oversight

Fort Belknap Indian Community in Harlem, MT, Did Not Properly Administer Its Indian Housing Block Grant Funds

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-03-07.

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

                                                                 Issue Date
                                                                          March 7, 2010
                                                                 Audit Report Number
                                                                              2010-DE-1002




TO:        Randall Akers, Administrator, Northern Plains Office of Native
             American Programs, 8API

           //signed//
FROM:      Ronald J. Hosking, Regional Inspector General for Audit, 8AGA


SUBJECT: Fort Belknap Indian Community in Harlem, MT, Did Not Properly Administer
           Its Indian Housing Block Grant Funds


                                   HIGHLIGHTS
 What We Audited and Why

             We audited the Fort Belknap Indian Community (Fort Belknap) because the
             Northern Plains Office of Native American Programs received information
             indicating financial irregularities in the administration of Indian Housing Block
             Grant (block grant) funds. The objective of the audit was to determine whether
             Fort Belknap administered its Federal funds in a manner consistent with program
             guidance, regulations, and the terms and conditions of the Federal award for its
             (1) U.S. Department of Housing and Urban Development (HUD)-accepted Indian
             housing plan, (2) block grant program, (3) submission of audited financial
             statements, (4) tenant accounts receivable, and (5) monthly equity payment
             accounts.


 What We Found

             Fort Belknap did not administer its Federal funds in a manner consistent with
             program guidance, regulations, and the terms and conditions of the Federal award.
             It did not ensure that it (1) only completed renovation work in its HUD-accepted
             Indian housing plan, (2) used block grant funds for only allowable costs, (3)
           submitted its audited financial statements when required, (4) pursued collection of
           its past due tenant accounts receivable, and (5) properly established and
           maintained its monthly equity payment accounts.

What We Recommend

           We recommend that the Northern Plains Office of Native American Programs
           provide training to Fort Belknap on the proper administration of block grant
           funds. We also recommend that it ensure that Fort Belknap (1) recovers $182,940
           in funds expended for renovation work not listed in its HUD-accepted Indian
           housing plans from the homeowners receiving that assistance or from other non-
           Federal sources; (2) repays $31,958 in unallowable costs from non-Federal
           sources; (3) receives training regarding HUD financial reporting requirements; (4)
           recovers more than $1 million in tenant accounts receivable, and (5) maintains a
           separate monthly equity payment account for every mutual help program home
           buyer and identifies and returns $300,000 in misspent payments to the correct
           home buyers.

           We also recommend that the Northern Plains Office of Native American
           Programs refer Fort Belknap to the Departmental Enforcement Center for
           appropriate administrative sanctions and civil actions. We further recommend
           that it enforce the remedies in 24 CFR (Code of Federal Regulations) 1000.532
           and 1000.538 for substantial noncompliance. These remedies range from
           adjusting the amount of block grant funds Fort Belknap will receive to providing
           a replacement tribally designated housing entity for the recipient.

           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 discussion draft of the audit report to Fort Belknap on January
           22, 2010, and requested its comments by February 6, 2010. Fort Belknap
           provided its written response on February 15, 2010, within the granted extension
           time. It did not agree with the findings and recommendations.

           The complete text of the auditee’s response, along with our evaluation of that
           response, can be found in appendix B of this report. The attached exhibits where
           too voluminous to include in the audit report. These documents were provided to
           the HUD Northern Plains Office of Native American Programs under separate
           cover.




