oversight

The Waltham Housing Authority, Waltham, MA, Needs To Improve Controls Over Its Interprogram Fund Transactions, Procurement, and Travel for Its Housing Choice Voucher

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-07-27.

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

                                                                    Issue Date
                                                                           July 27, 2010
                                                                    
                                                                    Audit Report Number
                                                                        2010-BO-1006




TO:        Donna J. Ayala, Director, Office of Public Housing, Boston Hub, 1APH


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


SUBJECT:   The Waltham Housing Authority, Waltham, MA, Needs To Improve Controls
           Over Its Interprogram Fund Transactions, Procurement, and Travel for Its
           Housing Choice Voucher and Low-Income Public Housing Programs



                                    HIGHLIGHTS

 What We Audited and Why

            We conducted this audit as part of the Office of Inspector General’s (OIG) annual
            goals for audits of the Section 8 Housing Choice Voucher (Voucher) and low-
            income public housing (low-income) programs. Our audit objective was to
            determine whether the Waltham Housing Authority (Authority) employed
            acceptable management and financial practices to efficiently and effectively
            administer the use of Voucher and low-income program funds in compliance with its
            annual contributions contracts and U.S. Department of Housing and Urban
            Development (HUD) requirements.

            The specific audit objectives included the following: (1) did the Authority account
            for the use of its Section 8 administrative and local reserves to ensure proper use, (2)
            were interprogram transactions relating to the Voucher and low-income programs
            properly accounted for, (3) did the Authority comply with HUD procurement
            regulations regarding contracted service for administering the Federal programs, and
           (4) did the Authority ensure that travel incurred for the Federal programs was in
           accordance with HUD guidance.

What We Found


           The Authority generally administered the Voucher and low-income programs
           efficiently and effectively and in compliance with its annual contributions
           contract and HUD regulations. The Authority also generally accounted for the
           use of its Section 8 administrative and local reserves to ensure proper use.
           However, it did not (1) properly account for and report interprogram fund
           transactions between its Federal and State programs, resulting in nearly $3.9
           million in unsupported transactions being recorded in its program accounts; (2)
           provide support and justification for $551,828 in contracts to show that the
           contracts were properly documented; and (3) establish a reasonable travel policy
           to ensure that travelers submitted detailed travel expense vouchers.


What We Recommend


           We recommend that the Director of the Office of Public Housing, Boston hub,
           require the Authority to (1) provide support for more than $3.9 million in
           interprogram fund transactions that were out of balance between Federal and State
           programs and implement procedures for recording and reconciling interprogram
           transactions and correcting imbalances, (2) provide support and justification for
           $551,828 in contracts or reimburse its operating funds from non-Federal funds
           for the applicable amounts, and (3) revise its travel policy and obtain approval of
           the policy from the Authority’s board of commissioners.

           For each recommendation in the body of the report 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 draft report on June 25, 2010, and held an exit
           conference with officials on June 29, 2010. The Authority provided written
           comments on July 23, 2010. It generally agreed with our findings and
           recommendations and has taken some corrective actions that should eliminate the
           conditions noted in this report. The complete text of the auditee’s response, along
           with our evaluation of that response can be found in appendix B of this report.
                                             2
                              TABLE OF CONTENTS

Background and Objectives                                                            4

Results of Audit
        Finding 1: The Authority Did Not Reconcile Its Interprogram Fund Transactions 5
        Finding 2: The Authority Failed To Comply With HUD Procurement                8
               Regulations and Its Own Procurement Policy
        Finding 3: The Authority’s Travel Policy Did Not Ensure Valid, Necessary, and 14
               Reasonable Travel Costs

Scope and Methodology                                                                16

Internal Controls                                                                    17



Appendixes
   A.   Schedule of Questioned Costs                                                 19
   B.   Auditee Comments and OIG’s Evaluation                                        20
   C.   Schedule of Questioned Contracts                                             23
   D.   Restrictions of the Annual Contributions Contracts                           24




                                               3
                         BACKGROUND AND OBJECTIVES

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

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

The Voucher and low-income public housing (low-income) programs are administered by the
Waltham Housing Authority (Authority) for the City of Waltham, MA. HUD contracts with the
Authority to administer 715 units through annual contributions contracts.1 For fiscal years
ending September 30, 2007 and 2008, the Authority received and expended $10.3 million in
Voucher program funds and for the low-income program, $1.4 million in operations and
$723,000 in capital funds. The annual contributions contracts require the Authority to follow
appropriation laws, HUD requirements, and public housing notices.

