Issue Date October 28, 2011 Audit Report Number 2012-AT-1002 TO: Victoria Main, Director , Jacksonville Office of Public Housing, 4HPH Craig Clemmensen, Director, Departmental Enforcement Center, CACB //signed// FROM: James D. McKay, Regional Inspector General for Audit, Atlanta Region, 4AGA SUBJECT: The Sanford Housing Authority Lacked Adequate Management of and Controls Over Its Public Housing and Section 8 Programs HIGHLIGHTS What We Audited and Why We audited the Sanford Housing Authority (Authority) to assess certain issues raised in a congressional referral. The referral alleged improper use or mismanagement of the Authority’s public housing, American Recovery and Reinvestment Act, and Section 8 Housing Choice Voucher program funds. The audit objectives were to determine whether the Authority properly used and accounted for public housing, Recovery Act, and Section 8 funds. What We Found We questioned the use of more than $1.2 million, which the prior executive director and board spent or allowed to be spent for costs that were abusive or ineligible, not reasonable, or not properly supported. The audit also identified inadequate controls over reimbursements due from other housing agencies for the Housing Choice Voucher program. Some of the questioned expenditures represented abuses in violation of Federal, U.S. Department of Housing and Urban Development (HUD), and Authority requirements or policies. Other portions of the expenditures diverted funds that could have been used to address some of the projects’ repair needs. The audit detected some of the same types of significant findings or concerns mentioned in past reviews of the Authority’s operations conducted by HUD and the Authority’s independent auditors. These conditions occurred because the prior executive director and board failed to properly manage the Authority’s operational and financial affairs. As a result, HUD is now obligated to spend more than $9 million to relocate tenants and demolish public housing units that might have been preserved through proper management of project operations. The audit did not identify any reportable issues related to the Authority’s use of Recovery Act funds. What We Recommend We recommend that the Director of the Departmental Enforcement Center initiate appropriate administrative actions (such as suspensions, debarments, or limited denials of participation) against the Authority’s prior executive director, past board chairperson, and an employee, who were responsible for the long-term mismanagement or abuse of the Authority’s public housing and Section 8 program funds or operations. We also recommend that the Director pursue civil action against the prior executive director and an employee for specific abuses of the Authority’s credit cards or leave policies. We recommend that the Director of HUD’s Jacksonville Office of Public Housing require the Authority to assess the $1.2 million questioned by the audit and to (1) seek recovery from the appropriate individuals for Authority funds that were used for personal or nonofficial and abusive purposes, (2) reimburse ineligible costs and the unnecessary redevelopment plan costs that were not budgeted, (3) determine the reasonableness of costs that were not properly procured and reimburse amounts determined to have been excessive, and (4) reimburse costs that were not properly supported if it cannot establish that the costs were for reasonable and necessary project expenditures. We also recommend that the Director require the Authority to ensure that it has collected the full amounts due from other housing agencies for 2 portable tenants, improve controls and procedures over the use of its credit cards, and provide adequate training for its board members. 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 provided the Authority and the board chairperson a discussion draft report on September 15, 2011, and held an exit conference with Authority officials on October 4, 2011. The Authority provided written comments on October 14, 2011. It generally agreed with the 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. 3 TABLE OF CONTENTS Background and Objectives 5 Results of Audit Finding: The Authority Lacked Adequate Management of and Controls Over 7 Its Public Housing and Section 8 Programs Scope and Methodology 20 Internal Controls 22 Appendixes A. Schedule of Questioned Costs 24 B. Auditee Comments and OIG’s Evaluation 25 C. Schedule of Past Findings or Concerns by HUD and Independent Auditors 34 D. Schedule of Abusive Credit Card Charges 35 E. Schedule of Abusive or Unreasonable Leave Payments 37 F. Schedule of Unbudgeted Redevelopment Plan Costs and Ineligible Asset 39 Management Fees G. Schedule of Purchases That Were Not Properly Procured 42 H. Schedule of Section 8 Housing Assistance Payments Not Accrued 44 4 BACKGROUND AND OBJECTIVES We received a congressional referral submitted to the Office of Inspector General (OIG) complaint hotline in August 2010. The referral requested a review of some of the allegations raised by the media, regarding improper use or misappropriation of funds, and issues identified during HUD’s April 2010 financial and management assessment of the Authority’s operations. The Authority received more than $21 million in HUD funding for the period January 1, 2006, through September 30, 2010. The funding included more than $13.2 million for housing operating and Public Housing Capital Fund programs, $3.3 million for the Section 8 Housing Choice Voucher program, $3.7 million for two emergency Capital Fund grants, and $1 million for an American Recovery and Reinvestment Act of 2009 grant. The Authority was established on May 20, 1941, to engage in the acquisition, development, leasing, and administration of low-rent public housing. It is governed by a five-member board of commissioners appointed by the mayor of Sanford and was managed by an executive director appointed by the board. Under the public housing program, the Authority owns and manages 480 units of public housing at six developments in Sanford. The public housing operating and Capital Fund programs are authorized under Section 9 of the United States Housing Act of 1937 as amended. The funds are provided to make assistance available to public housing agencies for the operation and management, financing, modernization, and development of public housing. The Housing Choice Voucher program is authorized under Section 8 of the Housing Act. The funds are provided for housing authorities to provide rental subsidies so that eligible families can afford decent, safe, and sanitary housing. The emergency Capital Fund program provides additional grants to public housing agencies to carry out capital and management activities. The Recovery Act funds were authorized under Title XII of the Act as amended. HUD placed the Authority into administrative receivership in August 2003, during which time the HUD receivership team worked to restore the physical and financial viability of the Authority. HUD managed the Authority’s operations for 29 months while it was in receivership and returned management to the Authority on January 21, 2006. From January 2006 through June 2009, none of Authority’s six projects sustained standard level ratings of 18 and above for physical condition. As a result of the physical decline, HUD approved the Authority’s request to demolish 374 of its 480 public housing units. In April 2010, HUD completed an assessment of the Authority’s operations and determined that the Authority was not effectively managing and maintaining its assets. In July 2010, the Authority’s board voted to remove the prior executive director, effective August 2010. The Authority entered into a temporary service agreement with the Orlando Housing Authority to manage its day-to-day operations, and it has transferred its Section 8 program to other housing agencies. 5 In July 2007, the Authority converted its financial operations to HUD’s asset management project model for project-based budgeting and accounting. Under this model, the Authority adopted a fee-for-service method and established a central office cost center. The fees paid by the projects to the cost center were used to administer the Authority’s operations. Funds received from these fees are revenues of the Authority’s cost center and are not regulated by HUD. Our audit objectives were to determine whether the Authority properly used and accounted for public housing, Recovery Act, and Section 8 funds. 