported in the Voucher Management System for calendar years 2005-
               2009 and determined that the net restricted balance as of December 31, 2009,
               should have been approximately $2.5 million. However, the Authority’s general
               ledger showed a net restricted asset balance of $11.2 million as of December 31,
               2009, and the Authority’s general bank account balance was $5.1 million. The
               Authority’s accountant stated that the amount shown in the general ledger was
               incorrect and the actual balance of net restricted assets was zero because the funds
               were used to pay program and administrative expenses for other assisted housing
               programs.

                                                 5
We reviewed the Authority’s check registers for the period of July 1, 2007
through June 30, 2009. We determined that the Authority used net restricted asset
funds to pay program and administrative expenses for its Housing Choice
Voucher, Disaster Housing Assistance, Family Self-Sufficiency, Portability,
Veterans Affairs Supportive Housing, and Homeownership programs. For
example, the Authority used net restricted assets to pay salaries for Disaster
Housing Assistance program temporary employees, workmen’s compensation for
employees of the Housing Choice Voucher program and Disaster Housing
Assistance program, rental car expenses for housing inspectors, office supplies,
and rental expense for office space. The Authority did not maintain separate bank
accounts for the various programs. Therefore, the bank balance of $5.1 million
did not represent an accurate balance for the net restricted assets account.

Based on a letter from HUD, as of January 1, 2005, each authority was required to
establish and maintain its own housing assistance payment net restricted account.
Any housing assistance payment funds from the year that were not used for
eligible program purposes must be deposited by the authority into its housing
assistance payment net restricted asset account.

The Authority did not properly track its net restricted asset funds. The
Authority’s books were not accurately reconciled to show the correct balance of
net restricted assets. The net restricted asset funds were not accounted for in the
Authority’s general ledgers until calendar year 2008. Its accountant could not
explain why the Authority did not account for net restricted asset funds before
calendar year 2008.

The Authority did not implement a policy regarding net restricted assets until May
2009. The policy was established in response to an April 2, 2009, letter from
HUD, reminding the authorities of the January 1, 2005, requirements regarding
the housing assistance payment net restricted assets account. Overall, due to the
Authority’s poor control over its net restricted assets, we could not ensure that the
funds were used for its housing assistance payments as required.

At the request of the Atlanta Office of Public Housing, HUD’s Recovery and
Prevention Corps performed an assessment of the Authority’s Housing Choice
Voucher program for calendar year 2009, which included the net restricted assets
account. The assessment was performed in February 2010 and recommended a
forensic audit of the Authority’s financial records to ensure program
accountability. The report stated that having three different finance directors in
charge of the finance department in a relatively short period severely impacted the
agency’s ability to handle the issues and the net restricted assets were not in
separate accounts, which caused problems in determining the net restricted assets
reserve balance.




                                  6
             In October 2009, the Authority moved its housing assistance payments and
             administrative fees into separate bank accounts and transferred its Veterans
             Affairs Supportive Housing program funds to a separate bank account. In January
             2010, the Authority established a separate bank account for its net restricted asset
             funds. The Authority’s accountant stated that as of January 2010, the Authority
             did not pay administrative expenses until administrative funds were available.
             The finance director in place when we started our audit had resigned as of June 1,
             2010.


Conclusion


             As a result of the Authority’s not having proper controls in place to ensure that
             net restricted asset funds were properly used, the Authority misused more than
             $2.5 million of its net restricted assets, which could have been available to
             provide assistance to eligible families.


Recommendations


             We recommend that the Director of HUD’s Office of Public Housing

             1A. Require the Authority to reconcile its books and records to determine the
                 amount of net restricted asset funds that was used to pay program and
                 administrative expenses for various housing programs (Housing Choice
                 Voucher, Disaster Housing Assistance, Family Self-Sufficiency, Portability,
                 Veterans Affairs Supportive Housing, and Homeownership).