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

Our objective was to determine whether the Authority employed acceptable management and
financial practices to efficiently and effectively administer the use of Voucher and low-income
program funds in compliance with its annual contributions contracts and HUD requirements. The
specific audit objectives were to determine whether the Authority (1) accounted for the use of its
Section 8 administrative and local reserves in a timely manner, (2) used Voucher and low-income
program funds only for the administration of the program and properly accounted for and reported
interprogram fund transactions, (3) followed its procurement practices, and (4) ensured that travel
incurred for the Federal programs was in accordance with HUD guidance.




1
 As of December 31, 2009, the Authority had 715 Federal units (265 public housing units and 450 Section 8 units)
and 583 State units (248 elderly units, 297 family units, and 38 State-leased units).
                                                        4
                                     RESULTS OF AUDIT

Finding 1: The Authority Did Not Reconcile Its Interprogram Fund
Transactions
The Authority’s interprogram fund transactions were not reconciled. The Authority used its
Voucher program account as a revolving fund to make all of its vendor payments. All other Federal
and State programs made monthly advances of funds based on budgeted allocations to the revolving
fund to make the vendor payments. These other programs also reimbursed the revolving fund
monthly in arrears for a share of the monthly expenditures. However, this practice resulted in a
buildup of due from/due to amounts because the expenditures and revenues were not reconciled
back to the other program accounts. The Authority had not reconciled these accounts because it
had not established written procedures for such reconciliations or procedures to analyze and
correct any resultant imbalances. As a result, it could not support more than $3.9 million in
transactions recorded in the interprogram accounts as of September 30, 2008, between its Federal
and State programs. This deficiency could result in a misstatement of program revenues or
expenses.




    The Authority Had Ongoing
    Issue With Interprogram
    Accounts


                 The Authority had not balanced its interprogram receivables and payables
                 between its Federal and State programs.2 Before our audit, the Authority had not
                 made an effort to reconcile the interprogram fund accounts, and the Authority’s
                 accounting procedures did not always readily identify whether the Authority used
                 its Federal program funds only for the administration of the program because it
                 did not properly account for and report interprogram fund transactions. The
                 Authority’s interprogram receivables and payables accounts for the various
                 programs administered by the Authority were routinely out of balance.

2
 Federal programs – Low-rent public housing, Public Housing Capital Fund, Section 8 Housing Choice Voucher
program, and State and local programs – State Consolidated Housing and State Chapter 705 Housing, State Chapter
689 Housing, State Chapter 707 Housing, and State Modernization Program.




                                                       5
            The Authority used its Voucher and low-income program accounts as a revolving
            fund to make its vendor payments. All other Federal and State programs made
            monthly advances of funds based on budgeted allocations to the revolving fund to
            make the vendor payments. These other programs also reimbursed the revolving
            fund monthly in arrears for a share of the monthly expenditures. However, this
            practice resulted in a buildup of due from/due to amounts because the expenditures
            and revenues were not reconciled back to the other program accounts. The
            Authority’s accounting procedures did not ensure that it used its Federal program
            funds only for the administration of the program because the procedures did not
            require reconciliation or reporting of the interprogram fund transactions or ensure
            that costs were charged to the appropriate programs. Also, the annual
            contributions contracts for the Voucher and low-income programs restrict the use
            of program funds for payment of expenses associated with those programs (see
            appendix D).


The Authority and Fee
Accountant Acknowledged
Interprogram Account
Transactions Imbalances of
More Than $3.9 Million

            The imbalances in the interprogram accounts occurred because the Authority had not
            initially understood the necessity for reconciling these accounts and did not reconcile
            the accounts accordingly. Therefore, it did not have written procedures in place to
            reconcile the interprogram accounts or analyze and correct imbalances. As a result,
            the Authority did not have support for more than $3.9 million in interprogram
            account balances that were out of balance between its Federal and State programs.
            These imbalances could result in a misstatement of program revenues or expenses.

            The fee accountant stated that the interprogram balances in each of the accounts
            had accumulated over the years and fluctuated monthly based on operational
            activity. However, the fee accountant also stated that these interprogram accounts
            among programs had never been reconciled or reduced to zero. The Authority’s
            management and the fee accountant realized that each of the programs
            participating in the revolving fund account must reimburse the revolving fund for
            the expenditures it had paid out on behalf of the program. Without it there is no
            assurance that money placed into the revolving fund is only used for expenses of
            the specific program placing the funding into the revolving fund. The Authority
            admitted that there was no process in place to reconcile its interprogram accounts,
            which contained funding for both State and Federal programs.