6 RESULTS OF AUDIT Finding: The Authority Lacked Adequate Management of and Controls Over Its Public Housing and Section 8 Programs The Authority spent more than $1.2 million for questioned costs because the prior executive director and board did not properly manage the operational and financial affairs of the Authority’s public housing and Section 8 programs. Specifically, we found Credit card and leave abuses, Expenditures for services that were not budgeted or not eligible, Failures to comply with procurement requirements, Inadequate controls over Section 8 portable housing assistance payments due from other housing agencies, Inadequate management and oversight by the board, Expenditures for costs that were not properly supported, and Inadequate attention to the projects’ physical needs. Due to the above conditions, the physical condition of the Authority’s public housing program units had deteriorated to the extent that HUD approved requests to demolish 374 of its 480 public housing units. As a result, HUD is now obligated to spend more than $9 million to relocate tenants and demolish public housing units that might have been preserved through proper management of project operations. We reviewed transactions that primarily occurred during or after November 2007. We focused the review on transactions after that date because during and before that period, HUD and the Authority’s independent auditors had repeatedly put the prior executive director and board on notice about significant concerns that they had with the inadequate management of the Authority’s operations and the physical maintenance of the projects (appendix C). Yet the prior executive director and the board did not properly address and resolve these concerns. The issues discussed below reflect violations that existed in areas that were the subject of concerns previously expressed by HUD, the Authority’s independent auditors, or both. Credit Card and Leave Abuses The audit identified more than $50,000, detailed in appendixes D and E, in credit card and leave abuses by the prior executive director and another employee that were mostly associated with expenditures from the Authority’s central office cost center. We recognize that cost center funds are not regulated by HUD. However, the funds are subject to the Authority’s policies, which prohibited the type of abuses detected by the audit. The misuse of the cost center funds, although not 7 regulated by HUD, is subject to Federal requirements at Section 18 of the United States Code, Part 666. Specifically, the audit identified Misuse of the Authority’s credit card for personal or nonofficial charges, Abuse of annual leave, and Unreasonable payments for accrued leave. Misuse of the Authority’s credit card for personal or nonofficial purchases - The prior executive director misused and allowed an employee to misuse the Authority’s credit cards for personal or nonofficial purchases that totaled more than $16,400. The charges, detailed in appendix D, were for trips to destinations such as Puerto Rico, Israel, and Las Vegas and other personal travel for the prior executive director’s spouse and for various purchases he and the employee made at clothing stores. The prior executive director allowed the personal or nonofficial charges to be recorded in the Authority’s general ledger as cost center expenditures. We identified reimbursements for $6,425 of the charges but did not locate reimbursements for the remaining balance, $10,017. The reimbursements were in effect an acknowledgement by the prior executive director and the employee that the amounts they repaid were for personal purchases. In addition, the prior executive director and the employee did not prepare travel vouchers for the above trips. This was significant considering that the trips occurred after HUD had recommended the preparation of such vouchers to support the cost incurred for travel. Without the travel vouchers, we did not have adequate records to establish and account for the total cost associated with the personal trips or other official travel performed by Authority staff. Abuse of annual leave - The Authority’s prior executive director did not take annual leave or leave without pay for the above personal or nonofficial trips to Puerto Rico and Israel, which he took during the Authority’s normal duty hours. This action overstated his annual leave balances by 240 hours, which the Authority used to support separate payments, discussed below, that he received for accrued leave. Item Weekdays Leave number Trip destination Dates From To Hours taken 1 Puerto Rico Oct. 14-19, 2007 Monday Friday 40 0 2 Puerto Rico Nov. 4-9, 2007 Monday Friday 40 0 3 Puerto Rico Dec. 1-7, 2007 Monday Friday 40 0 4 Puerto Rico Mar. 3-7, 2008 Monday Friday 40 0 5 Puerto Rico Mar. 17-19, 2008 Monday Wednesday 24 0 6 Puerto Rico Oct. 11-15, 2008 Monday Wednesday 24 0 7 Israel May 11-14, 2009 Monday Thursday 32 0 Total 240 0 The prior executive reimbursed all or a portion of the costs for trips in items 2, 3, 4, and 5 and thus recognized that the trips were for personal reasons. Yet he did 8 not charge annual leave for the official duty hours that he spent on the personal or nonofficial trips. Unreasonable or abusive payments for accrued annual and sick leave - The prior executive director used $33,604 in cost center ($21,714) and public housing ($11,890) funds to make questionable payments to himself for accrued annual and sick leave, detailed in appendix E. The amount included more than $7,890 for ineligible cost center payments associated with the 240 hours discussed above, in which he deliberately failed to take annual leave when performing personal or nonofficial travel on Authority time. He also received compensation as regular salary payments for the 240 hours that he should have charged to leave. The ineligible amount also included $11,890 paid for the prior executive director’s sick leave from public housing funds, although the amount was a cost center expense. The prior executive director’s deliberate mishandling of his annual leave records caused us to conclude that the leave payments, which were not classified to be ineligible, were not supported as reasonable cost center expenditures. The prior executive director’s deliberate failure to take annual leave when due resulted in credibility issues, which brought into question the accuracy of his sick leave balances, which were also used to justify payments for accumulated leave. As a result, the remaining $13,824 ($33,604 less $19,780 for ineligible payments) of the leave payments was not supported as reasonable expenditures of cost center funds. Expenditures for Costs That Were Not Budgeted or Ineligible The prior executive director and the board allowed the use of more than $481,000 in public housing funds for costs that were not budgeted ($400,000) or were ineligible ($81,000). Expenditures for costs that were not budgeted - The prior executive director and the board allowed the use of more than $400,000 in project operating funds for an unbudgeted plan to redevelop an undetermined portion of the Authority’s public housing projects. Section 11(D) of the Authority’s annual contributions contract states that the Authority may not incur any operating expenditures except pursuant to an approved operating budget. We recognize that the projects needed substantial renovation, but the funds used to pay for the redevelopment planning were not included in the budget. The unbudgeted expenditures were not necessary and reasonable project costs, and they deprived the projects of cash that was needed to pay for maintenance and repairs. The $400,000 included $383,600 paid to an architect for various work and services, including concept drawings, associated with the Authority’s unbudgeted redevelopment plans. 9 In addition, as discussed below, the prior executive director exceeded his $100,000 purchase authority when he allowed the architect to perform redevelopment planning services, costing more than $383,600, which was not covered by a contract designed and executed for that purpose. Specific details concerning the payments are presented in appendix F. $11,600 paid to a contractor for the preparation of boundary and topographic surveys related to the redevelopment plan. $4,900 paid to a contractor for geotechnical exploration in connection with the redevelopment plan. In addition, the Authority expended $21,050 from its cost center funds for work associated with the redevelopment plans, although the expenditures were not included in the cost center budget. We recognize that the cost center funds are not regulated by HUD and the Authority was not required to provide HUD with a budget for its cost center accounts. However, the payments further illustrated the prior executive director’s and board’s lack of attention to the Authority’s budget. Expenditures for ineligible costs - The prior executive director either authorized or did not conduct the oversight needed to detect that his staff inappropriately transferred more than $81,000 from public housing funds to the Authority’s cost center for asset management fees when the projects did not have excess cash. The regulations at 24 CFR (Code of Federal Regulations) 990.280(5)(ii) do not permit the payment of asset management fees unless the project has excess cash flow available after meeting all reasonable operating needs of the property. The fees, detailed in appendix F, were paid between July 2008 and November 2009. They included more than $ 23,900, which the prior executive director allowed after HUD specifically instructed the Authority to stop making the charges. The fees deprived the projects of cash that was needed to pay for maintenance and repairs. Inadequate Compliance With Procurement Requirements The prior executive director spent more than $1.1 million for services provided by three firms without support that he acquired the services in compliance with HUD’s and the Authority’s procurement requirements. He purchased the services on a