oversight

Housing Authority of the City of Mountain Grove, MO, Improperly Disposed of Housing Authority Assets

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-05-16.

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

Telephone: (913) 551-5870       http://www.hud.gov/offices/oig/                         Fax: (913) 551-5877



                                                         U.S. Department of Housing and Urban Development
                                                         Office of Inspector General
                                                         Region VII Office of Audit, 7AGA
                                                         Gateway Tower II - 5th Floor
                                                         400 State Avenue
                                                         Kansas City, KS 66101-2406



                                                                            AUDIT MEMORANDUM
                                                                                    2011-KC-1801


May 16, 2011


MEMORANDUM FOR:               Patricia Straussner, Coordinator, St. Louis Program Center, 7EPHO


            //signed//
FROM:        Ronald J. Hosking, Regional Inspector General for Audit, Kansas City, Kansas, 7AGA

SUBJECT:         Housing Authority of the City of Mountain Grove, MO, Improperly
                 Disposed of Housing Authority Assets


                                        INTRODUCTION

We audited the Housing Authority of the City of Mountain Grove, MO (Authority), in response to a
citizen’s complaint received by our office. The complainant made allegations related to asset
misappropriations, a procurement violation, and conflicts of interest. Our objective was to
determine whether the allegations were valid.

The allegations related to asset misappropriations were valid. The Authority improperly
disposed of Authority assets without the required board approval and without establishing the
fair value of the assets. We could not fully substantiate the allegation related to the contract
procurement violation. However, irregularities related to the alleged procurement violation
existed. The allegations of conflicts of interest were not valid.

This memorandum directly addresses the allegations made by the complainant. We will issue a
separate audit report that will include findings related to the complaint and will address
additional issues noted during our audit.

This memorandum report contains no recommendations, and no formal response from the
Authority was required or received. If you or your staff has any questions, please contact Todd
Gagon, Assistant Regional Inspector General for Audit, at (913) 551-5870.
 Telephone: (913) 551-5870    http://www.hud.gov/oig/oigindex.html         Fax: (913) 551-5877




                               SCOPE AND METHODOLOGY

To achieve our audit objective, we conducted interviews with

       The complainant;
       The U.S. Department of Housing and Urban Development’s (HUD) Office of Public and
        Indian Housing management and staff located in its St. Louis, MO, office;
       The Authority’s management, attorney, and staff;
       External parties mentioned in the complaint; and
       An independent accountant who prepared the Authority’s 2009 audited financial
        statements.

We also reviewed the following documents:

       Federal regulations and HUD requirements,
       Annual contributions contract and amendments,
       Initial citizen complaint and subsequent allegations,
       The Authority’s audited financial statements and other accounting records,
       The Authority’s bank statements and cancelled check copies obtained directly from
        financial institutions, and
       City of Mountain Grove (City) council meeting minutes.

For this memorandum report, we traced or verified information for each allegation to supporting
documentation to draw our conclusions. Therefore, we did not rely on computer-processed data
or select samples for our audit purposes.

We did not conduct our work in accordance with generally accepted government auditing
standards. However, this had no effect on the significance of the conditions identified in this
memorandum report. We designed the review with focus on validating the complaint
allegations. As a result, we significantly reduced the scope to items and conditions discussed in
this report. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our objectives.

Our audit generally covered the period January 1, 2009, through November 30, 2010, and was
expanded as necessary. We performed our work at the Authority’s administrative offices located
at 301 West 1st Street, Mountain Grove, MO.

                                         BACKGROUND

The Authority began operations in 1967 to provide decent, safe, and sanitary housing to low-
income, elderly, and disabled people in Mountain Grove, MO. The Authority receives funding
from HUD to furnish rental assistance to low- and moderate-income individuals for safe and
sanitary housing. A four-member board of commissioners governs the Authority, and an
executive director manages its daily operations. The members of the board are appointed by the
mayor and confirmed by the city council. The executive director is appointed by the board.



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 Telephone: (913) 551-5870     http://www.hud.gov/oig/oigindex.html         Fax: (913) 551-5877



The Authority received more than $1.1 million in Federal grants and subsidies from HUD for the
fiscal year ending September 30, 2010, and more than $1.1 million for the fiscal year ending
September 30, 2009. In administering its Federal grants, the Authority must follow Federal
regulations including those in the Code of Federal Regulations, Office of Management and
Budget circulars, HUD handbooks, and the Authority’s policies and procedures.

The objective of our review was to determine whether the allegations of asset misappropriations,
a contract procurement violation, and conflicts of interest against the Authority were valid. We
grouped the specific allegations from the complaint as follows:

    Asset Misappropriations
     The Authority improperly disposed of an Authority vehicle, and
     The Authority could not account for the disposal of its scrap metal.

    Contract Procurement Violation
     A board member of the Authority shared bid information from the lowest bidder to a
       higher bidder in an effort to direct business to the higher bidder.

