oversight

The Executive Director and Board of Commissioners of the Grants Housing Authority, Grants, NM, Mismanaged the Authority

Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-05-14.

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

OFFICE OF AUDIT
REGION 6
FORT WORTH, TX




                   Grants Housing Authority
                         Grants, NM

               Section 8 Housing Choice Voucher,
               Capital Fund, and Operating Fund




2013-FW-1005                                       May 14, 2013
                                                        Issue Date: May 14, 2013

                                                        Audit Report Number: 2013-FW-1005




TO:            Floyd R. Duran, Program Center Coordinator, Office of Public Housing, 6BPHO
               //signed//
FROM:          Gerald R. Kirkland
               Regional Inspector General for Audit, Fort Worth Region, 6AGA


SUBJECT:       The Executive Director and Board of Commissioners of the Grants Housing
               Authority, Grants, NM, Mismanaged the Authority


    Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG) final results of our review of the Grants Housing Authority.

    HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.

    The Inspector General Act, Title 5 United States Code, section 8L, requires that OIG post its
publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.

   If you have any questions or comments about this report, please do not hesitate to call me at
817-978-9309.
                                           May 14, 2013
                                           The Executive Director and Board of Commissioners of
                                           the Grants Housing Authority, Grants, NM, Mismanaged
                                           the Authority



Highlights
Audit Report 2013-FW-1005


 What We Audited and Why                    What We Found

We audited the Grants Housing            The Authority’s management and board of
Authority located in Grants, NM, at the  commissioners failed to establish a control
request of U.S. Department of Housing    environment designed to provide reasonable assurance
and Urban Development’s (HUD)            that it complied with Federal requirements. This
Public Housing Program Center in         condition occurred because the board relied on the
Albuquerque, NM.                         executive director to operate the Authority with little
                                         or no oversight. Further, the executive director was
Our objective was to determine whether either unwilling or unable to manage the Authority
the Authority used its capital funds and effectively. As a result of these conditions, the
operating funds for allowable costs,     Authority incurred more than $64,000 in ineligible
performed contracting activities in      Housing Choice Voucher program expenses and put its
accordance with program requirements, assets at an increased risk of fraud, waste, and abuse.
and correctly processed and paid for
Section 8 housing choice vouchers.

 What We Recommend

We recommend that HUD retain the
Authority’s capital and operating funds,
release only sufficient funds to
reimburse the Authority for its paid
invoices, and review the Authority’s
bank statements to ensure that it
deposits all rents. We also recommend
that HUD require the Authority to
develop and implement appropriate
policies and procedures, determine
which Housing Choice Voucher
program tenants are being assisted
without valid contracts between the
Authority and the landlords, and repay
HUD more than $64,000 in ineligible
expenses.
                            TABLE OF CONTENTS

Background and Objective                                                  3

Results of Audit
      Finding 1: The Authority’s Executive Director and Board Failed To
                 Establish a Proper Internal Control Environment          4

Scope and Methodology                                                     9

Internal Controls                                                         10

Appendixes
A.    Schedule of Questioned Costs                                        12
B.    Auditee Comments and OIG’s Evaluation                               13




                                            2
                       BACKGROUND AND OBJECTIVE

The Grants Housing Authority, Grants, NM, was created in July 1986. The Authority’s mission
is to provide safe, decent, sanitary housing for assisted families at or below 80 percent of median
income. The Authority owns and operates 20 public housing units and provides rent subsidies
for another 63 families through the U.S. Department of Housing and Urban Development’s
(HUD) Housing Choice Voucher rental assistance programs. Since March 2012, the executive
director had been the Authority’s only employee.

The Authority is located at 508 East Santa Fe Avenue, Suite B, Grants, NM. The executive
director administers the Authority’s programs and is responsible for its day-to-day operations.
The executive director was selected by a board of commissioners comprised of four individuals
appointed by the mayor of Grants.

