oversight

The Irvington Housing Authority, Irvington, NJ, Did Not Administer Its Capital Fund Programs in Accordance With HUD Regulations

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-11-24.

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

                                                                 Issue Date
                                                                        November 24, 2010
                                                                 Audit Report Number
                                                                              2011-NY-1003




TO:         Edward T. De Paula, Director, Office of Public Housing, 2FPH


FROM:
            Edgar Moore, Regional Inspector General for Audit, 2AGA


SUBJECT: The Irvington Housing Authority, Irvington, NJ, Did Not Administer Its Capital
         Fund Programs in Accordance With HUD Regulations


                                   HIGHLIGHTS

 What We Audited and Why

             We audited the Irvington Housing Authority’s (Authority) administration of its
             Public Housing Capital Fund programs because it was classified as a troubled
             housing authority and because of an anonymous complaint regarding allegations
             of improper procurement, misuse of funds, and lack of controls and direction.

             The audit objectives were to determine whether Authority officials (1) obligated
             and expended funds under the Capital Fund program and Capital Fund Financing
             Program (CFFP) in accordance with U.S. Department of Housing and Urban
             Development (HUD) regulations, and (2) had a financial management system in
             place that complied with program requirements. We also wanted to determine
             whether the complaint allegations could be substantiated.

 What We Found
             Authority officials did not always administer the Capital Fund programs in
             accordance with HUD regulations. Specifically, (1) controls over procurements
             were not adequate, and (2) Capital Fund program and CFFP funds were expended
             without adequate support and for ineligible items. We attribute these deficiencies
           to Authority officials’ not establishing controls to ensure compliance with
           procurement requirements and that expenditures were properly supported and
           eligible. As a result, goods and services were not obtained in the most
           economical or efficient manner, funds were not properly safeguarded as expenses
           were unsupported or ineligible, and funds disbursed were not properly recorded.
           Consequently, more than $2.4 million in expenses was unsupported, and $209,391
           was ineligible.

           The Authority’s financial management system did not always comply with
           program regulations. Specifically, Capital Fund program vouchers were not
           adequately approved before payment, and Capital Fund program expenses were
           improperly paid with Section 8 funds. We attribute these deficiencies to the
           Authority’s inadequate controls over the approval of purchases and authorization
           of disbursements. As a result, the Authority did not adequately account for and
           safeguard program funds, and $132,337 was inappropriately charged to the
           Section 8 program.

           The allegations in the complaint regarding inadequate management controls
           appeared to be valid and are addressed in appendix B.

What We Recommend
           We recommend that the Director of the New Jersey Office of Public Housing
           require Authority officials to provide supporting documentation so that HUD can
           determine the eligibility of more than $2.4 million in questioned costs, repay
           $209,391 in ineligible disbursements along with any additional amounts
           determined to be ineligible, and establish adequate controls to ensure compliance
           with program requirements.

           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 our review with Authority officials during our audit.
           We provided a copy of the draft report to Authority officials and discussed the
           report with them at the exit conference held on October 27, 2010. Authority
           officials provided their written comments to our draft report on October 27, 2010.
           Authority officials generally disagreed with our findings. The complete text of
           the Authority’s response, along with our evaluation of that response, can be found
           in appendix C of this report.




                                            2
                            TABLE OF CONTENTS

Background and Objectives                                                         4

Results of Audit
           Finding 1: The Authority Did Not Always Administer Its Capital Fund    5
                      Programs in Accordance With HUD Regulations

          Finding 2: The Authority’s Financial Management System Did Not Always   11
                     Comply With Program Requirements

Scope and Methodology                                                             13

Internal Controls                                                                 14

Appendixes
   A. Schedule of Questioned Costs and Funds To Be Put to Better Use              16
   B. Evaluation of Complaint Allegations                                         17
   C. Auditee Comments and OIG’s Evaluation                                       19




                                            3
                     BACKGROUND AND OBJECTIVES


The Irvington Housing Authority (Authority) is located at 101 Union Avenue, Irvington, NJ. The
Authority is headed by an executive director and governed by a board of commissioners made up of
seven members. One member is appointed by the mayor, five members are appointed by the City
Council, and one member is appointed by the State as delegated by the governor. The executive
director of the Authority is Mr. David A. Brown.

The Authority owns approximately 662 low-income housing units and administers 239 units
under the Section 8 Housing Choice Voucher program. It received more than $2.5 and $2.7
million in operating subsidies for fiscal years 2008 and 2009, respectively. It also received more
than $1.1 and $1 million for its Public Housing Capital Fund program in fiscal years 2008 and
2009, respectively.

The Authority obtained capital fund financing through revenue bonds in 2004. The amount
funded by the bonds, including interest income, was approximately $5.5 million, and the net
debt service was approximately $8 million. The funds were used to renovate and modernize
low-rent program units and pay related expenses including those for relocation of tenants. The
bonds are to be repaid over a 20-year term. Capital funds had not been pledged or guaranteed to
pay the debt service, but the debt service was being paid with capital funds.