                                              6
Conclusion


             The Authority did not conduct monthly reconciliations of the interprogram fund
             accounts to ensure that program revenue and expenses were charged to the
             applicable programs. When routinely performed, the reconciliations will help to
             ensure that the Authority properly accounts for all of its Federal funds and assure
             HUD that the Authority has appropriately allocated all of its costs to its Federal
             programs. The Authority must establish adequate procedures and controls
             regarding interprogram fund transfer transactions that occur between its Federal
             and State accounts to properly account for all of its Federal funds.


Recommendations



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

     1A. Provide support for $3,995,635 in interprogram transactions that were out of
         balance between its Federal and State programs or to include repayment from non
         federal funds for amounts not supported.

     1B. Implement procedures and internal controls for recording and reconciling
         interprogram transactions monthly, correct any imbalances, and make proper
         payments to accounts.

     We recommend that the Director of the Office of Public Housing

     1C. Conduct follow-up reviews of the Authority periodically to ensure that monthly
         reconciliations are performed as needed.




                                              7
                               RESULTS OF AUDIT

Finding 2: The Authority Failed To Comply With HUD Procurement
Regulations and Its Own Procurement Policy
The audit identified several instances in which the Authority’s procurement practices did not
comply with HUD regulations or its own procurement policy. Specifically, the Authority failed
to
    Award contracts competitively,
    Execute or update service contracts and/or written agreements,
    Document the source selection process,
    Properly support payments made on contracts,
    Ensure that procurement activities showed no appearance of conflict of interest,
    Obtain proper contractual signatory authority, and
    Maintain a detailed history of all procurements.

These conditions occurred because the executive director, as chief procurement officer, did not
fulfill his responsibility to establish and follow effective management controls over the
procurement process. As a result, the Authority paid $551,828 in questioned costs, for which it
could not ensure that services obtained were most advantageous to the Authority. This amount
included $523,900 in unsupported costs and $27,928 in ineligible costs procured from October 1,
2008, through September 30, 2009. In addition, without formal contract documents, the
Authority was at risk for overbilling and paying for unauthorized or substandard goods and
services.



 The Authority Did Not Comply
 With Procurement Regulations


              The Authority did not comply with its requirements when procuring consulting
              services, professional services, maintenance and trade services, and supplies. The
              Authority’s procurement policy stated that the Authority would comply with
              HUD’s annual contributions contract and the procurement standards at 24 CFR
              (Code of Federal Regulations) 85.36. Section 5(A) of the annual contributions
              contract further requires the Authority to comply with all provisions of the
              contract and all applicable regulations issued by HUD. Procurement regulations
              at 24 CFR 85.36 require the Authority to




                                               8
                             Conduct all procurement3 in a manner that provides full and open
                              competition;
                             Maintain a contract administration system which ensures that
                              contractors perform in accordance with the terms, conditions, and
                              specifications of their contracts or purchase orders;
                             Determine that proposed price is fair and reasonable; and
                             Maintain sufficient records to show the history of the procurement.

                 Our review of 31 consulting services, professional services, maintenance and
                 trade services, and supply contracts disclosed that the Authority could not produce
                 records sufficient to detail the significant history for 25 of them. The files of the
                 25 contracts selected for review lacked documentation or rationale for the method
                 of procurement, contract pricing arrangements, accepting or rejecting bids or
                 offers, or basis for the contract price.

                 The records should include the rationale and justification for the method of
                 procurement, the type of contract, the selection of the contractor, and the basis for
                 the contract price. The Authority’s process for procurement and contracting
                 showed deficiencies and/or noncompliance with HUD regulations cited above.

                 In addition, the files did not contain copies of the contract documents awarded or
                 issued and signed by the contracting officer and related contract administration.
                 As a result, HUD had no assurance that $551,828, expended for consulting
                 services, professional services, maintenance and trade services, and supplies
                 procured between October 1, 2008, and September 30, 2009, was a fair and
                 reasonable price and that the procurements resulted in the best quality and/or
                 pricing for goods and services obtained.



