oversight

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)

                                                                 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.




                                           11
    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.

                              




                                              12
                         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.”




                                            20