The Authority received more than $1.3 million in American Recovery and Reinvestment Act of
2009 (Recovery Act) capital funds and obligated all funds received by March 15, 2010. The
deadline date for the obligation of the Recovery Act funds was March 17, 2010.

The audit objectives were to determine whether the Authority (1) obligated and expended funds
under the Capital Fund program and Capital Fund Financing Program (CFFP) in accordance with
U.S. Department of Housing and Urban Development (HUD) regulations and the Recovery Act,
and (2) had a financial management system in place that complied with program requirements.
We also followed up on allegations in an anonymous complaint to determine whether the
allegations could be substantiated.




                                                4
                                 RESULTS OF AUDIT

Finding 1: The Authority Did Not Always Administer Its Capital Fund
           Programs in Accordance With HUD Regulations
Authority officials did not always administer the Capital Fund programs in accordance with
HUD regulations. Specifically, (1) controls over procurements were not adequate, and (2)
Capital Fund program and CFFP funds were expended without adequate support and for
ineligible items. We attribute these deficiencies to Authority officials’ not establishing controls
to ensure compliance with procurement requirements and that expenditures were properly
supported and eligible. As a result, goods and services were not obtained in the most economical
or efficient manner, funds were not properly safeguarded as expenses were unsupported or
ineligible, and funds disbursed were not properly recorded. Consequently, more than $2.4
million in expenses were unsupported, and $209,391 was ineligible.


Inadequate Controls Over
Procurement

               Inadequate Contract Records Related to the Capital Fund Program and CFFP

               Contrary to regulations at 24 CFR (Code of Federal Regulations) 85.36(b)(9), the
               Authority did not have documentation to show that it complied with applicable
               procurement requirements for executed contracts for the Capital Fund program
               and CFFP. Specifically, it did not always maintain complete records to show the
               history of its procurement contracts. We initially requested contract registers
               from Authority officials; however, they did not have contract registers and created
               one while we were at the site. We requested 6 of 23 contract files to review for
               the regular Capital Fund program. Five of the six contract files selected were
               missing contract agreements, cost estimates, evaluation of bids, etc., and two of
               the six contract files did not contain supporting documentation. Therefore, the
               Authority could not assure HUD that these contracts were procured in the most
               economical and efficient manner. The five regular Capital Fund program
               contracts without adequate supporting documentation were valued at $146,890
               ($19,800 + $30,000 + $28,000 + 34,530 + $34,560).

               Review of the three contract files for the CFFP revealed that the files obtained did
               not contain all required documents. The contract files were missing cost
               estimates, evaluation of bids, contract agreements, etc. According to regulations
               at 24 CFR 85.36(b)(9), the grantee and subgrantee will maintain records sufficient
               to detail the significant history of a procurement. These records will include but
               are not necessarily limited to the following: rationale for the method of
               procurement, selection of contract type, and contractor selection or rejection and
               the basis of the contract price. As a result of the inadequate records maintained,



                                                5
there was no assurance that goods and services were obtained in the most
economical or efficient manner in compliance with procurement requirements.
Therefore, we questioned the capital funds disbursed related to these contracts
pending HUD’s determination of the eligibility and reasonableness of these
amounts.

Under the CFFP, a public housing authority may borrow private capital to make
improvements and pledge a portion of its future-year annual capital funds to make
debt service payments. Although the three CFFP contracts were valued at more
than $4.9 million, during fiscal years 2004 through 2009, the trustee for the CFFP
disbursed more than $5.5 million, of which approximately 88.66 percent related to
these three contracts. Therefore, since more than $1.9 million was paid from the
Capital Fund program to cover the debt service related to capital fund financing
activities for these periods, we questioned the proportionate share of these funds
or more than $1.7 million.

Inadequate Documentation Related to Noncontract Capital Fund Disbursements

In addition to the above, there was inadequate documentation to show that
competition had been sought for noncontract Capital Fund program
disbursements. Review of the disbursements for the Capital Fund program
revealed that there was no documented procurement such as bid records or
requests for price quotes for noncontract costs that were paid from the Capital
Fund program. There was no documented evidence of the manner of procurement
for items charged to line item 1430 – fee costs, 1450 – site improvements, 1460 –
dwelling structures, 1465 – dwelling equipment, 1470 – nondwelling structure,
and 1475 – nondwelling equipment. During Capital Fund program year 2008, the
Authority made disbursements of $189,295 related to these line items. The
Authority’s procurement policy states that “the Irvington Housing Authority
(IHA) shall seek full and open competition in all of its procurement transactions.”
However, the Authority did not comply with its procurement policy. Therefore,
there was no assurance that goods and services were obtained in the most
economical and efficient manner. We attribute this deficiency to the Authority’s
inadequate controls over procurement transactions.