                                            2
                            TABLE OF CONTENTS

Background and Objective                                                             4

Results of Audit
      Finding 1: Fort Belknap Completed Renovation Work in Violation of Its Indian   5
                 Housing Plans
      Finding 2: Fort Belknap Completed Purchases in Violation of Cost Principles    9
                 for Federal Awards
      Finding 3: Fort Belknap Did Not Submit Its Audited Financial Statements When   11
                 Required
      Finding 4: Fort Belknap Did Not Pursue Collection of Its Past Due Tenant       13
                 Accounts Receivable
      Finding 5: Fort Belknap Did Not Maintain Equity Accounts on Its Home Buyers    15

Scope and Methodology                                                                17

Internal Controls                                                                    19

Appendixes
   A. Schedule of Questioned Costs and Funds To Be Put to Better Use                 20
   B. Auditee Comments and OIG’s Evaluation                                          21




                                            3
                       BACKGROUND AND OBJECTIVE
In December 1999, the Fort Belknap Indian Community Council (Council) elected to administer
its U.S. Department of Housing and Urban Development (HUD) funds by creating the Fort
Belknap Housing Department (Housing Department) instead of using the Fort Belknap Housing
Authority (Housing Authority). Before its elimination, the Housing Authority reported to a
board of commissioners and was a tribally designated housing entity. In contrast, the Housing
Department is now a tribal department that reports to the Council and is not considered by HUD
to be a tribally designated housing entity. Fort Belknap is located in Harlem, MT.

Fort Belknap received more than $2.5 million in Indian Housing Block Grant (block grant) funds
in 2008. The block grant program is a formula grant that provides a range of affordable housing
activities on Indian reservations and in Indian areas. Eligible activities include housing
development, assistance to housing developed under the block grant program, housing services
to eligible families and individuals, crime prevention and safety, and model activities that
provide creative approaches to solving affordable housing problems.

Fort Belknap had 246 low-rent housing units and 118 mutual help housing units as of September
30, 2008. The mutual help homeownership opportunity program allows Indian housing
authorities to help low-income Indian families achieve ownership of a home in return for
fulfilling the home buyer’s obligations. These home-buyer obligations include making monthly
payments based on income and providing all maintenance of the home. The monthly payment
provides that the minimum required payment must equal the administrative charge. The
administrative charge is comprised of the Indian housing authority’s allowable operating
expenses. If the required monthly payment exceeds the administrative charge, the amount of the
excess is to be credited to the home buyer’s monthly equity payments account.

The Northern Plains Office of Native American Programs conducted an on-site monitoring review
of Fort Belknap’s block grant program in June 2007. It identified findings related to late submission
of audited financial statements, and the monthly equity payments account balances could not be
verified. We identified similar deficiencies during our audit.

In September 2009, the Assistant Secretary for Public and Indian Housing notified Fort Belknap
that HUD was imposing remedies on its block grant program because it failed to comply with 24
CFR (Code of Federal Regulations) 1000.544 and 1000.548 and Office of Management and Budget
(OMB) Circular A-133 regarding its audits for Federal fiscal years ending September 30, 2006,
2007, and 2008. Fort Belknap has requested an administrative hearing.

The objective of the audit was to determine whether Fort Belknap administered its Federal funds
in a manner consistent with program guidance, regulations, and the terms and conditions of the
Federal award for its (1) HUD-accepted Indian housing plan, (2) block grant program, (3)
submission of audited financial statements, (4) tenant accounts receivable, and (5) monthly
equity payment accounts.

We are also performing an American Recovery and Reinvestment Act of 2009 capacity review.
The results of the review will be issued in a separate report.


                                                 4
                               RESULTS OF AUDIT

Finding 1: Fort Belknap Completed Renovation Work in Violation of
            Its Indian Housing Plans
Fort Belknap used block grant funds for renovation work on homes that were not in its HUD-
accepted 2006, 2007, and 2008 Indian housing plans (plans). This noncompliance occurred
because the Housing Department and the Council were not aware that renovation work on
mutual help, conveyed mutual help, and other non-HUD homes had to be listed in the HUD-
accepted plan. As a result, more than $182,000 in HUD funds was not available for its intended
purposes.



 Block Grant Funds Used for
 Activities Not Accepted in Plan

              Fort Belknap used block grant funds for renovation work on homes that were not
              in its accepted 2006, 2007, and 2008 plans. According to Sections 102(b)(2)(A)
              and 233 of the Native American Housing and Self-Determination Act of 1996,
              Fort Belknap must use block grant funds for housing activities described in the
              plan for rehabilitation of housing. Between 2006 and 2008, Fort Belknap was
              awarded more than $7 million in block grant funds.

