oversight

The Management and Board of Commissioners of the Harris County Housing Authority Mismanaged the Authority

Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-06-19.

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

OFFICE OF AUDIT
REGION 6
FORT WORTH, TX




               Harris County Housing Authority
                        Houston, TX

            Section 8 Housing Choice Voucher,
        Disaster Housing Assistance, Neighborhood
             Stabilization, and HOME Programs




2013-FW-1006                               06/19/2013
                                                        Issue Date: June 19, 2013

                                                        Audit Report Number: 2013-FW-1006




TO:            Dan Rodriguez, Director, Public Housing Programs Center, 6EPH

               Yolanda Chavez, Deputy Assistant Secretary for Grant Programs, DG

               Sandra Warren, CPD Director, Office of Community Planning and Development,
               6ED

               Craig Clemmensen, Director, Departmental Enforcement Center, CACB

               //signed//
FROM:          Gerald R. Kirkland
               Regional Inspector General for Audit, Fort Worth Region, 6AGA


SUBJECT:       The Management and Board of Commissioners of the Harris County Housing
               Authority 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 Harris County 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.
                                         June 19, 2013
                                         The Management and Board of Commissioners of the
                                         Harris County Housing Authority Mismanaged the
                                         Authority



Highlights
Audit Report 2013-FW-1006


 What We Audited and Why                   What We Found

We audited the Harris County Housing   The Authority’s management and board of
Authority, Houston, TX, at the request commissioners failed to establish a control
of the U.S. Department of Housing and  environment designed to provide reasonable assurance
Urban Development’s (HUD) Fort         that it complied with Federal requirements. They
Worth Office Director of Public and    failed to enact policies and procedures to ensure the
Indian Housing. The request followed a integrity of financial operations and compliance with
series of news articles alleging       procurement requirements. Instead, they neglected
mismanagement and extravagant          their management and oversight responsibilities;
spending at the Authority, the removal wasted Authority funds, at times for personal gain;
or replacement of various former       circumvented existing internal controls; and
managers and board of commissioners    manipulated accounting records. These conditions
members, and concerns expressed by     occurred because the Authority’s management and
the new managers.                      board failed to exercise their fiduciary responsibilities
                                       and did not act in the best interest of the Authority. As
Our objective was to determine whether a result, the Authority incurred questioned costs of
the Authority’s procurement, expenses, more than $27 million. Further, due to their actions
and financial records complied with    and inactions, the former executive director and the
HUD’s requirements.                    Authority’s board put the Authority in a precarious
                                       financial position and it did not have sufficient funds to
                                       repay a $3.8 million debt due to HUD.
  What We Recommend
                                         In addition, there was a scope limitation on the audit
Our recommendations to HUD include because the Authority did not maintain accounting
determining whether the Authority is in records that supported its sources and uses of funds or
significant default of its annual        justified accounting entries in its books and records.
contributions contract, taking
appropriate administrative actions
against the Authority’s former
executive director and former board of
commissioners members who were
responsible for the mismanagement, and
requiring the Authority repay $4.5
million in ineligible costs, and support
or repay more than $23 million.
                           TABLE OF CONTENTS

Background and Objective                                                           3

Results of Audit
      Finding 1: The Authority’s Management and Board Failed To Establish a Proper
                 Internal Control Environment                                       5
      Finding 2: The Authority’s Management Failed To Enact Adequate
                 Financial Controls                                                13
      Finding 3: The Authority Failed To Comply With Procurement Requirements      19

Scope and Methodology                                                             28

Internal Controls                                                                 30

Appendixes
A.    Schedule of Questioned Costs                                                32
B.    Auditee Comments and OIG’s Evaluation                                       33
C.    Schedule of Questionable Miscellaneous Expenditures                         60
D.    Schedules of Federal and Non-Federal Funds Received                         63
E.    Fund Balances as of March 31, 2012                                          64
F.    Bonus Notification Letter                                                   65




                                           2
                              BACKGROUND AND OBJECTIVE
    The Harris County Housing Authority was established under Texas law through an order and
    adoption of a resolution by the Harris County Commissioners Court on March 20, 1975. In
    March 1994, the Commissioners Court merged the Authority with Harris County’s
    Community Development Department. In 2003, the County Commissioners Court
    reestablished the Authority as an independent entity and appointed five commissioners to
    govern it. Although the Authority was fiscally independent of the County, the County and
    Authority worked under an interlocal agreement, which provided staffing and office space
    provisions to the Authority until February 2010. The five-member board of commissioners is
    the Authority’s policy-making body. It selects and employs the executive director, who is
    responsible for the Authority’s day-to-day operations. The Authority had the same board
    chairman from June 2007 until February 2012 and the same executive director from August
    12, 2002, to March 21, 2012. Our audit scope period of April 1, 2009, through March 31,
    2012, occurred predominately during the time when those persons were responsible for
    managing and overseeing the Authority’s operations.