Total Questioned Cost Due to Inadequate Documentation of Compliance With
Procurement Requirements

More than $2 million in disbursements was made without adequate supporting
documentation to show that procurement requirements had been followed and that
procurement transactions had been accomplished in an economical and efficient
manner. The unsupported costs included $146,890 for the five regular Capital Fund
program contracts, more than $1.7 million disbursed from the regular Capital Fund
program for debt service payments related to the three CFFP contracts, and
$189,295 disbursed for other Capital Fund program activities for which the manner
of procurement was not documented.



                                 6
Unsupported Costs

           A total of $326,780 in unsupported costs was charged respectively to the Capital
           Fund program and the CFFP without adequate supporting documentation.
           Accordingly, Authority officials did not have adequate controls over program
           expenditures to ensure the accuracy of the amounts charged to the programs.

           Regulations at 24 CFR 85.20(b)(6) require accounting records to be supported by
           such source documentation as cancelled checks, paid bills, payrolls, time and
           attendance records, contract and subgrant award documents, etc. Office of
           Management and Budget Circular A-87, Cost Principles for State, Local, and
           Indian Tribal Governments, section C, Basic Guidelines, provides that for costs to
           be allowable under Federal awards, they must be necessary and reasonable, be
           properly allocable, conform to all applicable requirements, and be properly
           documented.

           These unsupported costs are explained below and were for administration,
           nondwelling equipment, and travel and training expenses as follows:

           For Capital Fund program year 2007 line item 1410 – administration, there was
           no supporting documentation in the eLOCCS (the Internet version of HUD’s
           Line of Credit Control System Voice Response System) Capital Fund program
           payment voucher files to show how $111,818 was obligated and what type of
           administrative costs it was expended for; therefore, this amount was unsupported.

           For Capital Fund program year 2007 line item 1475 – nondwelling equipment, the
           budget and the annual performance and evaluation report included costs for the
           purchase of a maintenance vehicle. However, the vehicle purchased for $31,504
           was an automobile for the personal use of the executive director. According to
           the executive director, his contract provided that he would receive a vehicle.
           However, the executive director did not provide us with his contract or supporting
           documentation to show that this was an allowable use of program funds.
           Therefore, we consider the $31,504 as unsupported.

           For Capital Fund program line item 1408 – management improvements, there was
           missing or inadequate supporting documentation for all $8,138 in travel and
           training-related expenses tested; therefore, this amount is considered unsupported.
           In addition, for the Capital Fund program years 2007 and 2008, the Authority had
           expended $121,243 ($38,480 + $82,763) for travel and training-related expenses
           also charged to line item 1408. However, due to the lack of controls over travel and
           training, the Authority’s travel policy in place did not provide for accountability, as
           per diem funds were advanced before the travel and there was no certification that
           the travel took place and no support for the amount of costs incurred or that the
           training was attended. Therefore, these amounts are also considered to be



                                              7
             unsupported. Accordingly, Authority officials could not assure HUD that travel and
             training costs were reasonable.

             Nevertheless, if Authority officials were to implement improved controls over the
             Authority’s travel and training expenses to ensure that it documents whether travel
             and training took place and that the costs were reasonable, it would result in
             improved accountability. Thus the Authority would be able to assure HUD that its
             annual expenditures for travel and training expenses of $60,621 (one-half of the
             travel and training costs for the 2 years reviewed) would be put to better use.

             In addition to the above, Authority officials did not have adequate controls to
             ensure that proper documentation was maintained to support the eligibility of
             disbursements for payroll and rental losses for vacant units charged to the CFFP.
             Therefore, a total of $175,320 in CFFP expenses is also considered unsupported
             due to inadequate documentation. Specifically, a $74,598 charge for rental loss
             for vacant units and $100,722 in employees’ salary costs charged to the program
             were not supported and are, therefore, questioned. Since the $175,320 in question
             is approximately 3.16 percent of the more than $5.5 million in CFFP bond funds
             received, we are only taking issue with $61,998 of this amount, which is the
             proportionate share of Capital Fund program funds used to make CFFP debt
             service payments of more than $1.9 million.

             In summary, a total of $151,460 ($111,818 + $31,504 + $8,138) that was charged
             to the Capital Fund program and $175,320 ($74,598 + $100,722) that was charged
             to the CFFP is considered unsupported due to inadequate documentation to show
             that the expenses were eligible program costs.