              Fort Belknap spent more than $182,000 on renovation work on 23 mutual help,
              conveyed mutual help, and other non-HUD homes that were not listed in the
              HUD-accepted plans.

                     Type of housing                 Number of units       Amount
               Mutual help                                 1                 $18,465
               Conveyed mutual help                       15                 $88,201
               Non-HUD homes                               7                 $76,274
                                         Total            23                $182,940

              The following are examples of block grant funds that were spent for renovation
              work that was not in Fort Belknap’s accepted plans.




                                                 5
Fort Belknap spent nearly $18,500 to complete renovation work on a mutual help
home.




Fort Belknap spent nearly $1,500 to purchase materials to build a handicap ramp
on a non-HUD home. This home has since been abandoned, and the Housing
Department used plywood from its inventory to board it up.




                                6
            Fort Belknap spent more than $58,000 on a U.S. Department of Interior home.




Housing Department and
Council Not Aware of
Requirements

            The noncompliance described above occurred because the Housing Department
            and the Council were not aware that renovation work on mutual help, conveyed
            mutual help, and other non-HUD homes had to be listed in the HUD-accepted
            plan. During discussions, staff members explained that their understanding of the
            requirements was that if the expense was housing related, it was allowable.

Funds Not Available for
Intended Purposes


            As a result of the noncompliance, more than $182,000 in HUD funds was not
            available for its intended purposes. Block grant funds are intended to be used for
            housing development, housing services to eligible families and individuals, crime
            prevention and safety, and model activities as detailed in its accepted plans.
            Instead, Fort Belknap used the funds for activities that were not in its accepted
            plans.

Recommendations


            We recommend that the Administrator of the Northern Plains Office of Native
            American Programs


                                             7
1A. Ensure that Fort Belknap recovers the $182,940 in funds expended for
    renovation work not listed in its HUD-accepted plans from the homeowners
    receiving that assistance or from other non-Federal sources.

1B. Provide training to the Council and Housing Department related to the
    identification and acceptance process for renovation work on mutual help,
    conveyed mutual help, and other non-HUD homes.

1C. Enforce the remedies outlined in 24 CFR 1000.532 and 1000.538 for
    substantial noncompliance. These remedies range from adjusting the
    amount of block grant funds Fort Belknap will receive to providing a
    replacement tribally designated housing entity for the recipient.




                               8
Finding 2: Fort Belknap Completed Purchases in Violation of Cost
            Principles for Federal Awards
Fort Belknap used block grant funds for unallowable expenses. This noncompliance occurred
because the Housing Department was not completely familiar with Federal rules that restrict the
use of HUD funds to certain tasks. As a result, authorized participants of the mutual help and
low-rent programs lost the benefit of at least $31,000 in program funding.


   Unallowable Expenses


              Fort Belknap used block grant funds for unallowable expenses. Of the more than
              $9 million in block grant funds awarded to Fort Belknap between 2006 and 2009,
              we identified more than $31,000 in unallowable expenses. These expenses were
              not necessary and reasonable for proper and efficient performance and
              administration of the block grant as stipulated in OMB Circular A-87.
              Regulations at 24 CFR Part 1000 require Fort Belknap to comply with OMB
              Circular A-87. The following table is a summary of the unallowable expenses.

                          Unallowable expense             Amount expended
                 Bank overdraft fees                               $13,420
                 Expenses paid for non-HUD homes                   $13,599
                 and units
                 Building caskets, building rough                      $2,593
                 boxes, and burial services
                 Penalties and interest                                $1,644
                 Non-housing-related activities                         $702
                                                  Total               $31,958


 Housing Department Not
 Familiar with Federal
 Requirements

              The Housing Department was not completely familiar with Federal rules that
              restrict the use of HUD funds to certain tasks. Based on discussions with the
              Housing Department and the Council, they believed that as long as the expense
              was housing related or somehow tied to a youth activity, it was allowable.

