Issue Date
December 13, 2010
Audit Report Number
2011-BO-1002
TO: Donna J. Ayala, Director, Office of Public Housing, Boston Hub, 1APH
FROM: John A. Dvorak, Regional Inspector General for Audit, Boston Region 1,1AGA
SUBJECT: Brockton Housing Authority, Brockton, MA, Needs to Improve Controls over its
Interprogram Fund Transactions and Housing Choice Voucher Program
Procurements
HIGHLIGHTS
What We Audited and Why
We audited the Housing Choice Voucher program (Voucher program) at the
Brockton Housing Authority (Authority) as part of our annual audit plan. The
overall objective of the audit was to determine whether the Authority efficiently
and effectively administered its Voucher program in compliance with its annual
contributions contracts and U.S. Department of Housing and Urban Development
(HUD) regulations. Our efforts focused on whether the Authority (1) used
Voucher program funds only for the administration of the program and whether
interprogram fund transactions were properly accounted for and reported; and (2)
followed the HUD’s procurement regulations and its own procurement policy.
What We Found
The Authority generally administered the Voucher program efficiently and
effectively and in compliance with its annual contributions contract and HUD
regulations. However, it did not conduct reconciliations to properly account for
and report interprogram fund transactions that occurred between its Federal and
State programs during fiscal years 2008 and 2009. During the audit, the
Authority’s management was able to reconcile its fiscal year 2008 audited
financial statement interprogram accounts of $3.8 million between State and
Federal programs. This reconciliation was accomplished by tracing the
appropriate interfund amounts to corresponding State or Federal general ledger
account numbers to ensure their accuracy. However, the Authority did not
properly account for and report the remaining fiscal year 2009 interprogram fund
transactions between its Federal and State programs, resulting in more than
$885,000 in unsupported transactions’ being recorded in its program accounts
before our audit was completed. In addition, the Authority could not provide
support and justification for $260,316 in Voucher program contracts to show that
the contracts were properly awarded/documented.
What We Recommend
We recommend that the Director of the Boston Office of Public Housing require
the Authority to (1) provide support for more than $885,000 in interprogram fund
transactions that are out of balance between Federal and State programs and (2)
provide support and justification for $260,316 paid for contracts for inspection
services and legal services or reimburse its operating funds from non-Federal
funds for the applicable amounts.
For each recommendation without a management decision in the body of the
report, 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 December 6, 2010, and held an exit
conference with officials on December 9, 2010. The Authority provided written
comments on December 9, 2010, 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 Regulations and Its 9
Own Procurement Policy
Scope and Methodology 13
Internal Controls 14
Appendixes
A. Schedule of Questioned Costs 16
B. Auditee Comments and OIG’s Evaluation 17
C. Restrictions of the Annual Contributions Contracts 20
3
BACKGROUND AND OBJECTIVES
The United States Housing Act of 1937 (Act) established the Federal framework for
government-owned affordable housing. The 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 Act was amended by the Quality Housing and Work Responsibility Act of 1998
to create 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 program is administered by the Brockton Housing Authority (Authority) for the
City of Brockton, MA. HUD contracts with the Authority to administer 2,057 housing voucher
units through annual contributions contracts.1 The Authority received $16.6 million in Voucher
program funds during the period January 1, 2008, through December 31, 2009, and earned
administrative fees of approximately $1.7 million during the same period. The annual
contributions contracts require the Authority to follow appropriation laws, HUD requirements
including public housing notices, and the Authority’s administrative plan.
The principal staff member of the Authority is the executive director, who is hired and appointed
by the board of commissioners. The executive director is directly responsible for carrying out
the policies established by the commissioners and is delegated the responsibility for hiring,
training, and supervising the remainder of the Authority's staff in order to manage the day-to-day
operations of the Authority to ensure compliance with Federal and State laws and directives for
the programs managed.
Our overall audit objective was to determine whether the Authority effectively and efficiently
administered its Voucher program in compliance with its annual contributions contracts and
HUD regulations. Our specific audit objectives were to determine whether the Authority (1) used
Voucher program funds only for the administration of the program and whether interprogram
fund transactions were properly accounted for and reported and (2) whether the Authority
followed HUD procurement regulations and its own procurement practices.