Ineligible Costs Incurred Before
HUD Approval of Capital
Funding

             A total of $209,391 in costs related to the Capital Fund program was incurred
             before HUD approval of the 2007 and 2008 funding. As a result, these costs were
             ineligible. The charges were for administration, management improvements,
             dwelling equipment, nondwelling equipment, and dwelling structures. The
             charges were incurred before the annual contributions contract effective dates of
             September 13, 2007 (for Capital Fund program year 2007), and June 13, 2008 (for
             Capital Fund Program year 2008). These are the dates on which Capital Fund
             program assistance became available to the Authority for obligation. Thus,
             Authority officials did not have sufficient controls to ensure that the funding had
             been approved before charges were incurred, which resulted in its charging
             ineligible costs to the Capital Fund program. Regulations at 24 CFR 968.112(n)
             provide that costs incurred before HUD approval may not be reimbursed after
             HUD approval of the funding.




                                               8
Conclusion

             Authority officials did not always administer its Capital Fund programs in
             accordance with regulations. Specifically, more than $2 million in disbursements
             was made without adequate supporting documentation to show that procurement
             requirements had been followed and procurements had been accomplished in an
             economical and efficient manner. A total of $326,780 was charged to the Capital
             Fund program and CFFP without proper supporting documentation, and $209,391
             in expenses incurred before HUD approval was ineligible. We attribute these
             deficiencies to Authority officials’ not establishing controls to ensure compliance
             with procurement requirements and that expenditures were properly supported
             and eligible.

Recommendations

             We recommend that the Director, New Jersey Office of Public Housing, require
             Authority officials to

             1A. Provide documentation related to the five Capital Fund program contract files
                 that did not contain support for their procurement history so that HUD can
                 determine whether the $146,890 in capital funds disbursed was reasonable and
                 for properly procured contracts. Any improperly procured and/or excessive
                 costs should be repaid from non-Federal funds or recaptured from the Capital
                 Fund program.

             1B. Provide supporting documentation for the procurement of the three CFFP
                 contracts that resulted in the disbursement of more than $4.9 million and/or
                 repay the amount expended from capital funds for CFFP debt service
                 payments made related to these contracts from non-Federal funds ($1,740,152
                 through fiscal year 2009).

             1C.   Provide supporting documentation for the unsupported charges of $189,295
                   related to various line item expenses under the 2008 Capital Fund program
                   and/or repay any costs determined to be ineligible from non-Federal funds.

             1D. Develop and implement a contract administration system that includes an
                 adequate contract register to help ensure that contractors perform in
                 accordance with the terms, conditions, and specifications of their contract or
                 purchase order.

             1E. Develop procedures to ensure that the Authority follows its procurement
                 policy and all regulations at 24 CFR 85.36 and provide adequate training to all
                 directors and staff.




                                               9
 1F.   Provide supporting documentation for the unsupported charges of $151,460
       related to the Capital Fund program and repay any amounts determined to
       be ineligible from non-Federal funds.

1G.    Provide supporting documentation for the unsupported charges to the CFFP
       of $175,320 or repay the amount determined to be ineligible from non-
       Federal funds. In this instance, since capital funds used to make CFFP debt
       service payments applicable to these disbursements amounted to 3.16
       percent of the CFFP bond trustee disbursements, the amount to be repaid
       would be $61,998 through fiscal year 2009.

1H.    Reduce future Capital Fund program grants by $209,391 for the ineligible
       expenses related to the costs that were incurred before the approval of the
       funds for the 2007 and 2008 Capital Fund programs.

1I.    Establish travel and training policies that meet HUD requirements and ensure
       accountability over travel and training, thus ensuring that the $60,621 in
       estimated annual travel and training costs will be put to better use.




                                   10
Finding 2: The Authority’s Financial Management System Did Not
           Always Comply With Program Requirements
The Authority’s financial management system did not always comply with program regulations.
Specifically, Capital Fund program vouchers were not adequately approved before payment, and
Capital Fund program expenses were improperly paid with Section 8 funds. We attribute these
deficiencies to the Authority’s inadequate controls over the approval of purchases and
authorization of disbursements. As a result, Authority officials did not adequately account for
and safeguard program funds, and $132,337 was inappropriately charged to the Section 8
program.


 Capital Fund Program
 Vouchers Not Always
 Adequately Approved

              Capital Fund program vouchers were not always properly approved to prevent the
              misuse of capital funds. Review of the vouchers for the Capital Fund program
              disclosed that not all requests for checks were reviewed and approved and not all
              purchase orders were approved by the finance director or facilities directors to
              certify that the funds were available and verify that supplies were needed as
              required by the Authority’s procurement policy. For example, the request for
              check for $24,276 payable to a paving company was not signed and approved by
              the finance director or the executive director. Also, a purchase order used for a
              $6,120 payment to an appliance company was not signed and approved by the
              finance director or the facilities director. As a result, capital funds were not
              properly safeguarded as funds were disbursed without adequate approval.
              Regulations at 24 CFR 85.20 provide that grantees and subgrantees must maintain
              records that adequately identify the source and application of funds provided for
              financially assisted activities. In addition, these regulations require that effective
              control and accountability be maintained for all grant and subgrant cash and real
              and personal property and that assets be properly safeguarded and used solely for
              authorized purposes.

