oversight

New Rochelle Municipal Housing Authority, New Rochelle, NY, Had Control Weaknesses in Its Low-Rent Housing Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-04-07.

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

                                                                             Issue Date
                                                                                      April 7, 2010
                                                                             Audit Report Number
                                                                                      2010-NY-1010




TO:            Mirza Negron Morales, Director, Office of Public Housing, 2APH



                   For
FROM:          Edgar Moore, Regional Inspector General for Audit, New York/New Jersey
               Region, 2AGA


SUBJECT: New Rochelle Municipal Housing Authority, New Rochelle, NY, Had Control
         Weaknesses in Its Low-Rent Housing Program

                                            HIGHLIGHTS

    What We Audited and Why

                 We audited the New Rochelle Municipal Housing Authority’s (Authority)
                 administration of its low-rent housing program as part of the Office of Inspector
                 General’s (OIG) strategic plan goals to improve the U.S. Department of Housing
                 and Urban Development’s (HUD) fiscal accountability for its assisted housing
                 programs. We selected the Authority because of its designation as high risk in the
                 most recent HUD field office risk assessment and an overall Public Housing
                 Assessment System1 score of 69.

                 The audit objectives were to determine whether the Authority administered its low-
                 rent housing program in accordance with applicable regulations. Specifically, we
                 reviewed whether the Authority (1) properly determined tenant eligibility; (2)
                 ensured that program units were decent, safe, and sanitary; and (3) administered
                 procurement, payroll, and financial management processes in accordance with HUD
                 regulations and its own policy.


1
 HUD uses the Public Housing Assessment System to monitor and rate the performance (on a scale of 100 points) of
housing authorities in the areas of financial condition (30 points), management operations (30 points), physical
condition (30 points), and residents’ satisfaction (10 points).
What We Found
           The Authority had weaknesses in the administration of its low-rent program.
           Specifically, it did not (1) properly determine tenant eligibility; (2) ensure that
           program units were decent, safe, and sanitary, and (3) support rent charged to an
           employee-tenant. Consequently, the Authority lacked assurance that all low-rent
           program tenants were properly certified; tenants resided in units that were decent,
           safe, and sanitary; and an employee-tenant was charged the correct rent.

           The Authority had weaknesses in its administration of the procurement, payroll, and
           financial management functions. Specifically, it (1) executed contracts contrary to
           HUD and its own policy, (2) did not maintain adequate support for payroll, and (3)
           improperly expended and loaned funds among programs contrary to regulation.
           These weaknesses occurred because Authority officials did not establish adequate
           controls over the procurement and payroll processes and were unfamiliar with HUD
           financial management regulations. Consequently, the Authority lacked assurance
           that services were obtained at the most economical and efficient price, payroll costs
           were eligible and adequately supported, and funds were always expended in
           accordance with HUD regulations.


What We Recommend

           We recommend that the Director, Office of Public Housing, New York, instruct the
           Authority to (1) strengthen controls over low-rent tenant certification and unit
           inspection procedures to ensure that tenant eligibility is properly determined and
           adequately documented, and that annual inspections of low-rent units are
           conducted; (2) establish procedures for the approval and calculation of rents; (3)
           provide documentation to justify the rent charged to an employee-tenant or pay the
           $57,252 that should have been collected; (4) strengthen controls to ensure
           compliance with HUD procurement, payroll, and financial management regulations;
           and (5) repay from non-Federal funds the $38,355 expended for ineligible costs.

           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 discussed the results of the audit with the auditee during the audit and at an exit
           conference on February 16, 2010. We provided a draft report on February 2, 2010
           and requested written comments by February 26, 2010, which we received on
           March 1, 2010. The auditee generally disagrees that it had systemic weaknesses in
           the administration of its programs.