    Harris County created the Authority to provide low-income housing for the residents of Harris
    County, TX. It does not own any public housing units and receives most of its funding from
    the U.S. Department of Housing And Urban Development (HUD) through the Section 8
    Housing Choice Voucher program. For calendar year 2011 and the first quarter of 2012, the
    Authority was awarded about 3,900 vouchers per month. 1 The Authority also administered
    multiple Disaster Housing Assistance Programs (DHAP) 2 funded through the Federal
    Emergency Management Agency (FEMA) and overseen by HUD. HUD performed very little
    monitoring of the Authority because HUD considered it to be a high performer. 3

    The Authority also owned eight mixed-finance affordable housing developments that were
    developed using a mixture of Federal funds, low-income housing tax credits, 4 and non-Federal
    funds. Some of these developments had both low-income and market-rate rental units.
    The Authority’s Affordable Housing division operated and managed these developments.

1
      Although the Authority operates on a fiscal year basis, HUD operates the voucher system on a calendar year
      basis. The Authority’s fiscal year is from April 1 through March 31.
2
      The most common DHAPs in Harris County are those that arose from Hurricane Katrina assistance (DHAP-
      Katrina) and Hurricane Ike assistance (DHAP-Ike).
3
      Public housing agencies that administer the Housing Choice Voucher program self-assess their performance
      using the Section Eight Management Assessment Program. The program scores the agency based on 14 key
      areas or indicators. HUD assigns each agency an annual rating for each indicator and an overall performance
      rating of high, standard, or troubled. HUD provides the highest level of oversight to agencies that it considers
      troubled and the lowest level to agencies it considers to be high performers.
4
      The Low-Income Housing Tax Credit program was enacted by Congress in 1986 to provide the private market
      with an incentive to invest in affordable rental housing. Federal housing tax credits are awarded to developers
      of qualified projects. Developers then sell these credits to investors to raise capital (or equity) for their projects,
      which reduces the debt that the developer would otherwise incur. Because the debt is lower, a tax credit
      property can in turn offer lower, more affordable rents. Provided the property maintains compliance with the
      program requirements, investors receive a dollar-for-dollar credit against their Federal tax liability each year
      over a period of 10 years. The amount of the annual credit is based on the amount invested in the affordable
      housing.


                                                              3
 The Authority received Federal and non-Federal funding. As shown in figure 1, its Federal
 funding greatly exceeded its non-Federal funding for its fiscal years 2010 through 2012.

       Figure 1

                  Federal vs Non-federal Funding in fiscal years
                             2010 - 2012 (in millions)


                                              $12.0                  Federal (direct payment)
                                              $3.9                   Federal (pass through)
                      $149.1                                         Non-Federal



       Appendix D provides additional details of the funding.

From April 1, 2009, through March 31, 2012, HUD provided the Authority about $161.1 million
in Federal funding, including $149.1 million for the Housing Choice Voucher program and
various disaster programs, and $12 million in Federal grant funds passed through Harris County,
TX, to build housing developments. The Authority received $3.9 million in non-Federal funds
from other sources for the same 3 fiscal years. The non-Federal funds included revenue the
Authority received from its affordable housing developments. Thus, more than 97 percent of the
funding that the Authority received was from Federal sources.

In late 2011, the Houston Chronicle began publishing a series of articles criticizing the Authority
and its management for various issues, including excessive salaries for its executives, excessive
spending, nepotism, and possible procurement violations. The Authority underwent a change in
senior management during this time. The Authority’s board terminated the then executive
director’s contract in March 2012, and other senior and experienced employees either resigned or
were asked to leave.

In March 2012, the Board elected a new chairman and hired a new executive director. The new
chairman and director contacted various U.S. Senate and Judiciary officials concerning the
Authority’s financial condition and inappropriate expenditures. The board and management
fully cooperated with the OIG audit and provided leads regarding many of the conditions cited in
this audit report.
Our objective was to determine whether the Authority’s procurement, expenses, and financial
records complied with HUD’s requirements.