 Capital Fund Expenses Paid
 With Section 8 Program Funds

              The Authority charged $132,337 to its Section 8 program for renovation and
              improvement costs, including the purchase of generators, that pertained to its low-
              rent housing projects and non-Section 8 administrative offices. For example,
              Authority resolution 2009-57 indicated that the payment of $264,674 related to
              the CFFP was to be made from Capital Fund program year 2009 funds. However,
              although the request for check was signed for approval by the executive director,
              the request was not properly reviewed by the accounting department, and half of
              the costs had been charged to the Section 8 program and not the Capital Fund



                                                11
             program. Regulations at 24 CFR Part 152 provide that Section 8 administrative
             fees may only be used for the administration of the Section 8 program. Therefore,
             the $132,337 that was charged to Section 8 program was ineligible, and the
             Section 8 program should be repaid $132,337 from the Capital Fund program.

Conclusion

             The Authority’s financial management system did not always comply with
             program requirements. Review of the vouchers for the Capital Fund program
             disclosed that not all checks were reviewed and approved before they were issued
             and not all purchase orders were approved by the finance director or facilities
             directors to certify the availability of funds and verify that supplies were needed.
             Also, the Authority improperly charged $132,337 to its Section 8 program for
             capital renovation and improvement costs, including the purchase of generators,
             that pertained to its low-rent housing projects and non-Section 8 administrative
             offices. We attribute the deficiencies to the Authority’s inadequate controls for
             the authorization of purchases and approval of disbursements.

Recommendations

             We recommend that the Director, New Jersey Office of Public Housing, require
             Authority officials to

             2A.    Develop and implement an adequate financial management system that
                    complies with Federal regulations and ensures that Capital Fund program
                    vouchers are properly reviewed and approved before payment as a means
                    of safeguarding funds from misuse.

             2B.    Provide supporting documentation to show whether the $132,337 related
                    to renovation and improvement costs and expenses to purchase generators
                    should have been charged to the Section 8 program and not the CFFP or
                    reimburse this amount to the Section 8 program from the Capital Fund
                    program.




                                              12
                         SCOPE AND METHODOLOGY

To accomplish our audit objectives, we performed the following: (1) reviewed applicable laws,
regulations, and other HUD program requirements; (2) interviewed HUD and Authority officials;
(3) reviewed the Authority’s procurement and personnel policies; (4) reviewed the annual
statements and eLOCCS Capital Fund program voucher request files; (5) reviewed records related
to contracts including resolutions, disbursement records, and a contract register; and (6) reviewed
reports from HUD systems, such as the Line of Credit Control System (LOCCS) and Financial
Assessment Submission Public Housing Authority System (FAS-PHA).

The data obtained from the HUD systems was used to obtain an understanding of the Authority, as
well as to compile and develop trends. We verified the applicable information found in the HUD
systems with the actual source documents when developing the conclusions, findings, and
recommendations. There were no significant problems with the reliability of the electronic data
when traced to its source documents.

Based on the dollar value of the contracts, we selected a nonrepresentative sample of 6 of 23
contracts for review of procurements related to the Capital Fund program. The 23 contracts were
valued at $775,223, and the 6 selected contracts in the nonrepresentative sample were valued at
$177,050. For the CFFP, we selected all three contracts valued at nearly $4.5 million for review of
the Authority’s procurement procedures.

For testing expenditures for the Capital Fund program, we obtained the voucher requests and the
eLOCCS Capital Fund program payment vouchers. We selected a nonrepresentative sample of
$173,666 in vouchers from total voucher requests of more than $1 million for testing expenses
related to Capital Fund program fiscal years 2008 and 2009. For the CFFP, we selected a
nonrepresentative sample of expenses totaling more than $2.9 million from the nearly $5 million in
total expenditures approved by resolutions.

We performed the audit fieldwork from January through July 2010 at the Authority’s offices located
at 101 Union Avenue, Irvington, NJ. The audit covered the period April 1, 2007, through
December 31, 2009. However, we extended the period as necessary to achieve our objectives.

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:

                      Effectiveness and efficiency of operations – Policies and procedures that
                      management has implemented to reasonably ensure that a program meets its
                      objectives.

                      Reliability of financial reporting – Policies and procedures that management
                      has implemented to reasonably ensure that valid and reliable data are
                      obtained, maintained, and fairly disclosed in reports.

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

              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
               financial or performance information, or (3) violations of laws and regulations on a
               timely basis.




                                                 14
Significant Deficiencies


             Based on our review, we believe that the following items are significant deficiencies:

                    The Authority did not have adequate support for its procurement transactions
                    to ensure compliance with HUD requirements (see finding 1).

                    The Authority expended funds from the Capital Fund program and CFFP
                    without adequate supporting documentation (see finding 1).