           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 Had Weaknesses in the Administration of Its Low-   5
                 Rent Program

      Finding 2: The Authority Had Weaknesses in the Administration of its        9
                 Procurement, Payroll, and Financial Management Functions


Scope and Methodology                                                             13

Internal Controls                                                                 14




Appendixes
   A. Schedule of Questioned Costs and Funds To Be Put to Better Use              16
   B. Auditee Comments and OIG’s Evaluation                                       17




                                             3
                      BACKGROUND AND OBJECTIVES

The New Rochelle Municipal Housing Authority (Authority) was established in 1941 as a public
governmental agency under New York State law to provide decent, safe, and sanitary housing for
low-and moderate-income persons and families. The Authority is governed by a seven-member
board of commissioners, five of whom are appointed by the city manager and two of whom are
elected by Authority residents. The executive director, who supervises the daily management of
the Authority, was appointed by the board of commissioners in March 1991. The Authority’s main
office is located at 50 Sickles Avenue, New Rochelle, NY.

The Authority administers Low-Rent Public Housing, Housing Choice Voucher, Public Housing
Capital Fund (Capital Fund), Resident Opportunities and Self-Sufficiency (ROSS), and Family
Self-Sufficiency grant programs funded by the U.S. Department of Housing and Urban
Development (HUD). The Authority manages 543 low-rent public housing units, which are
contained in four developments: the Hartley Houses, which has 240 units among five buildings;
the Bracey Apartments, which has 100 units among two buildings; La Rochelle Manor, a single-
building complex that has 91units; and Queens City Tower, a single-building complex that has 112
units. The Authority also owns and manages two rental properties. During the audit period July 1,
2005, through June 30, 2007, the Authority received $2.5 million to administer 543 low-rent
program units, $4.2 million to administer 196 housing choice vouchers, $1.8 million in Capital
Fund program funds, $402,879 in ROSS programs funding, and $200,000 to fund a coordinator
position for its Family Self-Sufficiency program.

Our audit objectives were to determine whether the Authority administered its low-rent housing
program in accordance with applicable regulations. Specifically, we reviewed whether the
Authority (1) properly determined tenant eligibility; (2) ensured that program units were decent,
safe, and sanitary; and (3) administered procurement, payroll, and financial management processes
in accordance with HUD regulations and its own policy.




                                                4
                                 RESULTS OF AUDIT

Finding 1: The Authority Had Weaknesses in the Administration of Its
           Low-Rent Program
The Authority had weaknesses in the administration of its Low-Rent program. Specifically, it did
not properly (1) determine tenant eligibility; (2) ensure that program units were decent, safe, and
sanitary; and (3) support rent charged to an employee-tenant. Consequently, the Authority lacked
assurance that all Low-Rent program tenants were properly certified; tenants resided in units that
were decent, safe, and sanitary; and an employee-tenant was charged the correct rent. We attribute
these weaknesses to inadequate controls and unfamiliarity with HUD regulations to verify and
document tenant eligibility, conduct annual unit inspections, correct unit inspection deficiencies,
and authorize rents.

 Tenant Eligibility Inadequately
 Documented


               The Authority did not adequately document the verification of Low-Rent program
               tenant eligibility. Regulations at 24 CFR (Code of Federal Regulations) 960.259
               and the Authority’s admissions and continued occupancy policy, sections 12.0 and
               12.2, require that the Authority verify information related to eligibility and
               occupancy and determine and maintain documentation regarding family assets,
               annual income, citizenship, and other factors that affect the determination of tenant
               rent. However, documentation of these issues was inadequate in six of ten tenant
               files reviewed. The table below highlights the factors for which documentation was
               lacking in the six files.

               Table 1: Factors for which tenant eligibility was inadequately documented

                  Tenant         Assets       Income      Citizenship    Social Security card
                    1              x
                    2              x
                    3              x                                              x
                    4              x
                    5                                          x                  x
                    6                            x

               Upon our notification of these inadequacies, Authority officials obtained the
               missing income, citizenship, and Social Security documentation for two of the six
               tenant files and a third tenant no longer resides at the Authority. While the missing
               asset/income documentation for the remaining three files was not obtained, we are
               not taking a monetary exception. We attribute the documentation deficiencies to
               inadequate controls over the Authority’s tenant eligibility verification process
               because it had not established procedures in its admissions and continued
               occupancy policy to follow up on missing eligibility documents. Authority officials
                                                   5
                  stated that they followed up with phone calls and letters to obtain missing
                  documents; however, these efforts and their results were not documented in the
                  files.