 Lost Benefits


              Authorized participants of the mutual help and low-rent programs lost the benefit
              of at least $31,000 in program funding. Block grant funds are intended to be used


                                               9
          for housing development, housing services to eligible families and individuals,
          crime prevention and safety, and model activities that provide creative approaches
          to solving affordable housing problems. Instead, these funds were spent on bank
          overdraft charges, penalties and interest, expenses for non-HUD homes, and non-
          housing-related expenses.

Recommendations

          We recommend that the Administrator of the Northern Plains Office of Native
          American Programs

          2A. Ensure that the Housing Department repays $31,958 in unallowable costs
              from non-Federal funds.

          2B. Provide training to the Housing Department and Council regarding eligible
              costs.

          2C. Enforce the remedies outlined in 24 CFR 1000.532 and 1000.538 for
              substantial noncompliance. These remedies range from adjusting the
              amount of block grant funds Fort Belknap will receive to requiring it to
              obtain a replacement tribally designated housing entity for the recipient.




                                          10
Finding 3: Fort Belknap Did Not Submit Its Audited Financial
            Statements When Required
Fort Belknap did not submit its Housing Department’s 2006, 2007, and 2008 audited financial
statements when required. This noncompliance occurred because the Council did not understand
HUD financial reporting requirements. As a result, Fort Belknap was not able to demonstrate to
HUD and other stakeholders that it complied with all applicable requirements and had the
capacity to perform in compliance with those requirements.


 Audited Financial Statements
 Not Submitted

              Fort Belknap did not submit its Housing Department’s 2006, 2007, and 2008
              audited financial statements when required. According to OMB Circular A-133,
              the audited financial statements are due 9 months after the end of the audit period.
              Regulations at 24 CFR Part 1000 require Fort Belknap to comply with OMB
              Circular A-133.

              Fort Belknap submitted the Housing Department’s 2006 audited financial
              statements to HUD. However, they were more than 2 years late and were
              noncompliant because the independent auditor was unable to express an opinion
              due to the lack of adequate accounting records. Fort Belknap submitted the
              Housing Department’s 2007 and 2008 audited financial statements to HUD.
              However, the 2007 audited financial statements were more than 1 year late and
              the 2008 audited financial statements were more than 5 months late. Both are
              noncompliant because the independent auditor was unable to express an opinion
              due to the lack of adequate financial records.

 Council Not Clear on Financial
 Reporting Requirements


              The Council informed us that it did not fully understand its financial reporting
              responsibilities to HUD. Fort Belknap had requested a hearing regarding HUD’s
              consideration that its 2006 audited financial statements were noncompliant. It is
              also working to provide HUD with an opinion from an independent public
              accountant certifying that the financial and accounting systems for Fort Belknap
              meet the requirements of 24 CFR Part 85 and generally accepted accounting
              principles.




                                               11
Program Compliance Not
Demonstrated

          Fort Belknap was not able to demonstrate to HUD and other stakeholders that it
          was performing in compliance with all applicable requirements and that it had the
          capacity to perform in compliance with those requirements.

Recommendations


          We recommend that the Administrator of the Northern Plains Office of Native
          American Programs

          3A. Provide training to Fort Belknap regarding HUD financial reporting
              requirements.




                                          12
Finding 4: Fort Belknap Did Not Pursue Collection of Its Past Due
            Tenant Accounts Receivable
Fort Belknap did not pursue collection of its past due tenant accounts receivable. This condition
occurred because the Housing Department did not have written policies and procedures for
collecting them. As a result, the Housing Department was not able to serve as many people as
possible.