1
As of December 31, 2009, the Authority had 915 Section 8 Voucher program tenant-based vouchers, 784 mobility
vouchers, 84 Abington Housing Authority vouchers, 46 Stoughton Housing Authority vouchers, 214 Boston
Housing Authority vouchers, and 14 Brockton Area Multi Service vouchers. Each housing authority has its own
annual contributions contract, and the Authority has a contract with each agency to administer the vouchers on its
behalf.
4
RESULTS OF AUDIT
Finding 1: The Authority Did Not Reconcile Its Interprogram Fund
Transactions
The audit disclosed that the Authority’s Voucher and other HUD program’s interprogram fund
transactions had not been reconciled for fiscal years 2008 and 2009. This condition occurred
because management had not implemented procedures and controls to ensure its federal program
funds were only used to fund that program’s expenditures, or address program account
imbalances and ensure reconciliations were completed. This practice resulted in a buildup of due
from/due to amounts because the expenditures and revenues were not reconciled and paid back to
the proper program accounts. The imbalances in the interprogram accounts occurred because the
Authority did not ensure that programs only paid costs associated with that specific program and
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 ensure proper use of
program funds, or for reconciling the interprogram accounts or analyzing and correcting inbalances.
The program account must be reconciled prior to making payments to ensure that the Voucher
program only pays for that program’s expenditures and other HUD programs pay only their
costs. During the audit the Authority was able to reconcile the fiscal year 2008 fund imbalances
totaling more than $3.8 million and ensured expenditures were charged to the appropriate programs.
However, the Authority could not support $885,852 in transactions recorded in the interprogram
accounts as of December 31, 2009, between its Federal and State programs and cannot provide
HUD assurance that its Voucher program funds were only used for the Voucher program
expenses.
The Authority Had Ongoing
Issue With Interprogram
Accounts
The Authority had not balanced its interprogram receivables and payables
between its Federal and other programs.2 Before our audit, the Authority had not
made any effort to ensure federal program funds were used only for that specific
program’s costs, and did not reconcile the interprogram fund accounts for
2
Federal programs – low-rent public housing, Voucher, Public Housing Capital Fund, and State and local programs.
5
programs it administered. Also, the Authority’s accounting procedures did not
always readily identify whether the Authority used its Voucher program funds
only for the administration of that 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 it were
routinely out of balance during fiscal years 2008 and 2009. This lack of
reconciliation did not ensure the Authority’s compliance with the annual
contributions contracts for its HUD-funded housing programs that restrict the use
of program funds for payment of expenses associated with those programs (see
appendix C).
The Authority Had Initiated
Corrective Actions
As a result of our audit, in August 2010, the Authority established detailed written
interfund procedures. It now uses an excel spreadsheet, which incorporates all of
the transactions that occur during the month that affect these balances either
positively or negatively. This process includes all of the transactions of the
Authority since everything flows through the revolving account general ledger
and in turn affects the relevant ledgers with activity affecting particular programs.
During our audit, the Authority’s directors of finance and its fee accountant were
able to reconcile and account for the $3.8 million in interprogram transactions in
fiscal year 2008. This reconciliation was verified by tracing the appropriate
interfund amounts to the Authority’s corresponding program general ledger
account numbers to ensure their accuracy. Therefore, during the course of our
audit, the Authority was able to account for the $3.8 million balance of
interprogram funds as of December 31, 2008.
The Authority and Its Fee
Accountant Acknowledged
Interprogram Account
Transactions of $885,852
The Authority’s management and its fee accountant acknowledged that the
Authority had interprogram due from/due to balances as of December 31, 2008,
and December 31, 2009, of $3.8 million and $885,852, respectively. The
imbalances in the interprogram accounts occurred because the Authority ensure that
programs only paid costs associated with that specific program and 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
ensure proper use of program funds, or for reconciling the interprogram accounts or
analyzing and correcting imbalances. As a result, it did not have support for the
6
$885,852 in interprogram account balances that were out of balance between the
programs it administered.
The Independent Public
Auditor Fiscal Year 2009
Management Letter Revealed
Improper Transactions
The independent public auditor, upon review of the unaudited financial data
schedule submitted to HUD for the year ending December 31, 2009, disclosed
that there were no interfund accounts reported. Its analysis revealed that certain
receivables and payables were not properly classified on the schedule and,
consequently, the interfunds were rolled into other current assets and current
liabilities accounts. The independent public auditor concluded that these amounts
should be reimbursed and zeroed out on a monthly consistent basis and all
borrowed amounts should be repaid.