                  In addition, Authority officials did not effectively use HUD’s Enterprise Income
                  Verification system or another third-party verification method to verify households
                  that reported zero income. The Authority’s admissions and continued occupancy
                  policy, section 12.2, requires that the Authority verify zero-income status
                  households and obtain recurring gift letters to document income that would be a
                  gift. Review of files disclosed four zero-income reported households that were
                  paying the minimum $50 rent. One of the four zero-income reported households
                  receives Title V2 income that is exempt from determining income eligibility and the
                  Authority did not provide evidence that the remaining three zero-income
                  household's income had been documented as required by HUD. As a result,
                  Authority officials could not ensure that three of the four zero-income tenants were
                  paying the appropriate rent. This condition occurred because Authority officials did
                  not perform appropriate income verifications. Upon notification, Authority officials
                  verified income using HUD’s Enterprise Income Verification system and assisted
                  tenants in securing financial assistance. Through these actions, one of the three
                  zero-income tenants for whom income was not documented was approved to
                  receive government assistance, resulting in the tenant being charged $2,616 in
                  annual rent instead of the $600 minimum annual rent, thus reducing the rental
                  subsidy by $2,016 per year. On January 14, 2010, the Authority received a current
                  recurring gift letter from a second zero income tenant. The third zero-income
                  tenant was awaiting approval for assistance from a government entity.

    Unit Inspections and
    Reinspections Not Conducted as
    Required

                  Regulations at 24 CFR 902.43(a)(4), subpart D, require that units be inspected, and 24
                  CFR 5.705 stipulates that these inspections must be performed annually. Further, the
                  Authority’s admissions and continued occupancy policy, section 17.2, provides that
                  Authority officials must annually inspect all units. However, not all Authority units
                  were always inspected annually. Authority officials did not conduct unit inspections
                  in two of its four developments in fiscal year 2006, and no occupied units in another
                  development were inspected in fiscal year 2008. This condition occurred because the
                  Authority did not ensure that there was adequate staff to conduct the inspections.
                  Consequently, Authority officials could not ensure that all low-rent program units
                  were decent, safe, and sanitary.

                  In addition, corrective actions to address inspection deficiencies were not always
                  documented in a timely manner. In two of ten tenant files sampled, deficiencies
                  were discovered on November 6, 2007, but work orders were not created until April
                  2009, when we notified Authority officials that corrective actions had not been
2
  Title V—Community Service Employment for Older Americans provides that funds received by eligible individuals
from programs established in this title are not considered income for purposes of determining eligibility to participate
in any housing for which Federal funds may be available.
                                                           6
             documented. According to the Authority’s admissions and continued occupancy
             policy, section 17.2, work orders are required to be submitted and completed to
             correct any deficiencies. This condition occurred due to Authority officials’ failure
             to create work orders for inspection deficiencies noted. As a result, Authority
             officials lacked assurance that inspection deficiencies in all low-rent program units
             were addressed in a timely manner.

Rent Inappropriately Charged
to a Tenant


             Authority officials lacked proper documentation to support a $400 monthly rent
             charged to a tenant who was also an employee. HUD Public Housing Occupancy
             Handbook 7465.1, REV-2, Section 6.3(a)(2), for resident employees provides that
             employees who are required to live in public housing as a condition of their job may
             be charged some reasonable rent, although that rent can be a flat amount not related to
             the person’s income. Additionally, section 6.3(2)(c) provides that public housing
             applicants who work or expect to work for an authority are subject to the same
             admission requirements as other applicants and the authority may not lower their rent
             as compensation for their employment.