 Collection of Past Due Accounts
 Not Pursued


               Fort Belknap did not pursue collection of its past due tenant accounts receivable.
               The Housing Department’s mutual help admissions and occupancy policy for its
               mutual help program requires each homeowner to make monthly housing
               payments on or before the first day of each month. The mutual help and
               occupancy agreement between the Housing Department and the homeowner
               requires the Housing Department to establish and adopt written policies and use
               its best efforts to obtain compliance to ensure the prompt payment and collection
               of required home-buyer payments. The Housing Department has begun to take
               action to collect tenant accounts receivable by pursuing collection through wage
               agreements with the tenants and working with the Tribal Court. However, the
               outstanding tenant accounts receivable balance exceeded $1 million as of
               September 30, 2008.

 Written Policies and
 Procedures Not Available

               The condition described above occurred because the Housing Department did not
               have written policies and procedures for collecting tenant accounts receivable. It
               was working to develop and implement written policies and procedures for
               collecting them when we completed our audit.

 Increased Tenant Accounts
 Receivable

               The Housing Department was not able to serve as many people as possible.
               Tenant accounts receivable represent funds that the Housing Department can use
               to support its mission of providing decent, safe, and sanitary housing for eligible
               families. They increased about $156,000 during the audit period, reaching more
               than $1 million as of September 30, 2008.




                                                13
Recommendations


          We recommend that the Administrator of the Northern Plains Office of Native
          American Programs

          4A. Ensure that the Housing Department develops and implements policies and
              procedures for collecting tenant accounts receivable.

          4B. Ensure that the Housing Department recovers the $1,043,553 in tenant
              accounts receivable.

          4C. Enforce the remedies outlined in 24 CFR 1000.532 and 1000.538 for
              substantial noncompliance. These remedies range from adjusting the
              amount of block grant funds Fort Belknap will receive to providing a
              replacement tribally designated housing entity for the recipient.




                                         14
Finding 5: Fort Belknap Did Not Maintain Equity Accounts on Its
            Home Buyers
Fort Belknap did not maintain monthly equity payment accounts on its mutual help program
home buyers and inappropriately used account money to meet daily operating expenses. This
noncompliance occurred because the Housing Department did not understand the monthly equity
payment account requirements. As a result, it was unable to use $300,000 in monthly equity
payments for its intended purposes.


 Monthly Equity Payment
 Accounts Not Maintained


              Fort Belknap did not maintain monthly equity payment accounts on its mutual
              help program home buyers and inappropriately withdrew $300,000 in account
              money to meet daily operating expenses. The mutual help and occupancy
              agreement requires the Housing Department to maintain a separate account for
              each home buyer and restricts the home-buyer funds. According to Office of
              Native American Programs Guidance 2003-07, the amount of the home buyer’s
              monthly payment that exceeds the administrative fee is to be transferred to the
              home buyer’s equity account. Contrary to this guidance, the Housing Department
              created a separate account for only those home buyers with a balance at the time
              the account was created and used the restricted home-buyer funds for daily
              operating expenses.

 Housing Department Did Not
 Understand Requirements

              The Housing Department did not understand it was required to maintain a
              separate monthly equity payment account for every mutual help program home
              buyer and that the accounts were restricted for the home buyers’ use. We
              confirmed through discussions with the Housing Department that it did not
              understand the requirements.

 Funds Not Available for
 Maintenance Work

              The Housing Department was unable to use $300,000 in monthly equity payments
              for home-buyer-related items such as maintenance work, charges for unit
              improvements requested by the home buyer, and the balance of the home
              purchase prices. It should have used the money for these types of items instead of
              spending it on daily operating expenses of the Housing Department.




                                              15
Recommendations


          We recommend that the Administrator of the Northern Plains Office of Native
          American Programs

          5A. Provide training to the Housing Department regarding the establishment and
              use of monthly equity payment accounts.

          5B. Ensure that the Housing Department maintains a separate monthly equity
              payment account for every mutual help program home buyer and identifies
              and returns the $300,000 in misspent payments to the correct home buyer
              accounts.

          5C. Refer this matter to the Departmental Enforcement Center for pursuit of all
              applicable administrative and civil actions.