case-by-case basis through small purchases, which in total exceeded his $100,000 purchase authority. The regulations at 24 CFR 85.26(c)(1) require all procurement transactions to be conducted in a manner that provides full and open competition. The Authority’s procurement policy limited the executive director’s purchase authority to $100,000 and stated that it was the responsibility of the executive director to ensure that all procurement actions were conducted in accordance with the policies. The policy also prohibited the breaking down of purchases aggregating more than the small purchase threshold into several 10 purchases merely to (1) permit use of the small purchase procedures or (2) avoid requirements that applied to purchases that exceed the small purchase threshold. The policy further stated that the Authority was required to maintain records that were sufficient to detail the significant history of each procurement action and that the records were to be retained for 3 years after the final payment and all matters pertaining to the contract were closed. The prior executive director did not follow or document compliance with the above requirements, which was needed to ensure that the payments made for services were reasonable and did not exceed his purchase authority. Specifically, Authority officials could not provide evidence of competition and formal executed contracts, including the terms and scope of services for the work, to support the reasonableness of more than $1.1 million paid during fiscal years 2008 to 2010 to three firms included in our audit sample. Description Total 2010 2009 2008 Firm A $ 646,557 $ 49,105 $ 511,542 $ 85,910 Firm B * 383,673 38,777 344,896 Firm C 105,293 _______ 105,293 _______ Total $ 1,135,523 $ 87,882 $ 961,731 $ 85,910 * The payment to this firm, also mentioned in the previous section, was counted only once as a questioned cost, appendix A, recommendation 1E, because it was not budgeted. In each of the above cases, the prior executive director purchased the services through a series of smaller purchases, which individually fell within his purchase authority but in total exceeded his $100,000 purchase authority. The purchases included more than $646,000 paid to firm A for construction type services, which included but were not limited to unit turnaround, sidewalk and driveway repairs, installation of mailboxes and stations, and the replacement of windows and doors. We requested but the Authority officials could not provide evidence of a fixed price contract for the services or evidence that the services were purchased according to HUD’s and the Authority’s own procurement requirements. We also observed that the payments to firm A caused the Authority to exceed its fiscal year 2009 extraordinary maintenance budget by more than $232,000. The payments were approved by the prior executive director and a past chairperson of the board. We examined support for $386,128, or 62 percent, of the payment amounts. They appeared to be for necessary project work and were mostly supported by purchase orders and invoices. However, we could not determine whether the amounts paid were reasonable because the 11 Authority could not support that the services were purchased through the required competitive procurement process. The payments also included more than $2,300 that was not supported by invoices. $383,000 paid to firm B for services related to redevelopment plans, discussed in the previous section, for which there was no contract. The board and prior executive director approved and executed a separate nonspecific scope of service contract with firm B for general project- related architectural services, such as sidewalk handicap accessibilities, illuminations of one of the projects, and other services that the Authority may need from time to time. The contract was not designed to include work related to the unbudgeted redevelopment planning process. After awarding the nonspecific service contract, the architect stated that the prior executive director kept requesting additional services related to the redevelopment plan. The payments were approved by the prior executive director and a past chairperson of the board. We examined support for 100 percent of the payments and determined that they were mostly supported by letters of agreement and task orders in addition to the individual invoices. The Authority could not provide evidence of a contract for the redevelopment services or evidence that the services were purchased according to HUD’s and the Authority’s own procurement requirements. $105,000 paid to firm C, but the Authority could not locate a contract and invoices to support what the costs were for or whether it followed competitive procedures to purchase the services. Thus, in addition to the questionable procurement, the costs were not properly supported. The Authority’s staff provided unsigned purchase order documents from its computer system, which showed that the firm performed painting services. However, the staff could not provide records with authorizations and approvals for the payments and invoices to support what the costs were for and where the work was done. Inadequate Controls Over Section 8 Portable Housing Assistance Payments Due From Other Housing Agencies The prior executive director did not establish and implement adequate controls over reimbursements due from other public housing agencies for portable Section 8 housing assistance payments that the Authority paid on their behalf. The Section 8 consolidated annual contributions contract requires that the Authority maintain complete and accurate books of account and records for the program in accordance with HUD requirements and that the records permit a speedy and 12 effective audit. We reviewed the general ledger for portable housing assistance payments that the Authority made on behalf of other housing agencies and the related subsidiary accounts receivable for the months December 2009 through March 2010. The tests showed that the Authority did not Properly accrue housing assistance payment reimbursements due from other housing agencies. We identified more than $17,000 in housing assistance payments that the Authority made to landlords on behalf of other housing agencies, but it did not accrue and post the amounts to its subsidiary accounts receivable, appendix H. The $17,000 represents the difference between the portability housing assistance payment expense recorded in the general ledger and the amount accrued in subsidiary accounts receivable for the 4 test months. The failure to accrue the payments resulted in an understatement of the receivables. This was a significant issue, considering past problems that the Authority had in this area. For instance, in 2007 and 2008, the Authority wrote off more than $1.1 million in Section 8 portability accounts receivable because its records were in such poor condition that it could not rely on them as a basis for pursuing collection. The prior executive director was aware of this condition and its related importance to maintaining accurate accounts receivable records. An Authority official stated that the Authority used form HUD-52665, Family Portability Information, which it gave to each housing agency as the control for housing assistance payments that the Authority made on its behalf. The official stated that the Authority did not bill the housing agencies for portability payments due from them, although the Authority’s policy required monthly billings. The forms HUD-52665 were not a substitute for accurate accounts receivable records. The Authority needed to maintain accurate accounts receivable records to ensure proper control over the amounts due from other housing agencies and reduce the potential for future write-offs like those discussed above that were made in 2007 and 2008. Post collections to the general ledger. We identified more than $39,000 in direct deposit payments that the Authority received from other housing agencies to reimburse it for housing assistance payments which were not posted to the general ledger or recorded in its subsidiary accounts receivable ledger. The accounting technician stated that she did not post the transactions because she had not been instructed on how to handle such transactions. Due to the poor condition of the records, we could not readily determine the adverse impact that the above conditions had on the Authority’s Section 8 Housing Choice Voucher program relative to the portable vouchers. However, the independent auditors’ reports showed that the Authority’s overall Section 8 13 program had a deficit of more than $122,000 for fiscal year 2008 and more than $85,000 for fiscal year 2009. We did not determine whether any of the conditions discussed above contributed to these deficits. However, the lack of accurate accounts receivable records reduced the assurance that the Authority had properly identified the amounts due from other housing agencies and collected the proper amounts from them. With HUD’s approval, the board transferred its Section 8 portable voucher program to other housing agencies, effective January 1, 2011. Inadequate Board Management and Oversight The board did not properly manage the prior executive director and allowed an