             An employee became a resident after being an employee of the Authority for many
             years, and in September 1992 the Authority’s board of commissioners authorized,
             dependent upon HUD approval, charging the employee a flat monthly rent of $400 as
             compensation for assisting with evening and weekend tenant activities. On January
             12, 1993, the Authority requested HUD’s approval (and included a description of job
             duties for the employee-tenant). On March 8, 1993, HUD requested additional
             information before approving the $400 monthly rent for the employee-tenant.
             However, Authority officials lacked documentation showing that they responded to
             HUD’s request or that HUD ultimately approved the arrangement as the board
             requested. Further, Authority officials said that no employee had ever been required
             to reside at the Authority as a condition of his/her job and that the employee-tenant’s
             $400 monthly rent had not been reviewed since its approval by the board in 1993.
             Consequently, from July 1, 2005 to December 31, 2009, while the employee-tenant
             would have paid $78,852 based upon HUD’s scheduled rent guidelines, the rent paid
             was $21,600. Accordingly, we consider the $57,252 ($78,852-$21,600) as
             unsupported subsidy during this period. Currently the correct annual rent for this
             tenant is expected to be $19,452 ($1,621 income based rent x 12). We attribute this
             condition to a lack of controls to follow up on HUD’s request for more information
             and the fact that the Authority’s admissions and continued occupancy policy does not
             provide guidance for establishing rents for employee-tenants.


Conclusion

             Weaknesses in the Authority’s Low-Rent public housing program administrative
             procedures created a lack of assurance that tenants were eligible for the program; units
             were decent, safe, and sanitary; and tenants were charged appropriate rents. We
                                                7
          attribute this condition to inadequate procedures to verify and document tenant
          eligibility, conduct annual unit inspections, and ensure that rents were properly
          authorized.

Recommendations

          We recommend that the Director, Office of Public Housing, New York, instruct the
          Authority to

          1A.     Provide support of tenant eligibility for the three tenants whose files were
                  reviewed that lacked the required income and asset documentation.

          1B.     Strengthen controls over tenant recertification to ensure that all tenant
                  eligibility and zero-income household documents are obtained and
                  maintained as assurance that tenants are eligible and charged the appropriate
                  rent.

          1C.     Provide documentation to support the rent adjustment made for the zero-
                  income tenant reviewed, which resulted in an annual rental subsidy
                  reduction of $2,016, thus ensuring that this subsidy savings will be put to
                  better use, and determine the proper rent and quantify any future annual
                  savings for the other zero-income tenant once a government assistance
                  amount is documented.

          1D.     Strengthen controls to ensure that annual unit inspections are conducted in
                  accordance with HUD regulations and that deficiencies found are adequately
                  corrected, documented, and maintained.

          1E.     Provide documentation to support that the $400 rent charged to the
                  employee-tenant is appropriate and if it is not, repay from non-Federal funds
                  the $57,252 in rent that should have been collected for the period July 1,
                  2005, to December 31, 2009, and adjust future rents accordingly, thus
                  putting $19,452 to better use annually.

          1F.     Strengthen controls for the approval of rents for employee-tenants and
                  ensure that procedures are incorporated into the Authority’s admissions and
                  continued occupancy policy.




                                              8
Finding 2: The Authority Had Weaknesses in the Administration of its
           Procurement, Payroll, and Financial Management Functions
The Authority had weaknesses in the administration of its procurement, payroll, and financial
management functions. Specifically, it (1) executed contracts contrary to HUD and its own policy,
(2) did not maintain adequate support for payroll, (3) improperly expended $38,355, and loaned
funds among programs contrary to regulation. These weaknesses occurred because Authority
officials did not establish adequate controls over the procurement and payroll process and were
unfamiliar with HUD financial regulations. Consequently, the Authority lacked assurance that
services were obtained at the most economical and efficient price, payroll costs were eligible and
adequately supported, and funds were always expended for eligible expenses.



 Procurement Actions
 Improperly Executed
 Procedures Were Not Followed
              The Authority did not comply with HUD procurement regulations and its own
              procedures in its administration of the procurement function. Regulations at 24 CFR
              85.36(c) require that procurement actions provide full and open competition, and 24
              CFR 85.36(f)(1) requires that a cost or price analysis be prepared in connection with
              every procurement action. Regulations at 24 CFR 85.36(d)(3)(iv) provide that awards
              will be made to the responsible firm having the proposal that is the most advantageous
              to the program. Further, the Authority’s procurement policy provides that competitive
              bid is the recommended method for procuring professional services that exceed the
              small purchase threshold of $200. In addition, 24 CFR 85.36(h)(3)(i) requires that a
              grantee’s contracts contain contract provisions. Examples include administrative,
              contractual, or legal remedies for violation or breach of contract terms and
              applicable sanctions, penalties, and termination for cause clauses designed to
              protect the interest of the grantee.