    The Authority Did Not
    Maintain a Contract Log

                 The Authority failed to maintain a current, accurate, and complete contract log.
                 Some departments did not use one at all. The only existing contract log,
                 maintained by the capital assets manager, did not provide a complete list of all
                 active contracts in force with the Authority. Although the Authority had an
                 adequate written procurement policy, this condition, in part, was a result of its
                 fractured procurement system. The Authority’s procurement activities were
                 distributed among four key Authority personal. The Authority’s executive
                 director, assistant executive director, capital assets manager, and maintenance
                 director each participated in the procurement process at some level.

3
 The term “procurement” includes both contracts and modifications–including change orders–for construction or
services as well as purchase, lease, or rental of supplies and equipment.
                                                       9
            Generally, the Authority’s executive director finalized all contracts. However, the
            communication among these individuals may not have been collaborative in
            nature. For example, some maintenance contracts were found to be negotiated
            and signed by the maintenance director without the knowledge of the executive
            director. The executive director acknowledged these issues and was instituting a
            centralized logging system, whereby all department heads would have “real time”
            visibility.



Contract Signatures Were
Unauthorized

            The executive director, as the chief procurement officer, did not adequately
            monitor contracts prepared by department heads. The executive director failed to
            notice that three maintenance contracts, totaling $29,760, were signed by the
            maintenance director. The executive director did not delegate approval authority
            to Authority personal; therefore, the executive director was the only employee
            authorized to sign contracts. The executive director acknowledged the oversight
            and stated that he would ensure that all department heads were aware of the
            policy.



Procurement Documents for
Consulting Services Were
Inadequate

            The Authority obtained services from two consultants without conducting the
            required procurement process. It could not provide adequate documentation to
            support that the consulting services were procured at a fair and reasonable price.
            It was unable to provide a contract for a consultant that provided financial
            consulting services and could not provide documentation showing justification,
            oral or written, for its selection. As a result, it was unable to demonstrate that
            contracting and paying the consultants more than $11,000 between October 1,
            2008, and September 30, 2009, was most advantageous to the Authority.


There Was a Potential Conflict
of Interest


            The Authority participated in procurement for pest control services that resulted
            in the services being awarded to a company that had an Authority employee
                                             10
            ownership interest. A search of State records found that the Authority employee
            had an ownership interest since early 2005. HUD prohibits public housing
            agency employees or officers from participating in the selection, award, or
            administration of contracts supported by Federal funds if a conflict of interest,
            real or apparent, would be involved.

            Additionally, according to the executive director, the Authority had used this
            vendor for several years, and its services were procured from a State vendor
            contract. The State contract with the pest control company expired in June 2008
            and was not renewed according to State records. At the time of our review, the
            executive director could not produce a valid contract and stated that a contract
            was not needed because the services were purchased from the State contract. As a
            result, the services provided from October 1, 2008, and September 30, 2009, in
            the amount of $15,477 was unsupported.


A Contract Exceeded Limits

            The Authority awarded a flooring contract in 2008 to a local flooring company
            using small purchase procedures. During the review period, the Authority
            expended more than $137,000 in flooring costs, exceeding the small purchase
            limit by $37,000. It failed to set adequate contractual terms by not ensuring that a
            “not to exceed” clause was established within the contract. The Authority failed
            to properly management the contract by not recognizing that contract costs were
            going to exceed the $100,000 threshold set forth for small purchases. Therefore,
            it could not justify that paying the flooring contractor $137,856 between October
            1, 2008, and September 30, 2009, was fair and reasonable.



The Authority Paid for
Architect and Engineering
Services Outside the Contract


            The Authority signed an indefinite quantity contract on April 1, 2004, with a local
            architectural firm. The 3-year contract was to provide for specifically identified
            task orders, which included design work for the Authority’s new administration
            building addition. During the contract period, delays were encountered due to
            zoning issues with the City of Waltham. The architect and engineering contract
            ended March 31, 2007, according to the agreement. Addition construction did not
            start until June 2009. On July 15, 2008, the architectural firm submitted an
            invoice for payment and was paid $27,928 for services performed outside the

                                             11
             contract’s period of performance. The Authority did not amended its contract or
             rebid a new contract to allow for the unforeseen delays.