          5D. Enforce the remedies outlined in 24 CFR 1000.532 and 1000.538 for
              substantial noncompliance. These remedies range from adjusting the
              amount of block grant funds Fort Belknap will receive to providing a
              replacement tribally designated housing entity for the recipient.




                                         16
                         SCOPE AND METHODOLOGY

Our audit period was January 1, 2006, to December 31, 2008. We expanded our scope when we
identified deficiencies that extended outside our original audit period. To accomplish our objective,
we reviewed the Office of Native American Programs and Fort Belknap criteria, contracts, and
records relating to the block grant program and the Housing Department’s low-rent and mutual help
programs. We also met with the Northern Plains Office of Native American Programs staff,
Council members and staff, and Housing Department staff.

To determine whether the Fort Belknap used its block grant funds for allowable costs, we reviewed
all three of the Housing Department’s expenditure reports, a listing of 15,725 transactions, which
covered the period October 10, 2005, through September 30, 2009. We reviewed the three
reports for transactions that were questionable. Questionable transactions were identified by
looking at the transaction description and the vendor name to determine whether the expenditure
appeared to be unallowable or was a type of transaction or vendor we believed justified review.
Transaction descriptions included social activities, penalties, interest, overdraft fees, handicap
ramps and bathrooms, and mention of “non-HUD” or “not approved by HUD.” Vendors
included grocery stores and nonpayroll payments to individuals. We used OMB Circular A-87
to determine what costs were unallowable.

Of the 15,725 transactions, we selected 1,907 questionable transactions to review. We reviewed
the supporting documentation and bank statements for the selected transactions. Because there
was a pattern of bank overdraft fees, we expanded our review beyond the 1,907 questionable
transactions. We reviewed the bank statements covering January through September 2006 and
October through December 2008.

In addition to the 1,907 transactions, we reviewed support for costs associated with building
caskets, building rough boxes, burial services, and work performed on non-HUD houses. These
costs were identified during discussions with Housing Department staff regarding the unusually
high materials cost listed in its trial balances. We reviewed the Housing Department’s Indian
housing plans for Federal fiscal years 2006, 2007, and 2008 to determine what activities were
accepted. We also reviewed the Housing Department’s emergency assistance policy, maintenance
policy, comprehensive housing policies, mutual help admissions and occupancy policy, and
financial procedures manual.

To determine whether the Housing Department properly established and maintained the monthly
equity payment accounts on its home buyers, we reviewed the Housing Department’s mutual
help admissions and occupancy policy and its monthly equity payment account transactions by
account report. We also reviewed the Housing Department’s equity account bank statement, dated
December 31, 2005, and the bank statement for its operating account, dated December 30, 2005.

To determine whether the Housing Department used effective collection policies and procedures
to maintain adequate control over its tenant accounts receivable, we reviewed the trial balances
and the accounts’ detail reports for Federal fiscal years 2006, 2007, and 2008.



                                                 17
We relied on automated data as described above only for background purposes and to report the
tenant accounts receivable balances. The data were the best available at the time of the report
and were sufficient to meet our audit objective. Therefore, we did not assess the reliability of the
data.

We also identified an opportunity for Fort Belknap to put more than $182,000 to better use if it
trains its administrators and staff regarding the identification and acceptance process for
renovation work on certain types of housing. We further identified an opportunity for Fort
Belknap to put more than $1 million to better use if it improves controls over tenant accounts
receivable collections and recovers the funds so that they may be used to benefit program
participants.

We performed our on-site audit work from August through October 2009 at the Housing
Department’s offices at Fort Belknap in Harlem, MT.

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.




                                                18
                              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 administering its Indian housing plan.
              •    Controls over using its block grant funds for allowable costs.
              •    Controls over submitting its audited financial statements.
              •    Controls over administering its tenant accounts receivable.
              •    Controls over establishing and maintaining its monthly equity payment
                   accounts.

              We assessed the relevant controls identified above.

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

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

              •   Fort Belknap did not adequately train its personnel (findings 1, 2, 3, and 5).
              •   Fort Belknap did not have written policies and procedures for collecting tenant
                  accounts receivable (finding 4).