             1B. Require the Authority to reimburse the net restricted assets fund account
                 from non-Federal funds the $2,583,244 or the current amount owed.

             1C. Require the Authority to implement its established policy for the use of net
                 restricted assets to ensure that the net restricted assets are properly used and
                 bank accounts remain separated for the various programs.




                                               7
                         SCOPE AND METHODOLOGY

Our audit objective was to determine how the Authority expended its net restricted assets and
what controls were in place to ensure that net restricted assets were not used for non–housing
assistance payments. To accomplish our objective, we

           Reviewed applicable laws, regulations, and other HUD program requirements relating
           to net restricted assets;
           Interviewed HUD and Authority staff;
           Reviewed HUD’s program files for the Authority; and
           Reviewed the Authority’s accounting records, policies and procedures, financial
           audits, and related documents.

We conducted our audit from January through May 2010 at both the Atlanta, GA, HUD office
and the Authority’s central office located at 750 Commerce Street, Decatur, GA. Our audit
period was January 1, 2005, through December 31, 2009. We expanded our audit period as
needed to accomplish our objective.

We tested disbursements made by the Authority from July 1, 2007, through June 30, 2009. The
disbursements were made from the bank account that included the housing assistance payment
funding, administrative fees, portability funds, and net restricted asset funds. During the period,
the Authority disbursed $98,427,924 from the account, of which we examined $3,218,511. We
selected the tested items, considering factors such as the transaction amount and transaction type.
The results of the audit only apply to the tested activities and cannot be projected to the universe
or total population.

We did not review and assess general and application controls over the Authority’s information
systems. We conducted other tests and procedures to ensure the integrity of computer-processed
data that were relevant to the audit objective. The tests included but were not limited to
comparison of computer-processed data to invoices and other supporting documentation. We did
not place reliance on the Authority’s information systems and used other supporting
documentation for the activities reviewed.

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
objective. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                                 8
                              INTERNAL CONTROLS

Internal control is a process adopted by those charged with governance and management
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals and objectives with regard to:

       Effectiveness and efficiency of operations,
       Reliability of financial reporting, and
       Compliance with applicable laws and regulations.

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls 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
               objective:

                  Compliance with laws and regulations – Policies and procedures that
                  management has implemented to reasonably ensure that resource use is
                  consistent with laws and regulations.

                    ffectiveness and efficiency of operations – Policies and procedures that the
                  audited entity has implemented to provide reasonable assurance that a
                  program meets its objective, while considering cost effectiveness and
                  efficiency.

               We assessed the relevant controls identified above.

               A deficiency in internal control exists when the design or operation of a control does
               not allow management or employees, in the normal course of performing their
               assigned functions, the reasonable opportunity to prevent, detect, or correct (1)
               impairments to effectiveness or efficiency of operations, (2) misstatements in
               financial or performance information, or (3) violations of laws and regulations on a
               timely basis.




                                                 9
Significant Weaknesses

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

                    The Authority did not have adequate controls in place to ensure that net
                    restricted asset funds were expended as required (see finding 1).




                                            10
                                          APPENDIXES

Appendix A

                SCHEDULE OF QUESTIONED COSTS

                           Recommendation
                                  number            Ineligible 1/

                                  1B                 $2,583,244


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.




                                            11
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         12
Comment 1




Comment 1




            13
Comment 1
            C




            14
                         OIG Evaluation of Auditee Comments

Comment 1   The Authority agreed to hire an independent audit firm to conduct a forensic
            review of all Housing Choice Voucher programs and reconcile program accounts
            related to the use of net restricted assets. After the forensic review, the Authority
            will be in a position to detail the amounts due to and from each program and work
            with the Atlanta HUD office to establish a resolution of the outstanding balance.
            The Authority has established a policy for the tracking, segregation and use of net
            restricted assets.

            The Authority’s agreement with the finding and recommendations indicates its
            willingness to make necessary improvements to ensure net restricted assets are
            only used to pay required housing assistance payments.




                                             15