                                                4
                                  RESULTS OF AUDIT

Finding 1: The Authority’s Management and Board Failed To Establish
a Proper Internal Control Environment
The Authority’s management and board of commissioners 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 financial
operations (finding 2) and compliance with procurement requirements (finding 3). Instead, they
neglected their management and oversight responsibilities; wasted Authority funds, at times for
personal gain; circumvented existing internal controls; and manipulated accounting records.
These conditions occurred because the Authority’s management and board failed to exercise
their fiduciary responsibilities and did not act in the best interest of the Authority. As a result,
the Authority incurred questioned costs of more than $27 million. Further, due to their actions
and inactions, the former executive director and the Authority’s board put the Authority in a
precarious financial position and it did not have sufficient funds to repay a $3.8 million debt due
to HUD.


 Management 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 a control environment that sets the tone of an organization. This “tone
               at the top” affects the integrity and ethics of the organization as a whole. Effective
               internal control is essential to provide reasonable assurance about the achievement of
               the organization’s mission, goals, and objectives and to reduce the risk of fraud,
               waste, and abuse.

               However, management and the board neglected their management and oversight
               responsibilities when they failed to establish a control environment to instill integrity
               and ethics in achieving the Authority’s mission. Further, the Authority’s board did
               not hold management accountable for these standards, and the commissioners failed
               to hold themselves to a high standard of integrity and fiduciary responsibility.
               Specifically, the Authority’s fiscal controls and accounting procedures were
               inadequate to ensure that it maintained complete and accurate records of its pooled
               fund transactions (finding 2). Further, management and the board failed to enact
               policies and procedures to ensure compliance with procurement requirements, and
               two former board members violated conflict-of-interest requirements when firms
               that employed them received contracts with the Authority (finding 3).



                                                  5
    Authority Management Wasted
    Funds for Various Items,
    Including Excessive Salaries and
    Bonuses

                  Appendix A, subsection C of 2 CFR (Code of Federal Regulations) Part 225,
                  “Cost Principals for State, Local, and Indian Tribal Governments,” 5 provides
                  grantees such as the Authority with guidance regarding allowable costs. To be
                  allowable, costs must be necessary and reasonable. A cost is reasonable if in its
                  nature and amount, it does not exceed that which would be incurred by a prudent
                  person under the circumstances prevailing at the time the decision was made to
                  incur the cost. The question of reasonableness is particularly important when
                  governmental units or components are predominately federally funded. Further, it
                  must be determined whether the individuals concerned acted with prudence in the
                  circumstances, considering their responsibilities to the governmental unit, its
                  employees, the public at large, and the Federal Government. Appendix B of the
                  CFR prohibits the use of Federal funds for goods or services for personal use,
                  entertainment expenses, donations and contributions, and foreign travel.

                  Contrary to these requirements, the Authority expended funds for many items that
                  were not reasonable or necessary and did not support the Authority’s mission.
                  These inappropriate items included expenditures for excessive salaries and
                  bonuses, various statues and monuments, apartments for consultants, various
                  donations and contributions, various entertainment expenses, dental expenses for
                  the former executive director and his daughter, and other such items.

                  Following are a few examples of unreasonable and unnecessary expenditures and
                  expenditures that did not support the Authority’s mission. These expenditures
                  demonstrate the former executive director’s and the board’s waste and abuse of
                  funds and their disregard for internal controls. A more comprehensive list of $2.4
                  million in such unsupported expenditures is in appendix C of this report.

                  The Authority Paid Excessive Salaries and Bonuses
                  The Authority paid almost $1.8 million in additional salaries, including payroll
                  taxes, for its managers and staff during fiscal years 2010 to 2012 that did not
                  appear to be reasonable and necessary. The Authority’s general ledger and
                  personnel records referred to the payments as equalization pay, performance pay,
                  and bonuses. The performance and bonus pay sometimes exceeded the
                  employee’s annual base salary during fiscal year 2010. Further, the payments for
                  some executive employees, especially for fiscal year 2010, exceeded the
                  maximum salaries recommended in two compensation studies commissioned by
                  the board. For example, the maximum recommended salary for the chief


5
      Previously known as Office of Management and Budget (OMB) Circular A-87.



                                                      6
administrative officer in the two salary studies was $188,450; however, the
Authority paid him $305,041 in fiscal year 2010.

Further, the board minutes routinely noted that the board was going into executive
session to discuss salary issues, but the minutes did not report the board’s passing
a resolution to approve the salary increases. Also, the Authority paid the
additional salaries through its accounting system without the County’s
knowledge. The Authority and the County had an agreement whereby the County
performed time-keeping and payroll functions for the Authority. Authority
employees received County benefits, and the agreement required the Authority to
follow the County’s personnel rules and regulations.