              As indicated in the table below, of the 22 procurement actions reviewed, Authority
              officials executed 12 totaling $ 1,003,481 without preparing a cost or price analysis
              and in 8 cases did not obtain competitive bids or quotes, and/or obtain a written
              contract.




                                                9
                 Table 2: Deficiencies In Procurement Actions

                                                          Cost or price        Competitive           Written
                  Procurement            Contract         analysis not        bids or quotes       contract not
                     action              amount            prepared            not obtained         obtained
                        1                    79,200            X                    X
                                                     3
                        2                                      X                    X
                        3                   302,400            X
                        4                    93,858            X                     X
                        5                   83,0005            X                     X                   X
                        6                  117,0695            X                     X                   X
                        7                   48,8005            X                     4
                                                                                                         X
                        8                   53,5895            X                     X                   X
                        9                   12,2505            X                     4
                                                                                                         X
                       10                   95,2505            X                     X                   X
                       11                   20,2915            X                     4
                                                                                                         X
                       12                   97,7745            X                     X                   X
                     Total               $1,003,481            12                    8                   8

                 We attribute these weaknesses to inadequate administrative controls in the Authority’s
                 procurement procedures and Authority officials’ unfamiliarity with HUD’s and their
                 own procurement policy. As a result, Authority officials lacked assurance that they
                 obtained the best price for services contracted for and that the Authority would be
                 fully protected in the event of nonperformance of intended contract terms.

    Inadequate Payroll Controls


                 Controls over the Authority’s payroll function were inadequate. Office of
                 Management and Budget (OMB) Circular A-87, attachment B, section 11(h)(5),
                 provides that personnel activity reports or equivalent documentation must account
                 for the total activity for which each employee is compensated and be signed by the
                 employee. Further, 24 CFR 85.20(2)(a) and (c) require public housing authorities
                 to establish internal controls, including but not limited to documenting procedures,
                 separation of duties, and maintaining adequate records.

                 The payroll register for the period December 6 through December 19, 2008, did not
                 reconcile with the hours recorded on each employee’s time and attendance record. For
                 example, while the time and attendance record for three employees did not document
                 that they worked on December 2, 2008, they were paid for that day a total of $539, and
                 for another six employees, the time and attendance record did not record a time in
                 and/or time out totaling $2,859 in payroll. In addition, 16 of 18 employee time cards
3
  No annual amount was documented; the retainer specified hourly rates ranging from $150 to $325 per hour.
4
  Competitive bids or quotes not required. According to the Authority’s procurement policy, competitive proposals are
the preferred method for procuring professional services that exceeds the small purchase threshold. Small purchases
are considered anything above the petty cash ceiling $200 but not exceeding $50,000.
5
  Represents amounts disbursed during our audit period July 1, 2005, through June 30, 2007. No contract was on file.

                                                         10
             were not signed. Further, the Authority lacked an adequate segregation of duties
             because the employee who processed payroll also processed their own payroll.


Improper Expenditures and
Account Maintenance

             The Authority disbursed $38,355 from its low-rent operating account in 2004 as an
             advance to pay predevelopment costs related to a joint project with the City of New
             Rochelle (City). The project, which was intended to be funded through the City’s
             HOME Investment Partnerships Program (HOME), was for construction of 79 units
             of affordable housing on land owned by both the City and the Authority. The
             Authority believed that it would be reimbursed for its advances from the City’s
             HOME program; however, in June 2005, the City was notified that HUD did not
             consider costs charged to the project to be eligible HOME costs and requested that
             the City repay costs previously charged to the project. While the City reimbursed
             HUD in August 2006, the City has not reimbursed the Authority.