                    The Authority did not have adequate financial controls in place, as
                    accounting records may not have been adequately reviewed and program
                    funds may not be properly safeguarded (see finding 2).




                                              15
                                    APPENDIXES

Appendix A

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

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

             1A                               $146,890
             1B                             $1,740,152
             1C                               $189,295
             1F                               $151,460
             1G                                $61,998
             1H              $209,391
             1I                                                     $60,621
             2B                               $132,337
          Totals            $209,391        $2,422,132             $60,621



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. If the Authority implements our recommendation to
     establish better controls over training and travel, it will ensure better accountability and
     help ensure that the average annual training and travel costs of $60,621 are reasonable
     and have the proper accounting treatment.




                                              16
Appendix B


           EVALUATION OF COMPLAINT ALLEGATIONS

We received a number of allegations from an anonymous complainant. The following
allegations were determined to be material and relevant to our audit objectives and were
reviewed as part of the audit.

  Allegation 1

                 The executive director is not concerned about expending considerable
                 amounts of money and doesn’t care whether there are sufficient funds.

                 Evaluation – This allegation could not be substantiated because the executive
                 director’s level of concern is a subjective matter that it subject to interpretation.
                 However, there were control weaknesses as some requests for checks were not
                 reviewed and approved by accounting officials. Also, purchase orders were not
                 approved by the finance director or facilities director to certify the availability of
                 funds and verify that supplies were needed (see finding 2).

 Allegation 2
                 The executive director of the housing authority gave a contractor extra work
                 without obtaining HUD approval or readvertising for a bid.

                 Evaluation - This allegation could not be substantiated. Although the executive
                 director did not obtain HUD approval for the contracts funded by the CFFP and
                 the Authority did not readvertise or obtain additional bids for additional work,
                 HUD approval was not required because the funds came from the bond trustee
                 and not HUD. Nevertheless, since contract files were incomplete, there was no
                 assurance that procurement transactions were conducted in the most economical
                 and efficient manner (see finding 1).

Allegation 3
                 The Authority received a bill for the purchase of generators for
                 approximately $200,000, and the executive director authorized Section 8
                 funds to pay half of the bill, even though the generators were already
                 included in the leveraging program and, therefore, this transaction had
                 already been paid.

                 Evaluation – This allegation was partially valid. There was no evidence that this
                 bill had previously been paid by the leveraging program. Although the American
                 Institute of Architects documentation certified by the architect on December 20,


                                                   17
               2008, indicated that the cost for purchasing the generators was $142,000, the total
               cost of the invoice was $264,674, and $132,337 or half of this cost was paid from
               the Section 8 program. However, since this expense pertained to the low-rent
               housing program and not the Section 8 program, these costs were improperly
               charged to the Section 8 program and are, therefore, questioned (see finding 2).


Allegation 4

               Travel costs were excessive and not properly controlled.

               Evaluation – This allegation was valid. For Capital Fund program years 2007 and
               2008, the Authority expended $121,243 for travel and training-related expenses and
               charged these costs to line item 1408 – management improvements. However, the
               Authority’s policies did not require employees and commissioners to provide
               supporting documentation regarding travel and training expenses. As a result,
               travel costs appeared to be excessive and were not properly controlled (see
               finding 1).

Allegation 5
               The executive director doesn’t follow the rules and procedures for
               procurement (quotes and bids). The executive director gives contracts to his
               favorite people.

               Evaluation – This allegation was partially valid. It was not possible to determine
               whether the executive director awarded contracts to his favorite people.
               However, Authority officials inadequately documented compliance with
               procurement requirements. Specifically, the contract files reviewed were
               incomplete and missing material documentation to demonstrate compliance with
               procurement requirements (see finding 1).

Allegation 6


               The executive director is frequently absent from work or leaves early.

               Evaluation – This allegation could not be substantiated. The executive director is
               not an hourly rate employee who is required to punch a time card. We noted that
               the executive director was frequently not in his office during the course of the
               audit, but there was no requirement for him to be in his office for a core set of
               hours.




                                               18
Appendix C

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




                         19
Ref to OIG Evaluation   Auditee Comments




Comment 3




Comment 4



Comment 5




Comment 5




Comment 6




                         20
Ref to OIG Evaluation   Auditee Comments




Comment 7




Comment 8




                         21
Ref to OIG Evaluation   Auditee Comments




Comment 9




Comment 10




Comment 11




                         22
Ref to OIG Evaluation   Auditee Comments




Comment 11




Comment 12




Comment 13




                         23
Ref to OIG Evaluation   Auditee Comments




Comment 14

Comment 14
Comment 14
Comment 14

Comment 14


Comment 14

Comment 14

Comment 14


Comment 13




Comment 14




                         24
Ref to OIG Evaluation   Auditee Comments




Comment 15




Comment 16




                         25
Ref to OIG Evaluation   Auditee Comments




Comment 16




                         26
                         OIG Evaluation of Auditee Comments

Comment 1   Authority officials indicated that although certain documents could not be located
            for certain contracts, due to personnel turnover, the Authority was in compliance
            with the state of New Jersey’s contract regulations. However, Authority officials
            did not maintain sufficient documentation to show that they complied with
            applicable procurement requirements. Therefore, if supporting documentation is
            available officials should provide them to HUD as part of the audit resolution
            process to resolve the deficiencies noted in the report, otherwise these costs are
            still questioned. Thus, for the specific contracts see below comments.