In another example of the Authority’s abuse of funds, the Authority paid the
former executive director a $60,000 bonus on December 10, 2008. In a letter,
dated December 15, 2008, 5 days after the bonus, the former board chairman
notified the executive director that he had been approved for the bonus. The letter
was written on what appeared to be stationery of the law firm that the chairman
was working for at that time. The board authorized a second $60,000 bonus to the
former executive director on November 19, 2009, but when the Authority paid
him, it increased the bonus to $64,970 to offset payroll taxes. It appeared that
someone changed the date on the December 15, 2008, letter to December 15,
2009, and may have used it as approval for both the first and second bonus
payments. A copy of the letter announcing the bonus payments is in appendix F.

The Authority Paid More Than $190,000 for Statues and Monuments
The Authority paid $192,739 for statues and monuments to be placed at two of its
affordable housing developments, Sierra Meadows and Cypresswood Estates. It
paid $101,450 for a 10-foot bronze sculpture of an angel holding a fallen soldier.
The Authority also purchased several veteran-themed monuments; inscribed
granite memorials, including one to a former board chairman and one to a City of
Houston civil rights leader; and a collage of presidential photos and signatures.

Bronze statue depicting a fallen soldier – cost $101,450




                                 7
Granite monument with a memorial to a former board chairman – cost $13,920




Collage of presidential photos and signatures – cost $5,195




                                 8
The Authority Paid More Than $54,000 for Apartments for Consultants
From 2009 through 2010, the Authority rented two apartments, with rents ranging
between $2,200 and $3,300 monthly, in Houston’s exclusive Museum District at a
total cost of $54,006 for the period. According to Authority documents, the
Authority rented the apartments for use by housing development consultants;
however, it did not have a record of who resided in the apartments. The Authority
did not own any developments other than affordable housing developments; thus,
these payments did not appear to be necessary or support the Authority’s mission.
The Authority did not provide evidence that the board approved these payments.
Three separate rental agreements were executed for one of the apartments.
Although the agreements were signed with the name of the former executive
director, the signatures did not appear to match.

The Authority Paid $10,000 to a Former Secretary of HUD
The Authority paid a former HUD Secretary $10,000 in July 2010 to be the
keynote speaker at its annual awards luncheon and tour its Magnolia Estates
housing development. It also paid $5,500 to Garrison Wynn of Wynn Solutions
to speak at its employee appreciation awards ceremony in July 2010.

The Authority Contributed to Various Charities and Other Causes
The Authority contributed $118,000 to various charities and other causes. The
contributions included $50,000 to the Helping A Hero organization; $25,000 to
the Space Center Rotary Foundation; $16,500 to the National Japanese American
Memorial Foundation, including $6,500 for a book signed by 39 World War II
veterans, commemorating a battalion of Texas soldiers; $11,500 to the NAACP
Houston Branch; and at least $13,000 for gift cards for residents of the
Authority’s affordable housing developments.

The Authority Paid Personal Expenses for the Former Executive Director
and a Former Board Chairman
The former executive director reimbursed himself $4,969 for his and his
daughter’s dental expenses. Although the former chief administrative officer
approved the invoices for payment, the former executive director approved the
check request. By approving the document that prompted the payment to himself,
the executive director demonstrated his disregard for internal controls.

In addition, the Authority spent more than $44,000 to purchase a new truck for the
use of a former board chairman. The former board chairman returned the vehicle
to the Authority before leaving the board. However, this example illustrates his
lack of concern for his oversight responsibilities for the Authority’s expenditures.

The Authority Made Questionable Expenditures for Golf Fees
The Authority paid $1,200 to enter two foursomes into the 2011 U.S. Green
Building Council-Texas Gulf Coast Chapter golf tournament. The teams
consisted of the former executive director and at least three other Authority




                                 9
                   employees. The Authority also spent $240 for four Authority staff members to
                   enter a 2010 Texas Housing Association golf outing.

                   The Authority Made Other Questionable Expenditures
                   The Authority made other questionable expenditures, including $18,000 for letters
                   handwritten by Abraham Lincoln to be placed at a now-defunct veterans housing
                   development; $8,780 for five helicopter flights over its affordable housing
                   developments; $24,000 to Wynn Solutions as a downpayment for a book writing
                   project that according to the contract, was to be about disaster housing; 6 more
                   than $66,000 for shirts for employees at an average cost of $52 per shirt,
                   including 1,281 polo shirts, denim shirts, and dress shirts with various Authority
                   logos; and $8,000 for entertainment, including $4,326 for a 2009 Christmas party,
                   which included payment for six bowling lanes and a buffet dinner for 50 people.
                   It also spent $4,000 for a band at an event in 2010 at Houston’s Westin Galleria
                   hotel. Appendix C is a detailed list of the questioned expenditures.