             OMB Circular A-87, attachment A, section (C)(3), provides that any cost allocable to
             a particular Federal award or cost objective may not be charged to other Federal
             awards to overcome fund deficiencies, to avoid restrictions imposed by law or terms of
             the Federal awards, or for other reasons. Further, HUD’s Low-Rent Technical
             Accounting Guidebook 7510.1, section II-15, provides that an authority may use
             pooled funds for any expenditure chargeable to authority programs which have funds
             on deposit; however, funds may not be withdrawn for a program in excess of the
             amount on deposit for that program.

             The Authority maintained two general ledgers: one in which low-rent, Capital Fund,
             ROSS grant, and its business activity were recorded and one for its Housing Choice
             Voucher and State/local program activity. Activity among these programs was not
             reconciled until year-end when the Authority’s annual financial data schedule was
             compiled as part of the annual audit. As of June 30, 2007, the Authority reported
             interprogram due to/from amounts of $93,480 as follows: $7,680 and $24,500 due the
             low-rent program from its business activity and Housing Choice Voucher program,
             respectively, and $19,654, $4,146, and $37,500 due the Capital Fund, ROSS, and
             State/local programs, respectively, from the low-rent program. Therefore, the
             Authority improperly transferred funds among its many programs.


Conclusion

             Weaknesses in the administration of the procurement, payroll, and financial
             management functions lessened the Authority’s assurance that services were
             obtained at the most economical and efficient price, payroll costs were adequately
             supported, and funds were properly expended. As a result, the Authority lacked
             assurance that expenditures were properly supported and that it obtained the most
             economical price for services. In addition, HUD funds were spent for ineligible

                                               11
          purposes, and inadequate accounting controls caused the Authority to
          inappropriately use program funds to cover shortages in other programs.

Recommendations

          We recommend that the Director, Office of Public Housing, New York, instruct the
          Authority to

          2A.     Strengthen procurement controls to ensure that procurement actions comply
                  with HUD regulations and its own policy.

          2B.     Strengthen controls over payroll processing to ensure that employees
                  properly account for time worked, employee time records are signed, and
                  adequate segregation of duties is established in compliance with OMB
                  Circular 87.

          2C.     Reimburse from non-Federal sources the low-rent program operating
                  account for the ineligible expenditure of $38,355.

          2D.     Strengthen controls to ensure that low-rent program operating funds are
                  used for only eligible expenses.

          2E.     Reimburse the applicable programs for the various interprogram receivables
                  and payables, thus ensuring that $93,480 is put to better use.

          2F.     Strengthen procedures to ensure that accounts are maintained in accordance
                  with HUD regulations.




                                           12
                         SCOPE AND METHODOLOGY

To accomplish our objectives, we

       Reviewed applicable Code of Federal Regulations requirements; Federal Registers; OMB
       Circulars A-87 and A-133; Public Housing Occupancy Handbook 7465.1, REV-2; HUD’s
       Low-Rent Technical Accounting Guidebook 7510.1; and HUD’s fair market rents.

       Reviewed the Authority’s procurement policy, admissions and continued occupancy policy,
       board meeting minutes, and selected contracts to document policies and procedures
       affecting the Authority’s programs.

       Interviewed HUD Office of Public Housing staff and reviewed HUD files on the Authority
       to obtain an understanding of Authority operations.

       Analyzed the Authority’s audited financial statements, general ledger, expense accounts,
       bank reconciliations, bank statements, and cancelled checks for fiscal years 2006 and 2007.

        nterviewed Authority staff and reviewed tenant files, personnel and payroll records, tenant
       rental history, and administrative files to obtain an understanding of Authority operations
       and controls.

       Selected a nonstatistical sample of disbursements from the 2005 through 2007 low-rent and
       Capital Fund programs to determine whether the Authority expended funds in accordance
       with HUD regulations.

       Selected a sample of 10 public housing tenant files to assess whether the Authority
       properly determined tenant eligibility and rental subsidy and ensured compliance with
       HUD inspection regulations. In addition, we conducted follow-up inspections for a sample
       of six units to ensure that corrective action had been taken for prior inspections.