Comment 2   For the contract valued at $19,800, Authority officials indicated that this
            transaction was an emergency and that their procurement files clearly indicated
            that three competitive quotes were received and reviewed by the Authority’s
            modernization coordinator. However, since Authority officials did not provide a
            contract file or other documentation for the procurement conducted in relation to
            this contract, it is still questioned.

Comment 3   For the contract valued at $30,000, Authority officials indicated that HUD
            procurement regulations allowed the Authority to use the amount charged to the
            prior year’s contract as its cost estimate for the year. They believe that they
            complied with procurement requirements, but stated that they could not locate the
            bid evaluation due to staff turnover. HUD Handbook 7460.8 (3.2) provides that
            grantees must make independent estimates before receiving bids or proposals.
            We were provided with the bid tabulations, but they were missing the cost
            estimate, so the costs are still questioned.

Comment 4   For the contract valued at $28,000, Authority officials indicated that the contract
            was awarded to an accounting firm that performed the services in the prior year,
            there was no significant increase in the fees charged for the services, and a board
            resolution authorized the award of this contract. However, Authority officials did
            not provide a contract file or other documentation of the procurement transactions
            conducted in relation to this contract; as such, without documentation, officials
            cannot assure that this transaction was competitive or reasonable. In addition, the
            board resolution was also not enough to show that these costs were reasonable.

Comment 5   For the contracts valued at $34,530 and $34,560 Authority officials indicated that
            HUD regulations permitted use of the amount of the prior year’s contract for these
            services as a cost estimate. However, HUD Handbook 7460.8 (3.2) requires
            grantees to make independent estimates before receiving bids or proposals.
            Further, the Authority’s contract files were missing documentation to show that
            officials complied with procurement regulations as with the above contracts.
            Therefore, these contracts are questioned pending review by HUD officials in the
            audit resolution process.



                                            27
Comment 6     Authority officials indicated that only one of the five contracts questioned
              pertained to the Capital Fund Program. They state that although certain
              documents were missing from the files, it is their opinion that sufficient
              documentation existed. However, it should be noted that Authority officials did
              not maintain a contract register and created one for us after the audit was begun
              and they listed these contracts as pertaining to the Capital Fund Program. Further,
              the documentation that was provided was not sufficient to show that procurements
              were done effectively and efficiently, therefore, the costs are still questioned.

Comment 7     Authority official identified a typographical error in the draft report, which was
              corrected as more $1.9 million was paid for debt service in relation to the
              questioned cost. Authority official indicated that they would obtain supporting
              documentation for the questioned costs and provide it to HUD staff. As such, the
              authority official’s comments are responsive to the finding.

Comment 8     Authority officials indicated that they would provide supporting documentation
              for the $189,295 charged to various line items to the HUD representative assigned
              to follow-up on the findings. As such, the Authority official’s comments are
              responsive to the finding.

Comment 9     Authority officials indicated that supporting documentation was not required for
              $111,818 of administrative costs charged to line 1410 for program year 2007
              because the Authority was operating under the asset management model. Under
              this model administrative cost represents the central office costs of administering
              the Capital Fund Program, such as salary, benefits, telephone, supplies, etc, of the
              executive director and the accounting department. An Authority official informed
              us that the Authority had implemented the asset management model in April
              2009. The drawdowns in question for line item 1410 were done for CFP year
              2007. Thus, at the time of the drawdown, the asset management model had not
              been implemented by the Authority. Therefore, as recommended, Authority
              officials should provide HUD with the supporting documentation as part of the
              audit resolution process so that HUD can determine if the costs are supported and
              eligible.

Comment 10 Authority officials stated that the executive director’s contract indicate that he is
           to be provided the use of a housing authority vehicle for the performance of
           housing authority business, and that the executive director provided a copy of his
           contract to support this position. However, we were never provided with a copy
           of the executive director’s contract during the audit. Furthermore, the vehicle was
           not listed in the annual statement for the Capital Fund Program. Regulations at
           24 CFR 968.112(a)(1)(i) state that a PHA may use financial assistance received
           for eligible costs undertaking activities described in its approved annual statement
           and five year action plan. However, since the vehicle was not listed in the annual
           statement or five year plan the costs are still considered as unsupported.