    The Authority Misclassified
    Expenses

                   The Authority did not classify some of the above expenses correctly in its
                   accounting records. For example, it classified $144,760 in expenses for food for
                   staff meetings, the helicopter flights, Christmas gift cards, shirts, and other similar
                   questionable expenses as office supplies. It classified another $98,481 for a
                   security camera, brochures, banquet sponsorship, and golf carts as consultant and
                   professional fees, while it classified expenses for a golf tournament as staff
                   training.

    Authority Management
    Incurred Inappropriate
    Development Expenses

                   In another example of the Authority’s mismanagement and waste of funds, the
                   Authority incurred about $17.8 million in unreimburseable development
                   expenses. This amount included the purchase of 91.9 acres of property on Lake
                   Houston for $6.5 million in 2009 for a new master planned community that was to
                   provide housing and services to veterans and was to be known as Patriots on the
                   Lake. According to local news articles, the plan was contingent upon the U.S.
                   Department of Veterans Affairs relocating offices and other facilities to the Lake
                   Houston site. The Department did not move to the site. Thus, the project was
                   halted. As of the fiscal year ending March 31, 2011, the Authority had paid more
                   than $1.5 million in construction costs for the defunct project, in addition to $6.5


6
      Staff members that we interviewed stated that they did not know about the book project.



                                                         10
             million paid to purchase the property. Finding 2 further discusses the
             unreimburseable development expenses

The Authority’s Management
and Board Put the Authority at
Financial Risk


             As a result of their actions and inactions, the former executive director and the
             Authority’s board put the Authority at financial risk. Not only did the Authority
             pay more than $27 million for questioned expenses during the audit period, it also
             did not have $3.8 million to repay a debt owed to HUD. As further discussed in
             finding 2, the Authority spent more funds than it had available for some of its
             programs. Further, it wasted funds on inappropriate and unnecessary
             procurements (finding 3). According to the Authority’s financial records, its fund
             balances declined from almost $37.9 million at the end of its fiscal year 2009 to
             just over $1.6 million at the end of its fiscal year 2012 as illustrated in figure 2.

                Figure 2
                              Total fund balances (millions)
                  $40.0
                  $35.0
                  $30.0
                  $25.0
                  $20.0
                  $15.0
                  $10.0
                   $5.0
                   $0.0
                             FY 2009     FY 2010      FY 2011     FY 2012
                FY = fiscal year


Conclusion

             The Authority’s management and board of commissioners 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 financial operations and compliance with procurement
             requirements. Instead, they neglected their management and oversight
             responsibilities; wasted Authority funds, at times for personal gain; circumvented
             existing internal controls; and manipulated accounting records. These conditions
             occurred because the Authority’s management and board failed to exercise their
             fiduciary responsibilities and did not act in the best interest of the Authority. As a


                                              11
          result of these conditions, the Authority incurred questioned costs of more than
          $27 million, including more than $2.4 million in unsupported expenditures, and
          did not have funds to repay a $3.8 million debt due to HUD.

Recommendations

          We recommend that the Director, Office of Public Housing, Houston, TX,
          require the Authority to

          1A. Provide support showing that the $2,466,779 in unsupported expenses,
              shown in appendix C to this report, either were paid from non-Federal funds
              or provide support showing the expenses were an eligible use of Federal
              funds. Any unsupported expenditures from Federal funds should be repaid to
              the Authority’s Housing Choice Voucher program or to HUD if the
              Authority is unable to determine the source of funds used to pay the
              expenses. Any repayments must be from non-Federal funds.

          1B. Reclassify the misclassified expenses to the proper accounts in its accounting
              records.

         We recommend that the Director, Departmental Enforcement Center,

          1C. Take appropriate administrative action, including possible debarment,
              against the former executive director and board members responsible for the
              actions identified in this report.