Our objective was to determine whether the Authority (1) used its capital funds and operating
funds for allowable costs, (2) performed contracting activities in accordance with program
requirements, and (3) correctly processed and paid for Section 8 housing choice vouchers.




                                                 3
                                  RESULTS OF AUDIT

Finding 1: The Authority’s Executive Director and Board Failed To
Establish a Proper Internal Control Environment
The Authority’s executive director and board failed to establish a control environment designed
to provide reasonable assurance that it complied with Federal requirements. They failed to enact
policies and procedures to ensure the integrity of the Authority’s operations and compliance with
Federal procurement and program requirements. Generally, the Authority did not have any
internal controls. These conditions occurred because the Authority’s executive director was
unwilling or unable to manage the authority effectively, while the board had a “hands off”
attitude and relied on the executive director to operate the Authority by herself. As a result of
these conditions, the Authority spent at least $64,843 for Section 8 Housing Choice Voucher
program tenants in violation of program regulations. Further, the lack of internal controls put the
Authority’s assets at an increased risk of fraud, waste, and abuse.


 The Executive Director and the
 Board Failed To Establish a
 Proper Control Environment

               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. Management is responsible for
               establishing internal controls that provide reasonable assurance about the
               achievement of the organization’s mission, goals, and objectives and reduce the risk
               of fraud, waste, and abuse.

               The executive director and the board neglected their management and oversight
               responsibilities. They failed to establish basic internal controls, including financial
               controls, inventory and asset controls, and written policies and procedures.

 Authority Management Did Not
 Establish Basic Financial
 Controls

               The Authority’s Management Did Not Have Adequate Financial Expertise
               Although 24 CFR (Code of Federal Regulations) 990.315 requires the Authority to
               prepare an operating budget and states that the board should review and approve the
               budget by resolution, the Authority’s executive director said she had limited
               financial knowledge and was unaware of how her budget was set up. Instead, she
               relied entirely on an out-of-State fee accountant. Since the executive director did not
               understand the budget, she could not fully explain it to the board. Board members


                                                  4
           approved the budget resolution and one board member admitted she did not
           completely understand where or how the Authority spent its funds.

           The executive director did not maintain support for some of the Authority’s
           expenses. For example, there were two charges on the Authority’s July 2012 credit
           card statement totaling $125. When asked for support for the charges, the executive
           director could not find the invoices. Further, she could not provide invoices for
           some of the Authority’s plumbing and electrical material bills. Several years of
           receipts were lying unorganized in a box in a filing cabinet. Because the amounts
           were immaterial, we did not question them, but this condition further demonstrated
           the Authority’s lack of internal controls.

           The executive director stated she was unaware of the requirements of 24 CFR 85.20
           to report accurate, current, and complete disclosure of financial results of financially
           assisted activities by providing support from source documentation such as invoices,
           contract, subgrant award documents, etc. Regulations at 24 CFR 85.36 require
           grantees to use their own procurement procedures, maintain a contract
           administration system, maintain a written code of standards of conduct for
           procurements, review proposed procurements to avoid the purchase of unnecessary
           or duplicative items, award only to responsible contractors possessing the ability to
           perform successfully, maintain records sufficient to detail the significant history of a
           procurement, and be responsible, all in accordance with good administrative practice
           and sound business judgment. The regulations also required all procurement
           transactions to be conducted in a manner providing full and open competition;
           however, during the audit, the Authority signed a new fee accountant services
           contract without a bidding process. The Authority had no contract administration
           system, written code of standards of conduct, or list of responsible contractors in
           place.

           Checks Were Left Unsecured
           The executive director left tenant rent checks unsecured on top of a file cabinet.
           Sound business judgment and basic financial controls would require such checks to
           be kept under lock and key and deposited regularly so that they are not lost or stolen.