Conclusion
The Authority used funds in it Voucher program account to pay costs of all the
programs it administered in violation of its annual contributions contracts. The
annual contributions contracts restricts the use Voucher program funds and these
funds can only be used to pay for expenses to administer the Voucher program. It
also did not conduct reconciliations of the interprogram fund accounts to ensure
that program revenue and expenses were charged to the applicable programs.
However, during the course of our audit, the Authority established procedures and
controls to account for its interprogram fund transfer transactions. Under the new
procedures, the Authority employs a tracking excel spreadsheet to incorporate
details of the activities occurring during the month which affect these balances
either positively or negatively. These monthly 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. However, it must also ensure that Voucher program funds are only
used to pay the cost of administering the Voucher program and not paying costs
of any other programs.
Recommendations
7
We recommend that the Director of the Office of Public Housing require the Authority to
1A. Provide support for $885,852 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 reported.
1B. Implement controls to ensure that Voucher program and other HUD programs
funding are specifically used to pay only those costs of that specific program in
accordance with its annual contributions contracts.
We also 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.
8
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 and its own procurement policy. Specifically, the Authority failed
to
Maintain required Voucher program contracts for expired contracts,
Maintain a contract log that distinguished between goods and services and
maintenance contracts,
Adequately document the method for conducting technical evaluations of proposals,
and
Update documentation for the delegation of procurement responsibilities.
These conditions occurred because the Authority’s assistant executive director, who had been
delegated responsibilities as contracting officer, did not fulfill all of his responsibilities for
establishing and implementing effective management controls over the procurement process. As a
result, HUD had no assurance that $260,316 in leased inspection services and legal services
procured from January 2008 through September 2010 were procured at a fair and equitable price
and resulted in the best quality and/or pricing for goods and services obtained.
Maintain Required Voucher
Program Contracts for
Expired Contracts
24CFR Section 85.36(c) (1) requires that the Authority to conduct all
procurements in a manner that provides full and open competition; and maintain
sufficient records to show the history of the procurement
The Authority did not update or maintain contracts with two vendors. One was for
leased housing inspections, and the other was for legal services. During our audit
period, the authority purchased services provided by these two vendors, of which
$260,316 was charged to the Voucher program.
The expired contract for Voucher program housing inspections was signed and
dated May 4, 1999. This contract expired before our audit period, but during our
audit period (January 2008 to September 2010), the Authority purchased
inspection services from this vendor totaling $242,955.
9
The expired contract for legal services was signed and dated May 1, 2001. This
contract had expired before our audit period, but during our audit period (January
2008 to September 2010); the Authority purchased legal services from this vendor,
totaling $17,361, that was paid for from the Voucher program. The total amount
paid to these vendors from the Voucher program was $260,316. The assistant
executive director assured us that both of these contracts would be rebid.
Contract Logs Were Not
Maintained
24 CFR 85.36(b) (2) requires that the Authority maintains a contract system,
which ensures that contractors perform in accordance with the terms, conditions,
and specifications of their contracts or purchase orders.
The Authority failed to maintain current, accurate, and complete contract logs.
Some departments did not use one at all. Generally, the Authority’s assistant
executive director finalized all contracts. However, the communication among
these individuals may not have been collaborative in nature. The assistant
executive director acknowledged these issues and was instituting a centralized
contract logging system.
Technical Evaluations Of
Proposals Not Documented
The Authority did not consistently document in its requests for proposals the
method for conducting technical evaluation of proposed services as required by
24 CFR 85.36(d) (3). Contracts were awarded according to evaluation criteria in
the request for proposals. The Authority included an explanation of the point
system that it used to technically evaluate each proposal; however, an explanation
of the individual evaluations was documented in insufficient detail.
The Authority was required to have a method of fairly evaluating proposals to
ensure that contracts were awarded to a responsible firm that is most
advantageous to the program, with price and other factors considered. The
assistant executive director assured us that there would be sufficient
documentation to support the evaluations on future proposals.
10
Management Failed To Update
Delegation of Authority for
Procurement
HUD Handbook 7460.8 Rev 2 Chapter 2.3C established policies for the
delegations of procurement authority (e.g., to the Executive Director). These
policies should be included in the PHAs’ written procurement policy.