                                          12
Finding 2: The Authority’s Management Failed To Enact Adequate
Financial Controls
The Authority’s financial records did not comply with requirements. This condition occurred
because the Authority’s management and board failed to implement adequate financial controls.
Specifically, the Authority’s fiscal controls and accounting procedures were inadequate to ensure
that it maintained complete and accurate records of its pooled fund transactions. Its managers
effectively comingled Federal and non-Federal funds for fiscal year 2012 in violation of the
Authority’s annual contributions contract and HUD requirements. Authority managers hid their
overspending for certain programs by not entering fund transfers into the accounting system or
maintaining adequate documentation, including a written cost allocation plan. Further, they
misclassified some expenses. As a result, the Authority incurred more than $17.8 million in
unsupported costs and misspent $3.8 million in Federal DHAP funds that it was unable to repay
HUD.


    Authority Management
    Comingled and Misspent
    Federal Funds

                 The Authority’s management comingled its Federal and non-Federal funds in
                 violation of HUD requirements. HUD allowed the Authority to pool or combine
                 funds from various sources into one master account or general fund for the
                 payment of expenses rather than requiring separate bank accounts for each fund.
                 However, the Authority could use these pooled funds only for any expenditure
                 chargeable to the programs that had funds on deposit. As generally used, the term
                 “comingling of funds” refers to the use of one program’s funds to pay
                 expenditures for and in excess of the funds available for another program. HUD
                 prohibits withdrawals for a specific program in excess of the funds available on
                 deposit for that program, and the Authority cannot use Federal funds for
                 non-Federal purposes. Therefore, HUD instructs public housing agencies to
                 maintain supporting documentation for pooled fund transactions in enough detail
                 to provide an adequate audit trail. 7 Thus, while the Authority could combine its
                 funds into one general fund, its accounting system needed to track the funds well
                 enough to keep it from comingling the funds.

                 The Authority’s contract with HUD provided that it had to maintain current,
                 complete, and accurate books of account in such a manner as to permit
                 preparation of statements and reports required by HUD and a timely and effective
                 audit. 8 HUD empowered housing agencies such as the Authority to establish their
                 own systems for financial management and record keeping as long as the system,
                 among other things, maintained adequate records and had internal controls in
7
     HUD Guidebook 7510.1G, paragraphs II-15 and II-16
8
     24 CFR Part 982.158 (a)



                                                    13
               place. However, the Authority did not have adequate internal controls, including
               written policies and procedures, to ensure that it maintained complete and
               accurate books of record for its program and nonprogram funds. Thus, it did not
               accurately track each fund’s sources and uses in its accounting system.

               HUD’s guidance advised that the pooling of funds in a master account would
               result in “due to-due from” transactions in the financial records. 9 However, rather
               than making due to-due from accounting entries in its records to transfer or “loan”
               funds to a particular program when it was running low of funds, Authority staff
               continued making expenditures for the program, which resulted in negative
               balances for some accounts in its financial records.

               Table 1 shows the Authority’s fund balances for its larger programs at the end of
               fiscal year 2012 (see appendix E for all fund balances). Some of the balances
               were negative, meaning that the Authority spent more money than it had available
               for those programs. Since the Authority pooled its funds, the balances reflected
               that the Authority used available funds from other programs to pay expenses for
               the programs with negative balances. Also, since the Authority did not record due
               to-due from transactions in its financial records, there was no audit trail, and
               neither we nor the Authority was able to determine how much money was owed
               to specific programs. In effect, Authority management hid the overspending for
               certain programs by not recording due to-due from transactions and not
               maintaining adequate documentation for its pooled fund transactions.

               Table 1: Major program fund balances for fiscal year 2012
                                                                   Fiscal year ending
                                    Program                          March 31, 2012
                Housing Choice Voucher                                     $ (1,217,150)
                Veterans Affairs Supportive Housing                              498,989
                Disaster Voucher Program                                       1,708,139
                DHAP                                                            (73,353)
                DHAP-IKE – Harris County                                       5,385,206
                DHAP-IKE – Texas                                                 760,360
                Cypresswood Estates                                          (4,481,290)
                Affordable Housing                                           (1,046,336)

               For example, according to the Authority’s records, at the end of fiscal year 2012,
               its Cypresswood Estates development and its Affordable Housing Division were
               overexpended by a combined $5.5 million. Further, both the Cypresswood and
               Affordable Housing funds generally were supported by non-Federal funds, and
               their activities were predominately non-Federal. The remaining funds were fully
               funded from Federal sources. Given the fund balances as of March 31, 2012, the
9
    HUD Guidebook 7510.1G, paragraph II-15



                                                14
           Authority used Federal funds to fund non-Federal activities. While other
           programs had small balances, the only program with a balance large enough to
           cover most of the overages was DHAP-Ike. The DHAP-Ike program consisted of
           Federal FEMA disaster funds, which were administered by HUD. However, the
           specific amounts paid from each fund could not be determined due to the lack of
           proper accounting records.