environment that permitted many of the management failures identified during the audit. Specifically, the board or a past board chairperson did not Prepare annual evaluations of the prior executive director’s performance, Require compliance with budget requirements, Follow controls over the electronic check signing process, or Follow the Authority’s policy that prohibited the payment of cash for accrued leave in reference to the prior executive director. Annual evaluations of the prior executive director’s performance not performed - The board did not prepare or document that it prepared annual performance evaluations of the prior executive director as required by his employment contract executed on June 8, 2005. The contract provided that the board would review and evaluate the executive director’s performance at least annually in advance of his employment anniversary date or the beginning of the Authority’s fiscal year, whichever occurred first. The prior executive director’s personnel file contained no evaluations for years 2008 and 2009 and a satisfactory evaluation for 2007. The absence of the 2008 and 2009 performance evaluations for the prior executive director was critical, considering HUD’s past problems with the management operations of the Authority. In addition, the acceptable performance evaluation for 2007 was questionable considering those concerns. For instance, before and during 2007, reports prepared by HUD and the Authority’s independent auditors documented findings and concerns which involved multiple areas of the Authority’s public housing and Section 8 program operations (appendix C). Yet the board provided the prior executive director with a satisfactory evaluation in 2007. The personnel file did not document performance evaluations for 2008 and 2009, despite the continuation of adverse findings and concerns raised in reports by HUD and the Authority’s independent auditors in 2007 and prior years and during 2008 and 2009. 14 In 2010, a new board chairperson began to question actions by the prior executive director, and the board prepared a formal evaluation of his performance. The 2010 evaluation resulted in a decision by the board to terminate the prior executive director’s employment contract, effective August 2010. This belated action resulted in a missed opportunity by the board to intervene and possibly stop or reduce the level of mismanagement and financial harm discussed in this report. Lack of compliance with budget requirements - As discussed above, the prior executive director spent more than $400,000 for a plan to redevelop the Authority’s public housing projects that was not included in the operating budget. The board approved the redevelopment plan on July 31, 2008, but it did not approve a budget to implement the plan. After the board approved the redevelopment plan, the prior executive director obtained the services of an architect and several other consultants to render drawings and conduct studies relative to the redevelopment (see appendix F). The board minutes recorded several occasions on which the architect or the consultants made presentations to the board or the prior executive director provided and discussed with the board detailed work products that they provided to him. The board minutes showed no evidence that the board appropriately questioned the prior executive director about the source of funds used or which he planned to use to pay for the costs associated with the redevelopment plan. A past board chairperson approved at least $278,000 in public housing funds to pay for some of the redevelopment costs, although none of the costs was included in the Authority’s budget. A later board chairperson stated that she had learned about the substantial redevelopment plan costs and the architect’s letters to the Authority requesting payment. However, by that time, the later board chairperson stated that the payments made to the architect were causing the Authority to have a shortage of cash to pay other bills, including the bills for project utilities. Controls over the electronic check signing process circumvented - According to individuals interviewed during the audit, the prior executive director and a past board chairperson circumvented the internal control that required dual signatures on checks issued by the Authority. This circumvention created the opportunity for the prior executive director to issue checks without assurance of review and approval. The prior board chairperson and an Authority employee stated that a past board chairperson provided the prior executive director with his password, which allowed the prior executive director to electronically sign Authority-issued checks on his behalf. The Authority’s check signing process required two signatures, one from the executive director and one from the board chairperson. When the board chairperson was replaced, the later board chairperson stated that the prior executive director requested her check signing password and told her that he had done the same with the past chairperson, who provided him with his 15 password. The later chairperson stated that she refused the request. We could not independently verify the accuracy of the claimed circumvention. However, the employee and the later chairperson held positions of responsibility, claimed to have direct individual knowledge of this condition, and provided an account of the matter that was consistent and appeared to be plausible. Noncompliance with Authority policy that prohibited the payment of cash for accrued leave - On February 21, 2008, the board passed a resolution to allow the prior executive director to receive cash payments for accumulated annual and sick leave, which were otherwise prohibited by its personnel policy. However, we identified payments totaling more than $16,000 that were made before the resolution. The resolution was not retroactive to when the payments started. A past board chairperson approved the payments, although at that time the payments were prohibited by the Authority’s personnel policy and the past chairperson did not have the authority to authorize the payments. The $16,000 is already included in the cost questioned above for unreasonable or abusive payments for accrued annual and sick leave. Expenditures for Costs That Were Not Adequately Supported The Authority spent more than $13,900 for costs that were not adequately supported. The regulations at 24 CFR 85.20(b) provide that the accounting records must be supported by source documentation. This amount is in addition to the amounts presented above that involved procurement violations. The amount was paid to a firm for construction-related services. The file contained an invoice from the firm for $39,829, but the payment was for only $13,950. The invoice contained a notation that the services were for work performed beyond the initial scope of work. An Authority employee stated that the Authority was not satisfied with the work performed by the firm and decided to terminate the contract. However, the Authority could not provide a contract for the services, a written record to support why the amount paid was different from the invoiced amount, or a written record related to the settlement of disputed items. The prior executive director and the past board chairperson signed the check used to pay the contractor. Inadequate Attention to the Projects’ Physical Needs The lack of proper management by the prior executive director and the board contributed to an overall decline in the physical condition of the Authority’s public housing projects and plans to demolish most of the units. Section 4 of the Authority’s annual contributions contract with HUD provides that the Authority must at all times develop and operate each project solely for the purpose of 16 providing decent, safe, and sanitary housing for eligible families in a manner that promotes serviceability, economy, efficiency, and stability of the projects and the economic and social well-being of the tenants. From 2003 until January 2006, the Authority was in receivership, and HUD managed its operations. During that period, HUD borrowed more than $4 million1 on behalf of the Authority for renovation work at the projects. When HUD returned the management to the Authority, four of the six projects still scored below 18 (the minimum score for acceptable physical condition), and only two of the projects scored 18 or above. The low inspection scores, shown in the table below, highlighted a need for the Authority to ensure that it made maximum use of its limited financial resources to take care of the projects’ repair needs. Physical inspection scores Under HUD receivership Under authority management AMP 2005 2006 2007 2008 2009 number Project name Castle Brewer Court 13.3 13.3 18.4 15.8 10.9 AMP 1 William Clark Court 19.1 19.1 12.9 15.8 10.9 Edward Higgins Terrace 14.5 14.5 10 16.9 10.9 AMP 2 Cowan Moughton Terrace 20.7 20.7 16.6 16.9 10.9 AMP 3 Lake Monroe Terrace 14.8 14.8 9.9 15.6 10.3 AMP 4 Redding Gardens 17.3 17.3 14.7 19.9 13.7 * AMP = assessment management project Despite the projects’ poor physical condition, as indicated by the inspection scores, the prior executive director and board allowed conditions that contributed to the expenditure