The Authority’s assistant executive director (designated as the contracting officer)
failed to update the file documents that indicated the proper delegation of
procurement authority and responsibilities for procurement. Delegation forms
that originated in 2001 were outdated, and two of the persons to whom
procurement and contracting responsibilities had been delegated either were no
longer in the employ of the Authority or had moved on to other positions. The
assistant executive director acknowledged this situation. The Authority stated
that updated delegation forms would be presented and approved at the next
meeting of the board of commissioners.
Conclusion
The Authority failed to comply with Federal procurement requirements and its
own procurement policies in contracting activities that required full and open
competition. In addition, it failed to develop sufficient records and procedures to
show the history and current status for the procurement of contracts and the
delegation of procurement responsibilities. As a result, the Authority spent
$260,316 for inspections and legal services without knowing whether the price for
the contracted services was reasonable. The Authority was in the process of
implementing more effective management controls for procurement and
contracting to ensure compliance with its own procurement policy and HUD
regulations.
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Recommendations
We recommend that the Director of the Office of Public Housing require the
Authority to
2A. Support the use of $242,955 by rebidding expired Voucher program contracts
for inspection services or reimburse its operating funds from non-Federal
funds for the applicable amount.
2B. Support the use of $17,361by rebidding expired Voucher program contracts
for legal services or reimburse its operating funds from non-Federal funds for
the applicable amount.
2C. Maintain documentation supporting the basis for contracts awarded, including
history of procurement and appropriate analysis and signed copies of contracts
2D. Maintain documentation supporting delegation of authority for those
individuals responsible for procurements.
2E. Maintain a contract log that provides current, accurate and complete contract
information.
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SCOPE AND METHODOLOGY
We conducted the audit between July and October 2010. Our fieldwork was conducted at the
Authority’s main office located at 45 Goddard Road, Brockton, MA. Our audit covered the
period January 1, 2008, 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 executive director, director of
housing programs and neighborhood revitalization, leased housing administrator, rental
assistance office manager, director of finance, management of information systems
director, and fee accountant to determine policies and procedures to be tested;
Reviewed the financial statements, general ledgers, tenant files, rent reasonableness
data, 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, the consolidated annual contributions contracts
between the Authority and HUD, and the Authority’s administrative plan to determine
its compliance with applicable HUD procedures;
For the period January 2008 to September 2010, reviewed 100 percent of Voucher
program contracts awarded and found that two of the four contracts reviewed were no
longer in effect; and
For the period January 2008 through December 2009, reviewed the Authority’s
management, accounting, and computer controls over cost allocations, interprogram
fund transfers, mobility, abatements, procurement, and travel to determine whether
the Authority had 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.
13
INTERNAL CONTROLS
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to
Effectiveness and efficiency of operations,
Reliability of financial reporting, and
Compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal controls were relevant to our audit
objectives:
Controls over tenant eligibility, calculating housing assistance
payments, tenant payments, and utility allowances;
Controls over rent reasonableness;
Controls over housing quality standards inspections;
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 procurements;
Controls over travel expense vouchers;
Controls over voucher use (eligibility, waiting lists, and use); and
Controls over the Voucher program administrative plan.
We assessed the relevant controls identified above.
A deficiency in internal control exists when the design or operation of a control
does not allow management or employees, in the normal course of performing
their assigned functions, the reasonable opportunity to prevent, detect, or correct
(1) impairments to effectiveness or efficiency of operations, (2) misstatements in
14
financial or performance information, or (3) violations of laws and regulations on
a timely basis.
Significant Deficiencies
Based on our review, we believe that the following items are significant deficiencies:
Insufficient accounting controls and procedures for reconciling and
clearing interprogram payables and receivables (see finding 1).
Inadequate procurement documentation to support its procurement
practices (see finding 2).
15
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
Recommendation number Unsupported 1/
1A $885,852
2A $242,955
2B $ 17,361
Total $1,146,168
1/ 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.
16
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 1
Comment 1
17
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
18
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.
19
Appendix C
RESTRICTIONS OF THE ANNUAL CONTRIBUTIONS
CONTRACTS
The 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.”
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Brockton Housing Authority
Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-12-13.
Below is a raw (and likely hideous) rendition of the original report. (PDF)