           The Cypresswood Estates was a newly constructed apartment complex for senior
           citizens. It was built with a mixture of Federal and non-Federal funds and was
           advertised as a green, sustainable community.

           In addition, the Authority owed HUD $3.8 million in overfunded DHAP-Ike
           security and utility deposits and administrative fees at the end of fiscal year 2012.
           However, the Authority was unable to repay HUD because it did not have the
           funds. HUD should require the Authority to enter into an agreement to repay the
           $3.8 million.

The Former Executive Director
Was Aware of the Fund Deficits


           According to the chief financial officer, the former executive director was aware
           of the deficits in the operating accounts. The former executive director expected
           the Authority to receive revenue that would cover the deficits. However, the
           Authority did not receive those revenues.

           One such revenue that did not materialize was $2.8 million that the Authority
           expected to receive from Harris County for reimbursement of expenses for
           building the Cypresswood Estates senior housing development. According to the
           Authority’s chief financial officer and chief development officer, Harris County
           did not reimburse the Authority because the Authority did not follow Harris
           County’s procedures in obtaining approval for contractors and due to additional,
           unexpected project costs.

           A second example of unrealized revenue was an expected reimbursement from
           FEMA for money that the Authority spent to perform a damage assessment after
           Hurricane Ike. According to statements from the former executive director in the
           February 25, 2009, board of commissioners meeting minutes, the former
           executive director expected to be able to use the damage assessment as a model
           for future disasters in the area. FEMA denied more than $7 million in
           reimbursement requests from the Authority.

           As discussed in finding 1, the Authority also did not realize revenue from the
           failed Patriots on the Lake project.




                                            15
                   The Authority should determine the source of funds used for the combined $17.8
                   million in unreimbursed expenditures it made for Cypresswood Estates ($2.8
                   million), the damage assessment ($7 million), and Patriots on the Lake ($8
                   million). For any instances in which the Authority cannot clearly support that the
                   sources of funds were non-Federal, it should reimburse HUD or the appropriate
                   Federal program if it can be determined.

     Other Fiscal Control
     Weaknesses Existed


                   The Authority did not have a written indirect cost allocation plan, even though
                   federal regulations required it to prepare and certify one. 10 Indirect costs are
                   those that have been incurred for common or joint purposes. Such costs benefit
                   more than one cost objective and cannot be readily identified with a particular
                   final cost objective without effort disproportionate to the results achieved.
                   Further, the Authority sometimes transferred funds from one program to another
                   and reclassified expenses without documentation to justify the reclassifications.
                   The chief financial officer explained that the former chief administrative officer
                   instructed him to reclassify the expenses. To prevent the future improper
                   allocation of costs, the Authority should adopt and implement a cost allocation
                   plan that includes procedures to ensure that it reasonably allocates costs to the
                   programs that benefit from them. The Authority should also repay any amounts
                   allocated to HUD programs that it cannot support.

                   In addition, Authority accounting staff did not ensure that the Section 8 net
                   restricted assets account balance was correct in its financial records. The
                   Authority’s staff did not correct its internal records after the Authority and HUD
                   agreed on a $513,134 adjustment in the voucher system. This adjustment was
                   also shown in the Authority’s fiscal year 2010 audited financial statements.
                   However, because the Authority never made the adjustment in its financial
                   records, those records were inaccurate. The Authority should ensure that it
                   includes the adjustment in its financial records.

                   Finally, the Authority did not maintain controls over its inventory. It could not
                   provide an inventory list and could not locate more than $150,438 in computers
                   and other equipment. The majority of the missing equipment was laptop
                   computers and electronic tablets. However, desks and three IPads were also
                   missing. Most of the equipment was purchased for DHAP. Since the Authority
                   could not locate the equipment, it removed the missing items from its books. The
                   Authority should develop a system for tracking its inventory and periodically
                   conduct physical inventories to ensure that equipment and other valuable items
                   are accounted for. The system should have procedures designed to reduce the risk

10
       2 CFR Part 225, Appendix A, paragraphs F(1) and H(1)



                                                       16
             of theft or loss of inventory items and include requirements that hold employees
             responsible for missing inventory items.