of more than $1.2 million in Authority funds for ineligible asset management fees ($81,590), unbudgeted redevelopment plan costs ($400,221), purchases without documented competition ($751,850), and costs that were not properly supported ($13,900). The Authority incurred most of the questioned costs in 2009, which was the same year in which the projects received their lowest physical inspection scores after HUD returned management to the Authority. The ineligible and unbudgeted portion of the questioned costs (more than $481,000) deprived the projects of cash that should have been used to address some of the repair needs. The same is true for any excessive amounts that the Authority may have paid for costs that were not properly procured (more than $751,800). Due to the decline in the projects’ physical condition, the Authority submitted emergency funding and inventory removal applications to HUD in August and September 2010 to demolish 374 of the Authority’s 480 public housing units and relocate the tenants. HUD approved the applications in September 2010 and April 2011. Several of the demolition requests mentioned the lack of attention to deferred maintenance as one of several factors that contributed to the demolition requests. As a result, HUD is now obligated to spend more than $9 million to relocate the tenants and demolish public housing units, although some of the units 1 At the time of our audit, the Authority was still repaying the loan from annual capital grants awarded by HUD. 17 might have been preserved through proper management of project operations. At the time of our review, the Authority had relocated most of the tenants from the projects, and another housing agency was managing the Authority’s operations. Conclusion The audit questioned the use of more than $1.2 million, which the prior executive director and board allowed to be spent for costs that were not reasonable, budgeted, properly procured, or properly supported. Some portions of the expenditures represented outright abuses in violation of Federal, HUD, or Authority requirements or policies. Other portions of the expenditures diverted funds that could have been used to address some of the projects’ maintenance and repair needs. The audit also identified continuous violations regarding the Authority’s inability to properly account for amounts due from other housing agencies for housing assistance payments that it made for portable tenants in its Housing Choice Voucher program. The audit detected the continuation of certain significant management failures long after they were reported as findings or concerns in past reports by HUD and the Authority’s independent auditors (appendix C). These conditions contributed to a decline in the financial and physical condition of the Authority’s public housing projects and conditions that led HUD to approve requests to demolish 374 of the Authority’s 480 public housing units and relocate the tenants. As a result, HUD is now obligated to spend more than $9 million to relocate the tenants and demolish public housing units that might have been preserved through proper management of project operations. Recommendations We recommend that the Director of the Departmental Enforcement Center 1A. Initiate appropriate administrative actions (such as suspensions, debarments, and limited denials of participation) against the Authority’s prior executive director, past board chairperson, and an employee, who contributed to the mismanagement or abuse of the Authority’s public housing and Section 8 program funds or operations. 1B. Pursue civil or administrative action against the prior executive director and an employee for specific abuses of the Authority’s credit cards and leave policies. We recommend that the Director of the Jacksonville Office of Public Housing require the Authority to 18 1C. Require the prior executive director and employee to reimburse the Authority $10,017 that was not supported as reimbursed for personal/nonofficial travel or support that they have made the payments. 1D. Require the prior executive director to reimburse the Authority the $19,780, detailed in appendix E – note c, that he received for ineligible accrued annual and sick leave payments. 1E. Require the prior executive director to support the reasonableness of the $13,824, detailed in appendix E - note d, that he received for accrued annual and sick leave payments or to reimburse the Authority for the payments. 1F. Reimburse the projects, from nonfederal funds, $400,221 paid for redevelopment plan costs that were not budgeted. 1G. Reimburse the projects, from nonfederal funds, $81,590 for ineligible asset management fees that they paid to the central office cost center fund. 1H. Determine the reasonableness of the $751,850 paid for services that were not properly procured and reimburse the Authority, from nonfederal funds, the amounts determined to exceed what was reasonable. 1I. Reimburse the Authority, from nonfederal funds, the $13,950 for costs that were not properly supported if it cannot establish that they were for reasonable and necessary project expenditures. 1J. Prepare an assessment to determine whether it has collected the full amounts due from other housing agencies for portable tenants starting in fiscal year 2009 (the year after the 2008 fiscal year write-off) and if not, bill and seek to collect the past due amounts. 1K. Ensure that the board receives adequate training concerning their responsibility to monitor and evaluate the performance of the executive director and to provide general oversight of the Authority’s operational and financial affairs. 1L. Strengthen its monitoring, control, and procedures over the use of the Authority’s credit card, documentation for travel (such as the preparation of travel vouchers for each trip), authorizations and support for payments made for accrued leave, and compliance with procurement requirements. 19 SCOPE AND METHODOLOGY We performed the audit between October 2010 and May 2011 and conducted the audit fieldwork at the Authority in Sanford, FL, and the HUD Office of Public Housing and our office in Jacksonville, FL. We did not review and assess general and application controls for computer-processed data that Authority staff entered into its electronic general ledgers. We conducted other tests and procedures to ensure the integrity of computer-processed data that were relevant to our objectives. The tests included a comparison of information shown in the general ledgers with the source documentation such as contracts, invoices, purchase orders, task orders, purchase requisitions, and cancelled checks. The review generally covered the period November 1, 2007, through August 31, 2010. We adjusted the review period when necessary. To accomplish our objectives, we Reviewed the Authority’s public housing and Section 8 annual contributions contracts with HUD and searched the Code of Federal Regulations, Office of Management and Budget circulars, HUD handbooks, and other HUD guidance pertaining to the public housing, Section 8, and Recovery Act programs. Reviewed Authority policies and procedures related to credit cards, procurement, personnel, and leave. Interviewed and consulted with officials of the Jacksonville Office of Public Housing, Jacksonville and Atlanta Offices of General Counsel, and the Authority (employees and board members). Reviewed the Authority’s board minutes. Obtained and assessed prior HUD monitoring reviews and independent auditor reports on the Authority’s operations. Selected 18 vendors and other payees (such as credit card purchases, payment to selected employees, asset management fee payments, etc.) for our primary focus. The payments included amounts to firms or individuals that provided redevelopment planning or construction services. Based on preliminary results, we narrowed the sample to 11 vendors and other payees for a detailed review of more than $1.6 million (87 percent) of the more than $1.9 million the Authority paid to them from November 2007 to August 2010. The payments included disbursements for the Authority’s public housing (including operating, capital, and cost center operations) and Recovery Act programs. 20 Selected for review 8 of 90 housing agencies used by the Authority in its Section 8 portable program. We selected agencies that had the largest number of portable tenants based on the Authority’s portable active family report for the period October 2008 to September 2010. We reviewed 100 percent of the agencies’ portable housing assistance payments and accruals for 4 test months (December 2009, January 2010, February 2010, and March 2010). We selected the test months based on the highest total Section 8 portable housing assistance payments for the housing agency that had the largest number of portable tenants. 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. 21 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, procedures, and practices that management has implemented to provide reasonable assurance that financial information is relevant, reliable, and fairly disclosed in reports. Compliance with applicable laws and regulations - Policies and procedures that management has implemented to provide reasonable assurance that program implementation is in accordance with laws, regulations, and provisions of contracts or grant agreements. 