    Conflicts of Interest
     A conflict of interest existed because a former member of the Authority’s board was
       married to an alderman of the City,
     A conflict of interest existed because a former member of the Authority’s board was
       hired as the executive director of the Authority,
     A conflict of interest existed because the Authority sold a vehicle to an employee of the
       Authority, who was also the fiancée of the son of a member of the Authority’s board.

                                     RESULTS OF REVIEW

The results of our review for each specific allegation are detailed as follows:

       The complainant alleged that the Authority improperly disposed of an Authority vehicle.
        We substantiated this allegation. In August 2010, the Authority’s former executive
        director improperly disposed of an Authority vehicle without the required board approval
        and without establishing the fair value of the vehicle. The vehicle was sold for $1,000 to
        the Authority’s financial coordinator. The Authority could not provide the required
        documentation related to the sale, including the bill of sale, informal bids solicited in
        writing or by phone, and a tabulation of all such bids received regarding the sale.
        Further, the Authority’s board did not authorize the sale as required by the Authority’s
        disposition policy.

       The complainant alleged that the Authority could not account for the disposal of all of its
        scrap metal. We substantiated this allegation. During fiscal years 2009 and 2010, the
        Authority’s maintenance employees disposed of 84 stoves, 86 refrigerators, and 60 water
        heaters, which the Authority labeled as scrap metal. The former executive director
        authorized the disposal of the scrap metal without appropriate board approval and without
        establishing its fair value. In addition, the Authority did not follow its own property
        disposition policy to ensure that all property was properly disposed of. As a result, it


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Telephone: (913) 551-5870     http://www.hud.gov/oig/oigindex.html         Fax: (913) 551-5877

       could not account for 37 stoves, 40 refrigerators, and 54 water heaters. The Authority
       sold other stoves, refrigerators, and water heaters at an average price of $20 per unit.
       Using the Authority’s conservative selling price of $20 per unit, the unaccounted for
       appliances had a total estimated dollar value of $2,620.

      The complainant alleged that a board member of the Authority shared bid information
       from the lowest bidder to a higher bidder in an effort to direct business to the higher
       bidder. We could not fully substantiate that the board member in question shared bid
       information from the lowest bidder to a higher bidder. However, some procurement
       irregularities related to the alleged violation existed. In March 2010, the Authority
       received three bids for the purchase of maintenance trucks. It received a bid from one
       bidder (dealer A) on March 26, 2010, in the amount of $39,000. It received a bid from
       the lowest bidder (dealer B) in the amount of $33,442 on March 30, 2010. On the
       morning of April 16, 2010, the Authority allowed one of its board members to copy the
       three original bids and leave the Authority with the copies. Later that day, dealer A
       submitted a new bid in the amount of $33,232, exactly $110 less than dealer B’s bid.
       When the other board members discovered that dealer A had submitted a second bid, they
       contacted the Authority’s legal counsel, who advised that they not consider the second
       bid. In the April 21, 2010, board meeting, the Authority’s board awarded the contract to
       dealer B, the original lowest bidder.

      The complainant alleged that a conflict of interest existed because a former member of
       the Authority’s board was married to an alderman of the City. A conflict of interest did
       not exist in this instance. The City alderman in question recused himself from the vote to
       appoint his wife as a member of the Authority’s board. In addition, a conflict of interest
       does not exist solely based on the fact that a member of the Authority’s board is married
       to a City alderman.

      The complainant alleged that a conflict of interest existed because a former member of
       the Authority’s board was hired as the executive director of the Authority. A conflict of
       interest did not exist in this instance. The Authority’s board did vote in a closed meeting
       to appoint the former board member as the executive director. However, HUD
       immediately informed the Authority that it is a conflict of interest for a former board
       member to serve as the executive director until 1 year after the member has left the board.
       We found no evidence that the former board member acted in any official capacity as the
       executive director of the Authority.

      The complainant alleged that a conflict of interest existed because the Authority sold a
       vehicle to an employee of the Authority, who was also the fiancée of the son of a member
       of the Authority’s board. A conflict of interest did not exist in this instance. As
       previously discussed, the Authority sold a vehicle to its financial coordinator. The
       financial coordinator was not in a position to formulate policy or influence decisions with
       respect to the Authority’s projects. In addition, we did not attempt to determine whether
       the financial coordinator was the fiancée of a board member’s son. Even if the employee
       was the fiancée of the board member’s son, the employee would not be considered a
       member of the board member’s immediate family.




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 Telephone: (913) 551-5870    http://www.hud.gov/oig/oigindex.html        Fax: (913) 551-5877

RECOMMENDATIONS
This audit memorandum contains no formal recommendations. We noted weaknesses in internal
controls related to the disposal of assets and contract procurement, which will be addressed in a
separate audit report. That report will also contain any recommendations related to the
weaknesses identified in this memorandum.




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