Authority Management Did Not
Establish Basic Procurement
and Asset Management Controls

           The Authority Did Not Have a Written Procurement Policy
           The executive director said she was unaware of the 24 CFR 85.36 requirements that
           public housing agencies establish and follow a written procurement policy. Without
           a written policy, the executive director could be inconsistent in her procurement
           activities and violate procurement regulations. There should be a single, current,
           authoritative source of guidance and information that the executive director can use
           when making decisions or enforcing policy. With written procedures, the Authority
           could better ensure that it acts decisively, fairly, legally, and consistently and in


                                              5
           accordance with Federal and State regulations. Policies and procedures would
           provide a framework and background for decisions, so that the Authority could
           explain to appropriate parties why a certain action or decision was followed.
           Without following a written policy, inconsistencies in administering procurements
           could result in misunderstandings, grievances, or lawsuits.

           Further, because the Authority did not have basic procurement policies and
           procedures in place and did not maintain procurement and contract files, it could not
           demonstrate that it received the best value for the products and services it procured.

           The Authority’s Management Did Not Have a Written Asset Management Policy
           The executive director said she was unaware of 24 CFR 990.270, which lists a
           public housing agency’s responsibilities for asset management that go above and
           beyond property management activities. It includes long-term planning and
           allocation, the setting of ceiling or flat rents, review of financial information and
           physical (housing) stock, property management performance, long-term viability of
           properties, replacement strategies, and risk management. Without using proper
           planning toward improving the public housing units, it would be difficult to ensure
           operational efficiency and effectiveness in managing public housing assets.

           Regulations at 24 CFR 85.32 require the Authority to manage equipment (including
           replacement equipment), whether acquired in whole or in part with grant funds, until
           the equipment is disposed of. The regulations further require that management of
           equipment include, at a minimum, property records, a physical inventory, a control
           system, and adequate maintenance procedures to keep the property in good
           condition. The executive director stated that she was unaware of the requirements.

           The executive director could not provide an inventory list or property maintenance
           records. We inspected all 20 of the Authority’s low-income housing units, and each
           of them appeared to be in good repair, safe, and sanitary.

The Authority Did Not Have
Signed Contracts With Housing
Choice Voucher Landlords


           We randomly selected and reviewed 6 of the Authority’s 63 housing assistance
           payments contracts and their associated payments. Five of the six contracts were
           missing signatures. Thus, the Authority did not have valid contracts with its
           landlords. The Authority could not produce a housing assistance payment register
           showing payments to the landlords. Therefore, we identified the payments through
           review of the Authority’s general ledger. The executive director said she was
           unaware that the housing assistance payments contract states that it must be executed
           or signed by the owner and the Authority. The Authority paid $64,843 in Housing
           Choice Voucher program assistance without a valid contract for the five contracts



                                             6
             listed in table 1. Since the payments were made without valid contracts, they were
             ineligible, and the Authority should repay them to HUD.

               Table 1: Housing Choice Voucher payments without a valid contract
                Tenant identification
                       number          Payment dates         Payment amount
               VO236                   Nov. 2007 – Oct. 2012              $28,459
               VO309                   Mar. 2009 – Oct. 2012               10,950
               VO336                   Jan. 2010 – Oct. 2012               15,300
               VO477                   Dec. 2011 – Oct. 2012                5,430
               VO437                   Nov. 2011 – Oct. 2012                4,704
               Total                                                      $64,843

HUD Was Taking Steps To
Correct the Deficiencies

             During the audit, the Albuquerque HUD staff began working closely with the
             executive director on corrective actions to address the deficiencies identified in this
             report.

Conclusion

             The Authority’s executive director and board failed to establish a control
             environment designed to provide reasonable assurance that it complied with
             Federal requirements. These conditions occurred because the executive director
             was unwilling or unable to manage the Authority effectively and the board
             provided little oversight. As a result, the Authority spent at least $64,843 in
             Housing Choice Voucher program funds that were ineligible because the
             Authority did not have valid contracts with landlords. Also, due to the lack of
             internal controls at the Authority, its assets were at an increased risk of fraud,
             waste, and abuse.