             In addition, the architect and engineering contractor submitted an invoice; dated
             December 21, 2009, for payment in the amount of $10,184 for services rendered
             under the initial April 1, 2004, contract. The invoice did not provide dates of
             services, and it could not be readily determined when the services were
             performed. As of the end of our field work, this invoice had not been paid.
             Another architect and engineering contract was entered into with the same firm on
             February 11, 2008, 10 months after the initial contract expired in April 2007. As
             a result, there was a 10-month “gap,” during which the Authority should not have
             received services from the architectural firm. Therefore, the Authority paid a total
             of $27,928 in ineligible costs.



Conclusion


             The Authority failed to comply with Federal procurement requirements and its
             own procurement policies for procurement activities that required full and open
             competition. In addition, it failed to develop sufficient records to show the
             history of the procurement. It also failed to adequately structure the terms for its
             contracts to ensure that services were always valid, necessary, and reasonable. As
             a result, the Authority disbursed $551,828 for consulting services, professional
             services, maintenance and trade services, and supplies without knowing whether
             pricing was most advantageous and reasonable for the Authority. The Authority
             should implement effective management controls over its process for procurement
             and contracting to ensure compliance with its own procurement policy and HUD
             regulations.


Recommendations

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

             2A. Support that the use of $523,900 in operating funds for consulting services,
                 professional services, maintenance and trade services, and supplies was
                 reasonable or reimburse its operating funds from non-Federal funds for the
                 applicable amount.

             2B. Repay its public housing program $27,928, using non-Federal funds, for the
                 ineligible payments made through December 31, 2009, plus any further
                                              12
      payments made to the architect and engineering contractor associated with
      the April 2004 contract.

2C. Implement procedures and controls to ensure that its contracts are awarded
    in a manner providing full and open competition as required by HUD’s
    regulations and the Authority’s procurement policy.

2D. Maintain documentation supporting the basis for contracts awarded,
    including history of procurement and appropriate analysis and signed copies
    of contracts.

2E.    Maintain documentation supporting delegation of authority for those
      individuals responsible for procurements.




                                13
                                        RESULTS OF AUDIT

Finding 3: The Authority’s Travel Policy Did Not Ensure Valid,
Necessary, and Reasonable Travel Costs
The Authority’s travel policy did not adequately address some basic travel requirements.
Specifically, the policy did not adequately address items such as travel authorizations, methods
of payment, expense reporting (including when receipts are necessary), or typical eligible travel
expenses4 applicable to various travel locations. This condition occurred because the Authority
had not developed an adequate travel policy. As a result, it could not ensure that travel expenses
incurred by its employees and charged to its various programs were always valid, necessary, and
reasonable.



    The Authority’s Travel Policy
    Did Not Address Basic Travel
    Requirements


                  The Authority’s travel policy was a half-page document which was general in
                  nature. As such, it did not address in detail the responsibilities of the Authority or
                  the traveler(s). The policy also did not address items such as travel authorizations;
                  methods of payment; expense reporting (including when receipts are necessary); and
                  eligible travel expenses to include air travel, ground travel, and/or rail travel or the
                  authorized per diem rates for each given location of travel.

                  The Authority did require travelers to submit detailed local travel vouchers for
                  mileage. The majority of travel at the Authority is for local travel. In these
                  instances, employees submitted a detailed day-by-day travel voucher for their
                  travel between properties. These local travel vouchers were approved by
                  management. However, management did not require employees traveling
                  overnight to submit a consolidated detailed expense travel voucher to include air,
                  hotel, and meal receipts. Without a detailed expense report upon completion of
                  travel, the Authority could not assure HUD that related travel expenses were valid
                  and necessary costs charged for administration of its programs.




4
 The policy did not identify the typical travel expenses authorized as travel expenses such as air travel, ground
travel, and/or rail travel and per diem rates.
                                                          14
Management Had Taken Steps
To Revise Its Travel Policy

             Authority management agreed that its travel policy needed revision. The
             executive director said that the revised policy would address in detail the
             responsibilities of the Authority and those of the travelers.



Conclusion


             The Authority’s travel policy did not adequately address basic travel requirements
             such as travel authorizations, methods of payment, expense reporting (including
             when receipts are necessary), typical eligible travel expenses applicable to various
             travel locations, or submission of detailed expenditure travel vouchers. Without
             an adequate travel policy, the Authority could not ensure that travel expenses
             incurred by its employees and charged to its various programs were always valid,
             necessary, and reasonable.


Recommendations



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

             3A. Prepare a new travel policy and obtain board approval. The policy should
                 address the responsibilities of the Authority as well as the traveler.




