oversight

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)

                                                                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