Recommendations

             We recommend that the Albuquerque, NM, Public Housing Program Center
             coordinator

             1A      Continue to provide the board of commissioners and the executive director
                     technical assistance regarding the proper implementation of internal controls,
                     with emphasis on the board’s oversight responsibilities.
             1B      Require the Authority’s management to develop and implement written
                     procurement policies and procedures, to include a manual, for all aspects of
                     the Authority’s procurement operations.


                                                7
1C   Require the Authority to determine which of its Section 8 tenants are being
     assisted without a signed housing assistance payments contract and obtain
     the appropriate signatures.
1D   Retain the Authority’s capital and operating funds, release only sufficient
     funds to reimburse the Authority for its paid invoices, and review the
     Authority’s bank statements to ensure that it deposits all rents.
1E   Repay HUD $64,843 in ineligible assistance payments for the five unsigned
     housing assistance payments contracts identified in this report.




                               8
                        SCOPE AND METHODOLOGY

We performed the audit work at the Grants Housing Authority, 508 East Santa Fe, Suite B,
Grants, NM, and the Office of Inspector General (OIG) Office of Audit in Albuquerque, NM,
between August 2012 and March 2013. The audit generally covered the period October 1, 2009,
through July 31, 2012, but we expanded the scope as necessary to meet the audit objective. To
accomplish the objective, we

   •   Reviewed relevant criteria governing the Housing and Community Development Act of
       1974, which authorized the Section 8 certificate program; the Housing and Community
       Act of 1987, which authorized the Section 8 rental voucher program; program
       regulations; and HUD’s guidance as well as the Authority’s agreement with HUD and its
       agreements with various entities.
   •   Reviewed the Authority’s audited financial statements for fiscal years 2010 and 2011 and
       its limited policies and procedures for administering program activities, including
       provisions in its agreements with various entities and program participants.
   •   Randomly selected and reviewed 6 of the Authority’s 63 housing assistance payments
       contracts and their associated payments during the review period.
   •   Interviewed appropriate HUD program and Authority personnel.

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
objective(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                                9
                              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
               objective:

                    •   Effectiveness and efficiency of operations – Policies and procedures that
                        are implemented to reasonably ensure that procurement, expenditure, and
                        financial reporting activities are conducted in accordance with applicable
                        laws and regulations.
                    •   Compliance with applicable laws and regulations – Policies and
                        procedures that are implemented to reasonably ensure that payments to
                        vendors and procurement activities comply with applicable laws and
                        regulations.
                    •   Safeguarding of resources – Policies and procedures that management has
                        implemented to reasonably ensure that resources are safeguarded against
                        waste, loss, and misuse.

               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.




                                                 10
Significant Deficiency

            Based on our review, we believe that the following item is a significant deficiency:

                  •   The Authority lacked adequate controls, including written policies and
                      procedures, over its procurement and inventory functions and
                      administration of its Section 8 Housing Choice Voucher program funds
                      (finding).




                                             11
                                   APPENDIXES

Appendix A

                SCHEDULE OF QUESTIONED COSTS
                           Recommendation
                                                    Ineligible 1/
                               number

                                   1F                   $64,843




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.




                                            12
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1


Comment 2




                         13
OIG Evaluation of Auditee Comments

Comment 1   The Authority stated that management and the board will develop and implement
            written policies and procedures for a controlled environment to reduce the risk of
            fraud, waste, and abuse. The implementation of effective controls should help the
            Authority provide reasonable assurance that it complies with Federal
            requirements.

Comment 2   The Authority stated that its files had contained signed housing assistance
            payment contracts in the past, and admitted that the contracts in the file at the time
            of our review had not been signed. The Authority stated that the executive
            director obtained signed contracts and placed them in the files by September
            2012. The Authority did not inform us that it had obtained signatures for the
            contracts and included them in the files until it sent us its comments. Therefore,
            we did not verify that the signed contracts were in the files during the field work.




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