                                              15
                        SCOPE AND METHODOLOGY

We conducted the audit between December 2009 and May 2010. Our fieldwork was conducted
at the Authority’s main office located at 110 Pond Street, Waltham, MA. Our audit covered the
period October 1, 2007, to December 31, 2009, and was extended when necessary to meet our
objectives. To accomplish our audit objectives, we

      Interviewed the Authority’s executive director, assistant director, director of capital
       assets, Section 8 administrator, maintenance director, and fee accountant to determine
       policies and procedures to be tested;

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

      Reviewed program requirements including Federal laws and regulations, Office of
       Management and Budget circulars, and the consolidated annual contributions contracts
       between the Authority and HUD to determine the Authority’s compliance to applicable
       HUD procedures;

      For the period October 1, 2008, through September 30, 2009, we drew a representative
       sample of vendors to determine whether the Authority procured services and/or supplies
       in accordance with its own procurement policy or 24 CFR 85.36;

      For the period October 1, 2008, through September 30, 2009, obtained an electronic data
       file of all disbursements made through the Authority’s revolving account and sorted the
       data in ascending order by dollar amount to determine the amount of high-dollar amounts
       by vendors for any irregular activity;

      For the period September 30, 2003, to September 30, 2009, determined what
       documentation the Authority maintained to support its general ledger - journal vouchers
       in the use of its Section 8 and local operating reserves; and

      For the period October 2007 through December 2009, reviewed the Authority’s
       accounting controls over cost allocations, interprogram fund transfers, procurement, and
       travel to determine whether the Authority had accounting controls in place to safeguard
       its assets.

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.


                                               16
                              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 management, financial and operational;
                     Controls over expenditures to ensure that they are eligible, necessary, and
                      reasonable;
                     Controls over accounting for cost allocations and interprogram receivables
                      and payables;
                     Controls over the use of the local operating reserves;
                     Controls over procurements;
                     Controls over vehicles and gasoline charges;
                     Controls over travel expense vouchers; and
                     Controls over direct and indirect salary allocations.

              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.




                                               17
Significant Weaknesses



            Based on our review, we believe that the following items are significant weaknesses:

        Insufficient accounting controls and procedures for reconciling and clearing
         interprogram payables and receivables (see finding 1).


        Inadequate procurement documentation to support it procurement practices (see finding
         2).


        Lack of policies and procedures regarding payment of travel expenses (see finding 3).




                                              18
                                   APPENDIXES

Appendix A

                SCHEDULE OF QUESTIONED COSTS


            Recommendation             Ineligible 1/          Unsupported 2/
                number
                  1A.                                              $3,995,635

                    2A.                                              $523,900

                    2B.                   $27,928

                   Total                  $27,928                  $4,519,535


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
     polices 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 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.




                                            19
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 1




                         20
Ref to OIG Evaluation   Auditee Comments




Comment 1




                         21
                        OIG Evaluation of Auditee Comments

Comment 1   The Authority agreed with our recommendations and will work with the office of
            Public Housing to implement the required corrective action for all the
            recommendations in the report.




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Appendix C

                SCHEDULE OF QUESTIONED CONTRACTS


Description                  # of contracts    Unsupported    Ineligible   Total
Consultants                        2                $11,556          $0      $11,556
Material/supplies                  3                $49,406          $0      $49,406
Professional services              3                $55,898    $27,928       $83,826
Maintenance/trade services        17               $407,040          $0     $407,040


Total                             25               $523,900    $27,928      $551,828




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Appendix D

      RESTRICTIONS OF THE ANNUAL CONTRIBUTIONS
                     CONTRACTS


The Section 8 Housing Choice Voucher program’s consolidated annual contributions
contract states:

      Paragraphs 11(a), (b), and (c): “the HA [housing agency] must use program receipts to
      provide decent, safe, and sanitary housing for eligible families in compliance with the
      U.S. Housing Act of 1937 and all HUD requirements. Program receipts may only be
      used to pay program expenditures. The HA may not make any program expenditures,
      except in accordance with the HUD-approved budget estimate and supporting data for a
      program. Interest on the investment of program receipts constitutes program receipts.”

      Paragraph 13(c): “the HA must only withdraw deposited program receipts for use in
      connection with the program in accordance with HUD requirements.”

   The low-rent and comprehensive grant programs’ consolidated annual contributions
   contract states:

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

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




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