                                               19
                                     APPENDIXES

Appendix A

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

                 Recommendation                Ineligible    Funds to be put
                        number                         1/     to better use 2/
                                1A             $182,940
                                2A              $31,958
                                4B                               $1,043,553
                                5B             $300,000


1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or Federal, State, or local
     policies or regulations.

2/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified. Fort Belknap could have put $1,043,553 to better use for
     program participants if it had pursued collection of the funds so that funds were available
     when participants needed them for appropriate purposes.




                                             20
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         21
Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2



Comment 3




                         22
Ref to OIG Evaluation   Auditee Comments




Comment 4




                         23
Ref to OIG Evaluation   Auditee Comments




                         24
Ref to OIG Evaluation   Auditee Comments




Comment 5



Comment 6




Comment 7


Comment 8



Comment 9




                         25
Ref to OIG Evaluation   Auditee Comments




Comment 10




Comment 11




                         26
Ref to OIG Evaluation   Auditee Comments




                         27
Ref to OIG Evaluation   Auditee Comments




Comment 12




Comment 13




                         28
Ref to OIG Evaluation   Auditee Comments




                         29
Ref to OIG Evaluation   Auditee Comments




                         30
                           OIG Evaluation of Auditee Comments

Fort Belknap’s written response along with its verbal response at the exit conference indicates
general disagreement with the findings and recommendations.

Comment 1     We agree that HUD reviews a plan to ensure it is in compliance with the Native
              American Housing and Self-Determination Act of 1996 (NAHASDA), the
              regulations, and program guidance before they accept it. We have changed the
              wording in the audit report from “HUD-approved” to “HUD-accepted.” We do
              not agree that the Indian housing plans (plans) were comprehensive enough to
              include the activities singled out in the audit report. Section 102(b)(2) of
              NAHASDA identifies required information in a plan and this was not present in
              any of the HUD-accepted plans dealing with this issue. In addition, Section 233
              of NAHASDA requires eligible housing activities to be described in a plan. Fort
              Belknap indicates if necessary, it will simply amend the plans for the years in
              question to reflect the units worked on. However, a plan may not be amended if
              all of the funds for that plan have been expended. We verified with HUD that all
              of the funds for the three plans have been expended so they may not be
              retroactively amended.

Comment 2     We adjusted the amount of questioned costs based on the additional
              documentation Fort Belknap provided showing that it reimbursed the Housing
              Department $43,825 for labor costs and $6,100 in material costs on the U.S.
              Department of Interior home listed in the finding under the non-HUD homes
              category.

Comment 3     During our review, we gave Fort Belknap officials ample opportunity and time to
              provide us with adequate support for the reported deficiencies. Through-out our
              review, we briefed various current and former Council members and Housing
              Department officials on the results of the audit as discrepancies were identified
              and they were given the opportunity to provide additional documentation. Upon
              issuance of the final audit report, the Council and Housing Department will have
              ample time to work with HUD on implementing and resolving the
              recommendations.

Comment 4     Fort Belknap makes a general statement that substantially more money was spent
              on housing activities besides NAHASDA grant funds. However, it did not
              provide documentation other than that indicated in Comment 2 that shows non-
              program income was used to reimburse the Housing Department for completed
              renovation work on homes that were not in its HUD-accepted 2006, 2007, and
              2008 plans.

Comment 5     The questioned costs identified in this finding were separate from those identified
              in finding number one. These costs are related to renovation work and other
              expenses based upon different issues and are not a duplication of those questioned
              costs identified in finding number one. Fort Belknap and the Housing



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              Department will work with HUD to implement the recommendations in the
              finding and will be given the opportunity by HUD to provide any additional
              documentation necessary to resolve the finding.