                                               28
Comment 11 Authority officials state that their procedures provide that all travel by staff and
           commissioners that is approved, is covered by either the direct payment of travel
           costs by the Authority or by per diem allowances. Authority officials indicated
           that the only way travel costs would not be supported was if the documentation
           was either lost or misplaced in the accounting department, therefore, they will
           follow-up and gather the appropriated support for the specific items. However,
           due to the lack of controls over travel and training, the Authority’s travel policy in
           place did not provide for accountability as in this instance the cost for airline tickets,
           hotel and per diem amounts were advanced before the travel took place. Further,
           there was no certification that the training was attended and no support for the
           amount of costs incurred. Therefore, these amounts are considered to be
           unsupported, and Authority officials could not assure HUD that travel and training
           costs were reasonable.

               Authority Officials went on to say that in their opinion sufficient backup was
               provided for all travel. They assumed that OIG suggested that $60,621 would be
               a reasonable budget for travel and training; however, the OIG auditor did not
               recommend this. Nevertheless, Authority officials indicated that a new travel
               policy will be prepared that will limit travel of board commissioners to one event
               per year, and also limit the number of commissioners allowed to travel to a single
               training event, to two commissioners. Thus the Authority official’s comments are
               responsive to the finding and recommendations.

Comment 12 Authority officials stated the rental loss charged ($74,598) was supported by a
           detailed computation provided to the trustee and included in the CFFP budget.
           They also stated that employee salary costs ($100,722) were budgeted and can be
           supported by payroll records. However, Authority officials did not provide the
           supporting documentation for these questioned costs even though numerous
           requests for the documentation had been made during the audit. Therefore,
           Authority officials should provide the supporting documentation for the
           unsupported charges pertaining to the CFFP to HUD as part of the audit
           resolution process.

Comment 13 Authority officials agreed that the $209,391 of costs were incurred prior to HUD
           approval of the funding, but stated that they incurred expenses subsequent to
           approval that was charged to operations, even though they could have been
           charged to the capital fund program. As such, they requested that the Authority
           be provided the opportunity to review their operating expenditures and prepare
           amended annual statements for the 2007 and 2008 Capital Funds and be allowed
           to charge these cost to the capital fund program in lieu of the incurred pre-
           approval costs. Authority official did not provide documentation during the
           course of the audit to support the eligibility of the costs incurred prior to HUD
           approval of the funding, therefore, the costs are ineligible per regulations at 24
           CFR 968.112(n). In addition, Authority officials did not provide documentation
           during the audit regarding the additional costs charged to operations. As such,




                                                 29
              during the audit resolution process, HUD officials will have to determine whether
              to allow costs to be substituted or repaid.

Comment 14 Authority officials’ comments are responsive to the recommendations.

Comment 15 Authority officials indicate that although $132,337 was paid with housing choice
           voucher program funds, this amount was also listed as a receivable on the books
           of the housing choice voucher program due from the public housing program.
           Authority officials also indicate that this amount has since been repaid to the
           housing choice voucher program. In addition, Authority officials agreed to
           implement a financial management plan that will provide for the safeguarding of
           all program assets from misuse and ensure that funds for each of the Authority’s
           programs are properly segregated. The Authority charged $132,337 to its Section
           8 program for renovation and improvement costs, including the purchase of
           generators, that pertained to its low-rent housing projects and non-Section 8
           administrative offices. Therefore, these costs were ineligible charges to the
           housing choice voucher program. Nevertheless, if the funds have been repaid,
           Authority officials need to provide documentation to HUD during the audit
           resolution process showing that these funds have been reimbursed. In addition,
           evidence that improved financial controls were implemented should also be
           provided to HUD officials.

Comment 16 Authority officials indicated that since some of the allegations in an anonymous
           complaint could not be substantiated or where found to be un-true, they should be
           removed from the report. Authority officials indicated that allegation 3 should be
           removed because it was not true as the questioned costs were repaid to the Section
           8 program. Authority officials disagreed with the evaluation of allegation 4 and
           state that travel costs incurred were all related to reasonable and necessary
           business of the Authority and were supported by valid documentation. Authority
           officials disagreed with the evaluation of allegation 5 regarding not always
           following procurement rules and they believe that stating that the allegation is
           partially true is misleading when it relates to the executive director giving
           contracts to favorite people. However, the allegations will not be removed from
           the report. Although Authority officials stated that the Section 8 program was
           repaid there no supporting documentation provided during the audit. Also since
           travel costs were not properly supported, these costs are not considered to be
           reasonable. In addition, the audit finding supports that there was a lack of
           documented compliance with procurement requirements. Further, since it was not
           possible to determine if preferences were shown to some contractors because of
           the lack of documented procurement procedures used, the report is not
           misleading. Therefore, the evaluation of the allegations was fair and reasonable
           based on the facts, and the report has not been changed.




                                              30