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. 22 Significant Deficiency Deficiency Based on our review, we believe that the following item is a significant deficiency: The Authority lacked adequate management of and controls over its public housing and Section 8 programs (see finding). 23 APPENDIXES Appendix A SCHEDULE OF QUESTIONED COSTS Recommendation Ineligible 1/ Unreasonable 2/ Unsupported 3/ number 1C $10,017 1D 19,780 1E $13,824 1F 400,221 1G 81,590 1H 751,850 1I ________ _________ $ 13,950 $111,387 $1,165,895 $13,950 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/ Unreasonable or unnecessary costs are those costs not generally recognized as ordinary, prudent, relevant, or necessary within established practices. Unreasonable costs exceed the costs that would be incurred by a prudent person in conducting a competitive business. 3/ 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. 24 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments 25 Comment 1 Comment 1 Comment 1 26 Comment 2 Comment 3 Comment 4 27 Comment 5 Comment 5 Comment 6 Comment 6 Comment 7 28 Comment 7 29 Comment 8 Comment 6 Comment 9 Comment 5 30 Comment 6 Comment 9 31 OIG Evaluation of Auditee Comments Comment 1 The Authority commented that any breach, misinformation, or lack of proper execution of their responsibilities as board members was based upon information that it was provided or not provided by the prior executive director. The Authority agreed with our recommendation that the board needed more training. Comment 2 The Authority stated that the employee indicated in the report has repaid all of the credit charges but it agreed with the determination cited in the report that the prior executive director had repaid only some of the credit card charges. At the time of our review, the employee and the prior executive director had not repaid all the personal charges they made to the Authority’s credit card. Comment 3 The Authority commented that with regards to the travel to Puerto Rico, the prior executive director lead them to believe that there was an approved Interlocal Agreement with the Puerto Rico Housing Authority for the prior executive director to provide assistance to the Puerto Rico Housing Authority with their Section 8 program. The Authority was unable to locate and provide the Interlocal Agreement. HUD officials stated that the Puerto Rico Housing Authority did not have a Section 8 program. As stated in the finding, the prior executive director reimbursed several of the Puerto Rico trips as personal charges. The reimbursements coupled with the lack of a documented purpose for the trips provided no basis to support that the trips were for official Authority business. Comment 4 The Authority commented that it was the board’s understanding that the trip to Israel was pursuant to the prior executive director serving on the International Committee of the National Association of Housing and Redevelopment Officials. Based on this explanation, the Authority should not have been charged the cost for a trip that was related to the prior director’s position with the cited organization, and that organization should have paid the cost for the trip. We revised the report to show this trip was for nonofficial business versus a personal charge. Comment 5 We acknowledged that the board had the authority to authorize the prior executive director to receive payments for accrued leave. However, the Authority made some of the leave payments before the board authorized them and other portions of the payments were ineligible because they were charged to the projects although they were central office cost center expenses. We questioned the remaining leave payments because the prior executive director did not keep accurate annual leave records. This condition caused us to question the accuracy of the prior executive director’s overall leave records that were used to support payments to him for accrued annual and sick leave. Comment 6 The Authority did not dispute the finding concerning expenditures that were not budgeted or which were ineligible. The Authority commented that the past board chairperson authorized the prior executive director to make payments for 32 contracts that exceeded the authority given to the prior executive director by the board of commissioners. Comment 7 The Authority did not dispute the accuracy of the procurement issues and Section 8 violations cited in the finding. The Authority commented that it relied on the prior executive director to ensure that the agency procurement and Section 8 activities complied with requirements or were properly implemented. Comment 8 The Authority did not comment on the finding section concerning its failure to provide 2007 and 2008 performance evaluations to the prior executive director because that matter involved pending litigation. Comment 9 The Authority did not dispute the accuracy of the information presented in the finding, but commented that the board of commissioners relied on the prior executive director to ensure compliance with requirements and to properly maintain the public housing properties. 33 Appendix C SCHEDULE OF PAST FINDINGS OR CONCERNS BY HUD AND INDEPENDENT AUDITORS HUD - December 2008 IPA - FYE June 2009 IPA - FYE June 2008 IPA* - FYE** June HUD - August 2007 HUD - April 2007 HUD - June 2006 HUD - June 2007 HUD - June 2009 2007 Mismanagement issues Inadequate controls (policy) over travel X X X costs and credit card expenditures, excessive travel costs, and ineligible costs for personal travel Budget overruns coupled with X X X X X X X underspending in needed areas such as repairs and maintenance or deficits in the public housing program Ineligible asset management fees X X Procurement – Small purchase procedures X used for large purchases Section 8 accounting deficiencies – For X X X X X instance, amounts were not properly accrued for housing assistance payment reimbursements, or housing assistance payment collections were not posted to the general ledger. Deficits in the Section 8 program X X X X No documentation for addressing housing X X X quality standards deficiencies on a timely basis, properties in substandard condition, or failed Real Estate Assessment Center scores * IPA = independent public auditor ** FYE = fiscal year ending 34 Appendix D SCHEDULE OF ABUSIVE CREDIT CARD CHARGES Check or Description reference no. Payment date Amount Total Note Credit card purchases Prior executive director Puerto Rico travel 105769 11/14/2007 $ 1,848 Puerto Rico travel 105987 12/11/2007 2,360 Puerto Rico travel 106184 01/10/2008 1,860 Puerto Rico travel 106729 03/20/2008 345 Puerto Rico travel 106926 04/09/2008 3,157 Airline ticket for wife June 2008 107522 07/14/2008 319 Airline ticket for wife July 2008 107740 08/08/2008 40 Puerto Rico travel 108181 10/21/2008 363 Puerto Rico travel 108432 11/18/2008 1,501 Men’s clothing purchase 108916 01/23/2009 482 Orbitz.com and ticket to Israel 109436 03/23/2009 2,310 Israel travel 110085 06/16/2009 401 Total personal/nonofficial charges from prior executive director $ 14,986 Less: reimbursement (6,053) Prior executive director - total amount not reimbursed $ 8,933 Employee A Airline ticket for relative 107123 05/14/2008 219 Men’s store purchase 107314 06/20/2008 202 Airline ticket for relative 107953 09/18/2008 235 Airline ticket from Las Vegas 108637 12/16/2008 137 Airline tickets, self and relative 108916 01/23/2009 346 Las Vegas travel 111549 01/26/2010 317 Total personal charges from employee A $ 1,456 Less: reimbursement (372) Employee A - total amount not reimbursed $ 1,084 Total personal/nonofficial charges identified $ 16,442 a by the audit Less: reimbursement (6,425) Total amount not reimbursed $ 10,017 Notes a The prior executive director misused and allowed an employee to misuse the Authority’s credit cards for personal or nonofficial purchases that totaled more than $16,400. The charges were for trips to destinations such as Puerto Rico, Israel (nonofficial travel), and Las Vegas and other personal travel for the prior executive director’s spouse and for various purchases he and the employee made at 35 clothing stores. We identified the charges based on a scan of the Authority’s credit card statements for the period November 1, 2007, through August 31, 2010. However, we could not determine the full extent of personal or nonofficial charges that the prior executive director and employee made to their Authority-issued credit cards. In addition to being inappropriate, the prior executive director allowed the personal or nonofficial charges to be recorded in the Authority’s general ledger as cost center expenditures. The audit identified $6,425 in reimbursements that were credited to cost center expense accounts to offset some of the above personal charges. The reimbursements demonstrated an acknowledgement by the prior executive director and the employee that the amounts they repaid were for personal purchases. The Authority could not provide support that the prior executive director and the employee reimbursed the remaining $10,017 for their personal or nonofficial purchases. This issue was significant because each of the