Comment 6     The $13,420 in bank overdraft fees were specifically identified on the bank
              account used by the Housing Department that receives Indian Housing Block
              Grant funds from HUD during our audit period. In addition, penalties and interest
              were identified on the Housing Department’s 2007 and 2008 Expenditure
              Reports. We were not provided with any additional supporting documentation to
              indicate that non-program income was used to pay for these costs.

Comment 7     We reviewed 18 Housing Department work orders on eight individuals related to
              this issue along with the statement provided by Fort Belknap in its exhibit number
              two. We also visited the Clerk and Recorders Office in the Blaine County
              Courthouse located in Chinook, Montana to verify the date of death of the nine
              individuals receiving burial services. In one instance, three work orders were
              issued on the exact date of death of the individual receiving burial services and
              the remaining 15 work orders were issued shortly after the date of death of the
              individuals receiving burial services. The statement provided by Fort Belknap in
              its exhibit number two was for services provided four days after this individual
              died. This same individual was not a tenant in the Housing Department’s low-
              rent housing program or its mutual help housing program. In addition, none of
              the eight remaining individuals in question was a tenant in the Housing
              Department’s low-rent housing program or its mutual help housing program. The
              majority of the work orders stated they were for building cabinets for deceased
              individuals. One work order was for building a rough box and another work order
              was for the delivery of cabinets to a funeral home located in Chinook, Montana.
              We also verified with Housing Department officials that housing funds were used
              for burial services.

Comment 8     We adjusted the amount of non-housing related activities based on additional
              documentation Fort Belknap provided showing that it reimbursed the Housing
              Department $249 for training of a Tribal Council Member. In addition, we
              eliminated the unsupported expenses based on additional documentation provided
              by Fort Belknap.

Comment 9     We agree that working with HUD representatives should prevent the issues
              identified in this finding from occurring again.

Comment 10 We adjusted the finding to reflect that the auditee has now submitted its 2006,
           2007, and 2008 audited financial statements to HUD. The auditee acknowledges
           it submitted its 2006, 2007, and 2008 audited financial statements late, which
           supports the conclusions in the finding.

Comment 11 The auditee believes statements made by the independent auditor supports its
           view that the Housing Department is now meeting HUD audit requirements. The



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              documentation they provided did not support this statement. HUD determined the
              2006 audited financial statements were non-compliant because the independent
              auditor was unable to express an opinion due to the lack of adequate accounting
              records. In addition, the proposed Settlement Agreement between the auditee and
              HUD regarding the 2007 and 2008 audited financial statements indicates HUD
              still considers the auditee to be non-compliant because both audits contained
              disclaimers of opinion due to the lack of adequate financial records. We verified
              that the financial statements support HUD’s determination. This supports our
              recommendation that HUD provide the auditee with training regarding HUD
              financial reporting requirements.

Comment 12 The Housing Department did not have written policies and procedures for
           collecting its past due tenant accounts receivables. We acknowledge in the
           finding that the Housing Department is now taking action to collect its past due
           tenant accounts receivables. In addition, HUD Program Guidance No. 2002-11
           states Sections 203 and 207 of NAHASDA requires that grant recipients adopt
           written policies dealing with rents and home buyer payments. The Housing
           Department’s low-rent housing program policy did not address the collection of
           rental payments. In addition, while the Housing Department’s mutual help
           program policy did address the collection of home buyer payments, the Housing
           Department elected not to follow its policy on this subject.

Comment 13 Fort Belknap acknowledged that $300,000 was transferred from the monthly
           equity payment account (MEPA) and used for daily operating expenses. Fort
           Belknap provided documentation to show the actions it has taken to start
           accounting for the $300,000 that was used to fund daily operating expenses. Fort
           Belknap’s concern is that they do not believe that returning the misspent
           payments to the correct home buyers is justified or appropriate because affected
           individuals have already received the benefits of their account balances. The
           results in our finding are based on the records maintained at the time of our
           review. Fort Belknap will need to verify with HUD on those individuals who
           have already received the benefits of their account balances. Fort Belknap will
           also need to return the remaining misspent payments to the correct home buyers
           who have not already received the benefits of their account balances.




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