       Selected a sample of 22 procurement actions to determine whether the Authority complied
       with HUD procurement regulations and its own procedures in its administration of the
       procurement function

We performed on-site work from November 2008 through September 2009 at the Authority’s main
office, located at 50 Sickles Avenue, New Rochelle, NY. The audit period was from July 1, 2005,
through June 30, 2007, and was expanded as necessary.

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.


                                                13
                               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:

                      Program operations - Policies and procedures that management has
                      implemented to reasonably ensure that a program meets its objectives.

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

                      Safeguarding resources - Policies and procedures that management has
                      implemented to reasonably ensure that resources are safeguarded against
                      waste, loss, and misuse.

                      Validity and reliability of data - Policies and procedures that management has
                      implemented to reasonably ensure that valid and reliable data are obtained,
                      maintained, and fairly disclosed in reports.

               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.




                                                 14
 Significant Weaknesses


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

       The Authority lacked adequate procedures and controls ensuring compliance with HUD
       regulations when it did not maintain documentation to support reexaminations and
       confirmation of tenant eligibility and did not always conduct required annual unit
       inspections (see finding 1).

       The Authority did not comply with its own and HUD’s procurement regulations, had
       inadequate controls over its payroll process, and disbursed grant funds for ineligible
       expenses (see finding 2).




                                                 15
                                     APPENDIXES

Appendix A

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

 Recommendation                                                 Funds to be put to
        number            Ineligible 1/    Unsupported 2/            better use 3/

         1C.                                                                $2,016
         1E.                                        $57,252                 19,452
         2C.                   $38,355
         2E.                    ______               _____                 93,480
                               $38,355              $57,252              $114,948



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/   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 the 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.

3/   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. In this case, subsidies of $2,016 and $19,452 will be put
     to better use the first year after the tenants’ rent is adjusted, and $93,480 will be available
     for appropriate programs when interprogram loans are repaid.




                                               16
Appendix B
        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         17
Appendix B
        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 2




Comment 3




Comment 4




                         18
Appendix B
                         OIG Evaluation of Auditee Comments

Comment 1   Authority officials stated that the characterization is too broad to be effectively
            applied to agency’s operations and they look forward to reviewing the
            recommendations with the field office. Our conclusion is based upon testing of
            the Authority’s procedures that disclosed instances of noncompliance with HUD
            regulations 24 CFR (Code of Federal Regulations) Part 960.259 and its own
            policy, “Authority’s Admissions and Continued Occupancy Policy”, sections 12.0
            and 12.2, that require the Authority to properly certify tenant eligibility and
            occupancy, and ensure that tenants reside in units that are decent, safe, and
            sanitary.

Comment 2   While Authority officials could not provide a procurement waiver during the
            audit, information obtained subsequent to the exit conference disclosed that two
            vendors have a HUD procurement waiver for obtaining competitive bids.
            Accordingly, we removed these two procurement actions from finding 2 along
            with the vendor names in the auditee comments.

            In addition, Authority officials stated that procurement in two other cases
            represented work performed pursuant to previously procured services. While
            Authority officials could not provide documentation to support that a cost or price
            analysis was prepared for these services, we have removed one procurement as an
            exception because information provided disclosed that this procurement should be
            classified as a sole source procurement since the vendor was the only company
            that could provide the support for the system the Authority uses.

Comment 3   Authority officials stated that the employee charged with processing payroll also
            prepares their own payroll. Regulations at 24 CFR (Code of Federal Regulations)
            85.20, Part (2) (a) and (c) provides that internal controls be established, including
            but not limited to separation of duties. Therefore, the lack of a reconciliation of
            employee hours worked, signatures on employee timesheets, and proper
            segregation of duties does represent a systemic weakness.

Comment 4   Authority officials state that the inter-program due to/from expenses account
            represents the Agency’s tracking and monitoring of various program activity that
            flow through one general fund. However, HUD’s Low-Rent Technical Accounting
            Guidebook 7510.1, section II-15 provides that, while an authority may use pooled
            funds for any expenditure chargeable to authority programs, which have funds on
            deposit, funds may not be withdrawn for a program in excess of the amount on
            deposit for that program. Accordingly, the use of funds appropriated to one program
            to pay expenses of another is contrary to HUD policy.




                                             19