above trips occurred after HUD had cited the Authority for using public housing funds to pay for personal travel and requested reimbursement in a monitoring report, dated July 31, 2007. HUD sent the report to the board chairperson and the prior executive director. The charges identified in the above table indicate that the prior executive director disregarded HUD’s concerns. We also determined that the prior executive director and the employee did not prepare travel vouchers for the above trips. The Authority provided the credit card statements, check requests, and cancelled checks for the payments, but its staff could not locate and provide the supporting plane tickets, hotel receipts, and store purchase receipts needed to support the individual charges made to the credit card accounts. This issue was significant because HUD’s July 2007 report also took exception to the Authority’s failure to prepare travel vouchers after each trip as required by Florida statue. Each of the trips noted in the above table occurred after HUD’s 2007 report. The missing travel vouchers indicated that the prior executive director continued to disregard the requirement for him and his staff to prepare travel vouchers. Without the travel vouchers, we lacked adequate records to establish and account for the total cost associated with the personal trips or for other official travel performed by Authority staff. 36 Appendix E SCHEDULE OF ABUSIVE AND UNREASONABLE LEAVE PAYMENTS Payment Check or Payment date reference Ineligible amount Unreasonable payments Notes amount number 08/02/2007 105038 $ 6,345 $ 6,345 - a, b, c 09/11/2007 105235 5,545 5,545 - a, b, c 12/14/2007 106012 2,824 2,824 - a, b, c 02/15/2008 106515 1,411 - $ 1,411 a, d 06/23/2008 107302 2,824 1,412 1,412 a, c, d 07/21/2008 107556 2,824 1,694 1,130 a, c, d 11/24/2008 108434 2,293 841 1,452 a, c, d 01/06/2009 108882 2,478 1,119 1,359 a, c, d 03/27/2009 109464 1,412 - 1,412 a, d 11/08/2009 111036 2,824 - 2,824 a, d 12/31/2009 111297 1,412 - 1,412 a, d 05/06/2010 112370 1,412 - 1,412 a, d $ 33,604 $ 19,780 $ 13,824 Notes a On February 21, 2008, the Authority’s board passed a resolution that authorized the Authority to pay the prior executive director for his accumulated annual, sick, and personal leave which was otherwise prohibited by the Authority’s personnel policy. We examined all the leave payments made to the prior executive director from August 2007 through May 2010. We also assessed the prior executive director’s leave statements as part of the review. The leave statements showed that the he took no annual or sick leave from August 2007 through August 2010 except for 32 hours of annual leave in July 2010, or about 1 month before his employment was terminated. Instead of taking leave, the prior executive director received payments for his accumulated leave balances. The audit identified instances in which the payments, discussed in the following notes, were excessive due to deliberate omissions or errors. b These payments were made before the board’s February 21, 2008, resolution that authorized the Authority to make the prohibited payments. The resolution was not retroactive to when these payments occurred. A prior board chairperson approved the payments but was not authorized the do so. c The Authority paid the prior executive director more than $19,780 from its cost center and project funds for ineligible accumulated leave payments associated with these checks. The review indicated that the prior executive director deliberately failed to maintain accurate annual leave records, which were needed to support his entitlement to the annual leave payments. We also noted some problems with the accuracy of the prior executive director’s sick leave statements, which also caused ineligible payments. 37 Documented leave hours Hours Check Payment supported Excess Ineligible number amount Hours Annual Sick Personal by leave hours amount paid balance 105038 $ 6,345 166 N/A 166 N/A 166 0 $ 6,345 105235 5,545 160 N/A 13 N/A 13 147 5,545 106012 2,824 80 0 N/A N/A 0 80 2,824 107302 2,824 80 40 0 N/A 40 40 1,412 107556 2,824 80 0 32 N/A 32 48 1,694 108434 2,293 60 0 30 8 38 22 841 108882 2,478 70 12 18 8 38 32 1,119 Total $ 25,133 696 52 259 16 327 369 $ 19,780 Specifically, the audit showed that the ineligible amounts included $6,345 for check 105038 because, although supported, the amount was paid from the Authority’s public housing funds as opposed to its cost center account. The prior executive director’s salary and leave were not direct project costs. The payment should have been made by the cost center account, which is funded by fees the Authority collected from the projects to cover its administrative costs. The regulations at 24 CFR 990.280(b)(4) provide that public housing agencies may only charge projects for expenses that are project-specific for management purposes. $5,545 for check 105235 because, as in the case of check number 105038, the Authority paid the amount from its public housing funds as opposed to the cost center funds. In addition, the leave statement contained an obvious error, which incorrectly showed a 179-hour sick leave balance when the actual balance should have been only 13 hours. The error occurred because the prior executive director had received a payment for 166 hours of sick leave, identified above for check number 105038, about a month earlier. That payment reduced his sick leave balance to only 13 hours. $7,890 for checks 106012, 107302, 107556, 108434, and 108882 due to an overstatement in the prior executive director’s annual leave statement balances. The leave statements were overstated because the prior executive director did not take annual leave for 240 hours he spent traveling during the Authority’s normal duty hours (see finding 1 – subheading on leave abuse). We adjusted the leave statement for the 240 hours and recalculated the leave balances. The ineligible cost represents the difference between the actual leave payments made and what the payment would have been based on the adjusted balances. The excess leave payments also duplicated compensation that the prior executive director received as regular salary. We identified the personal/nonofficial trips based on a scan of the prior executive director’s credit card activities, but we do not know and could not determine the extent to which he took personal trips during the Authority’s normal duty hours without charging the time to annual leave. As a result, we considered the prior executive director’s annual leave statement balances to be totally unreliable to support and determine his entitlement for accumulated leave payments. d The prior executive director’s deliberate mishandling of his annual leave records (note c) caused us to question the accuracy of his overall leave records (annual, sick, and personal leave) that were used to support the payments for accumulated leave. As previously mentioned, the prior executive director’s leave records showed that he took no annual or sick leave from August 2007 through August 2010 except for 32 hours of annual leave in July 2010, about 1 month before his employment was terminated. The deliberate failure to take annual leave when due brought into question whether the prior executive director did the same for his other leaves (sick and personal leave). Therefore, we question the reasonableness of the remaining $13,824 in leave payments, which were not included in the ineligible amounts. 38 Appendix F SCHEDULE OF UNBUDGETED REDEVELOPMENT PLAN COSTS AND INELIGIBLE ASSET MANAGEMENT FEES Description Check or reference no. Payment date Amount Total Note A. Unbudgeted redevelopment plan costs Architect 109199 02/18/2009 $ 2,202 a Architect 109400 03/02/2009 16,376 a Architect 109459 03/23/2009 3,023 a Architect 109459 03/23/2009 28,293 a Architect 109488 04/01/2009 8,306 a Architect 109488 04/01/2009 26,384 a Architect 109716 05/04/2009 52,186 a Architect 109716 05/04/2009 1,738 a Architect 110061 06/01/2009 7,289 a Architect 110840 10/01/2009 13,401 a Architect 110840 10/01/2009 8,942 a Architect 110872 10/30/2009 1,864 a Architect 110872 10/30/2009 21,395 a Architect 111081 12/02/2009 1,114 a Architect 111081 12/02/2009 21,395 a Architect 111497 01/14/2010 1,977 a Architect 111497 01/14/2010 19,556 a Architect 111706 02/03/2010 2,529 a Architect 111706 02/03/2010 19,556 a Architect 111976 03/03/2010 1,414 a Architect 111976 03/03/2010 19,556 a Architect 112165 04/01/2010 3,690 a Architect 112165 04/01/2010 262 a Architect 112165 04/01/2010 24,225 a Architect 112366 05/04/2010 2,044 a Architect 112366 05/04/2010 24,225 a Architect 112411 06/02/2010 2,413 a Architect 112411 06/02/2010 26,848 a Architect 112638 07/07/2010 19,685 a Architect 112638 07/07/2010 1,785 a Architect - subtotal $ 383,673 Contractor A 108203 10/21/2008 250 b Contractor A 108659 12/16/2008 600 b Contractor A 108659 12/16/2008 400 b Contractor A 109191 02/18/2009 350 b Contractor A 109702 05/04/2009 10,000 b Contractor A - subtotal $ 11,600 Contractor B 110108 06/16/2009 4,948 c Contractor B - subtotal $ 4,948 Total unbudgeted redevelopment plan costs $ 400,221 39 Description Check or reference no. Payment date Amount Total Note B. Ineligible asset management fees Fiscal year 2009 JE00000701 07/30/2008 $ 4,790 d Fiscal year 2009 JE00000890 08/01/2008 10 d Fiscal year 2009 JE00000737 08/30/2008 4,800 d Fiscal year 2009 JE00000780 09/30/2008 4,800 d Fiscal year 2009 JE00000824 10/31/2008 4,800 d Fiscal year 2009 JE00000892 11/30/2008 4,800 d Fiscal year 2009 JE00000893 12/31/2008 4,800 d Fiscal year 2009 JE00000909 01/31/2009 4,800 d Fiscal year 2009 JE00000923 02/28/2009 4,800 d Fiscal year 2009 JE00000943 03/31/2009 4,800 d Fiscal year 2009 JE00000950 04/30/2009 4,800 d Fiscal year 2009 JE00000983 05/31/2009 4,800 d Fiscal year 2009 JE00001005 06/30/2009 4,800 d Total asset management fees recorded in general ledger for fiscal year 2009 $ 57,600 Fiscal year 2010 JE00001065 07/31/2009 4,800 d Fiscal year 2010 JE00001129 08/31/2009 4,800 d Fiscal year 2010 JE00001154 09/30/2009 4,800 d Fiscal year 2010 JE00001160 10/30/2009 4,800 d Fiscal year 2010 JE00001177 11/30/2009 4,790 d Total asset management fees recorded in general ledger for fiscal year 2010 $ 23,990 Total ineligible asset management fee totals $ 81,590 d Grand total - redevelopment plan costs and asset management fees $ 481,811 Note a The Authority spent more than $383,000 for excessive and unbudgeted architect and engineering fees associated with plans to redevelop an undetermined portion of the Authority’s public housing projects. We recognize that the projects needed substantial renovation, but the funds used for the work should have been but were not planned and budgeted for that effort. The prior executive director and board initiated the redevelopment plan without budgeting funds needed to pay the associated costs and without properly notifying HUD about the effort. The board approved the initiation of the redevelopment plan on July 31, 2008, but there was no evidence from the board minutes that its members questioned the prior executive director about what specific work he would be doing, how much it would cost, and how the Authority would pay the preliminary cost associated the redevelopment plan. The board’s failure to ask these questions up front was significant and resulted in its share of responsibility in the resulting costs that the prior executive director incurred, which were not budgeted. For instance, following the approval of the plan, the board minutes documented several occasions on which the prior executive director presented the board with architect designs, consultants’ reports, and architect or consultant briefings that would cost money to complete. Yet the minutes contained no evidence that the board appropriately questioned the prior executive director about how the Authority was able to pay for the studies and the consultants’ time. This was an oversight by the board, because one of the studies provided to the board discussed the potential problem of finding funds to pay the preliminary planning cost associated with the redevelopment plan. The prior executive director eventually spent more than $400,000 on the redevelopment. The amount included more than $383,000 for architectural services without a contract for the work. The payments exceeded the executive director’s $100,000 purchase authority and violated HUD’s and the Authority’s procurement requirements. In essence, the prior executive director purchased the services through an 40 unauthorized and inappropriate expansion of the architect’s services under an existing but unrelated contract. We found no evidence to support that the prior executive director informed the board and HUD about the extensive costs before the issues became manifest, because the prior executive director could not find the funds needed to pay the architect, and the firm threatened to file a lawsuit. Most of the payments were approved by a past board chairperson. The prior board chairperson stated that she learned about the extensive payments only after she began looking into issues relative to the Authority’s expenditures. However, by that time, the prior executive director was having trouble finding funds to pay the architect. HUD officials stated that they were not aware that the prior executive director had incurred such large amounts for architect and engineering fees relative to the unbudgeted redevelopment effort and they would not have authorized the payments if they had known about them. b Ineligible costs for a survey related to the redevelopment plan that was not budgeted c Ineligible costs for geotechnical exploration related to the redevelopment plan that was not budgeted d In a monitoring letter, dated March 13, 2009, HUD advised the Authority not to charge the projects with asset management fees when they did not have excess cash. However, the prior executive director did not stop the practice and continued to allow the fees to be charged to the projects. The Authority’s general ledger showed that the Authority continued to charge the fees until it received a second monitoring letter from HUD, dated December 3, 2009. In the letter, HUD requested that the Authority reimburse $55,150 in asset management fees reported in the June 30, 2009, financial statement audit. However, by that time, the general ledger showed that the Authority had charged the projects $81,590 for ineligible asset management fees. Both letters were addressed to the past board chairperson and copied to the prior executive director. Following the second letter, the Authority stopped charging the fees, but the general ledger did not show that it reimbursed the projects for the $81,590, which included the $55,150 previously questioned by HUD. 41 Appendix G SCHEDULE OF PURCHASES THAT WERE NOT PROPERLY PROCURED Description Check or reference no. Payment date Amount Total Firm A 105276 09/12/2007 $ 5,825 Firm A 105550 10/11/2007 6,700 Firm A 105592 10/12/2007 4,350 Firm A 105798 11/14/2007 730 Firm A 105801 11/16/2007 10,799 Firm A 106010 12/11/2007 10,799 Firm A 106209 01/10/2008 5,175 Firm A 106263 01/31/2008 69 Firm A 106592 03/01/2008 2,700 Firm A 106769 03/20/2008 3,165 Firm A 106948 04/09/2008 875 Firm A 106949 04/15/2008 6,000 Firm A 106993 04/30/2008 9,199 Firm A 107148 05/14/2008 8,582 Firm A 107173 05/29/2008 10,941 Firm A 107385 07/01/2008 14,689 Firm A 107603 08/01/2008 16,145 Firm A 107819 09/01/2008 27,170 Firm A 107989 09/18/2008 20,069 Firm A 107990 09/19/2008 24,310 Firm A 108038 10/01/2008 265 Firm A 108223 10/21/2008 50,132 Firm A 108261 11/01/2008 17,568 Firm A 108431 11/17/2008 57,405 Firm A 108430 11/17/2008 1,895 Firm A 108483 12/01/2008 3,591 Firm A 108482 12/01/2008 3,260 Firm A 108683 12/16/2008 40,236 Firm A 108682 12/16/2008 9,776 Firm A 108736 01/01/2009 35,636 Firm A 108735 01/01/2009 650 Firm A 108970 01/23/2009 39,755 Firm A 108969 01/23/2009 4,480 Firm A 109164 02/04/2009 17,500 Firm A 109163 02/04/2009 9,339 Firm A 109212 02/18/2009 8,006 Firm A 109211 02/18/2009 7,727 Firm A 109496 04/01/2009 3,742 Firm A 109679 04/24/2009 17,594 Firm A 109728 05/04/2009 17,436 Firm A 110073 06/01/2009 10,085 42 Description Check or reference no. Payment date Amount Total Firm A 110079 06/11/2009 20,069 Firm A 110111 06/16/2009 31,381 Firm A 110110 06/16/2009 1,632 Firm A 110148 07/01/2009 38,081 110855 10/28/2009 11,024 Firm A total $ 646,557 Firm B total (architect - see appendix F, note a.) $ 383,673 Firm C 108433 11/20/2008 40,782 108648 12/16/2008 33,075 108697 01/01/2009 14,775 108931 01/23/2009 16,661 Firm C total $ 105,293 Totals $ 1,135,523 43 Appendix H SCHEDULE OF SECTION 8 HOUSING ASSISTANCE PAYMENTS NOT ACCRUED Reference no. Tenant no. Payment posting date Check no. Amount Total AP00000044 12983 12/01/2009 509471 $ 573 APA0001684 12596 12/03/2009 509313 766 APA0001705 12770 12/03/2009 509452 591 APA0001764 12978 12/03/2009 509463 775 APA0001822 12551 12/03/2009 509476 532 APA0001825 12587 12/03/2009 509476 799 APA0001831 12979 12/03/2009 509476 599 APA0001921 12587 12/03/2009 509326 108 APA0001931 12978 12/03/2009 509351 37 APA0001944 12979 12/03/2009 509474 49 December 2009 $ 4,829 AP00000053 13192 01/01/2010 509775 557 AP00000054 13113 01/01/2010 509758 348 AP00000055 13191 01/01/2010 509751 616 AP00000056 11156 01/15/2010 509784 371 APA0002217 12596 01/01/2010 509567 766 APA0002323 13189 01/01/2010 509663 578 APA0003136 12481 03/01/2010 510483 695 January 2010 $ 3,931 AP00000062 13193 02/12/2010 510269 177 AP00000063 13276 02/17/2010 510239 216 APA0002812 12596 02/02/2010 509804 594 APA0002920 13189 02/02/2010 509897 578 APA0003009 11156 02/02/2010 509936 655 APA0003187 12481 02/10/2010 509941 695 APA0003186 Not on roster 02/10/2010 509943 19 APA0003198 Not on roster 02/12/2010 510009 642 APA0003373 Not on roster 02/23/2010 510114 562 February 2010 $ 4,138 APA0003914 Not on roster 03/30/2010 510185 335 APA0003530 12596 030/4/2010 510036 594 APA0003636 13189 03/04/2010 510126 578 APA0003707 12550 03/04/2010 510160 549 APA0003798 Not on roster 03/09/2010 510173 948 APA0003802 Not on roster 03/17/2010 510173 948 APA0003803 Not on roster 03/17/2010 510177 461 APA0003896 13193 03/30/2010 510183 492 March 2010 $ 4,905 Total payments not accrued $ 17,803 44
The Sanford Housing Authority Lacked Adequate Management of and Controls Over Its Public Housing and Section 8 Programs
Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-10-28.
Below is a raw (and likely hideous) rendition of the original report. (PDF)