Conclusion

             The Authority’s financial records did not comply with requirements. This
             condition occurred because the Authority’s management and board failed to
             implement adequate financial controls. Specifically, the Authority’s fiscal
             controls and accounting procedures were inadequate to ensure that it maintained
             complete and accurate records of its pooled fund transactions. As a result, it
             incurred more than $17.8 million in unsupported costs and misspent $3.8 million
             in Federal DHAP funds that it was unable to repay HUD. HUD should require
             the Authority to implement adequate fiscal controls, including written policies
             and procedures, that reasonably ensure the accuracy of its financial records and
             reports. HUD should also require the Authority to correct its accounting records
             to properly account for its transactions in sufficient detail to account for the
             sources and uses of all funds, support or repay more than $17.8 million, and
             execute an agreement to repay the $3.8 million debt it owes HUD for ineligible
             DHAP-Ike expenditures.

Recommendations

             We recommend that the Director, Office of Public Housing, Houston, TX,
             require the Authority to

             2A. Implement fiscal controls, including written policies and procedures, that
                 reasonably ensure the accuracy of its financial records and reports and that it
                 maintains complete and accurate books of record for its Federal and non-
                 Federal program funds. The controls should include procedures for
                 accounting for pooled funds, a cost allocation method, and an inventory
                 system.

             2B. Correct its accounting records to show the proper amounts available in each
                 pooled fund and include the appropriate due to-due from balances. In
                 making the corrections, the Authority should reclassify any improperly
                 classified transactions and pay back the appropriate programs.

             2C. Repay from non-Federal funds the $3,811,279 it owes HUD for ineligible
                 expenditures from DHAP-Ike funds.

             2D. Determine how much of the $2,827,829 in unreimbursed expenditures for
                 Cypresswood Estates was made with Federal funds and repay that amount to
                 the appropriate program. If the Authority is unable to accurately determine
                 the amount due to-due from each program and support that funds charged to



                                              17
    Federal programs were appropriate, the full $2,827,829 should be repaid to
    HUD.

2E Determine how much of the $7,010,079 in unreimbursed expenditures for
   damage assessment was paid with Federal funds and repay that amount to the
   appropriate program. If the Authority is unable to accurately determine the
   amount due to-due from each program and support that funds charged to
   Federal programs were appropriate, the full $7,010,079 should be repaid to
   HUD.

2F. Determine how much of the $8,011,036 in unreimbursed expenditures for
    Patriots on the Lake was made with Federal funds and repay that amount to
    the appropriate program. If the Authority is unable to accurately determine
    the amount due to-due from each program and support that funds charged to
    Federal programs were appropriate, the full $8,011,036 should be repaid to
    HUD.

2G. Make a $514,134 adjustment to its net restricted assets fund balance to reflect
    the adjustment that HUD made in its voucher system and that is reflected in
    the Authority’s fiscal year 2010 audited financial statements.




                                18
Finding 3: The Authority Failed To Comply With Procurement
Requirements
The Authority failed to follow Federal procurement regulations. It engaged in prohibited
procurement practices such as using a prohibited cost-plus contract type, violating conflict-of-
interest requirements, not executing contracts for recurring or large expenses, and failing to keep
a contract log. These conditions occurred because the Authority’s management and board failed
to enact policies and procedures to ensure compliance with procurement requirements. Further,
they attempted to conceal conflicts-of-interest. As a result, at least $1.9 million in procurements
was unsupported, unreliable, not necessarily in the best interests of the Authority, and potentially
an ineligible use of Federal funds. Further, the Authority must repay the State of Texas and
HUD $720,000 that it used for an ineligible contract and must provide support that it properly
used another $1.1 million in HOME Investment Partnerships Program funds or return those
funds to HUD.


 The Authority Executed a
 Prohibited Cost-Plus Contract


                The Authority used a prohibited cost-plus-a-percentage-of-cost contract
                for its Cypresswood Estates housing development. According to the
                contract, the Authority funded the development with $5 million in
                Community Development Block Grant (CDBG) Disaster Recovery
                Program funds, $4 million in Neighborhood Stabilization Program funds,
                and $1.9 million in non-Federal funds. According to HUD records, the
                Authority also used $1.1 million in HOME funds for the development.
                However, the contract did not mention the HOME funds or how the
                Authority used them.

                HUD’s Office of Community Planning and Development had oversight
                of the CDBG Disaster Recovery Program, the Neighborhood
                Stabilization Program, and the HOME program. HUD’s general
                procurement rules at 24 CFR (Code of Federal Regulations) 85.36(f)(4)
                prohibit grantees and subgrantees from using cost-plus contracting
                methods. Further, 24 CFR 570.489(g) prohibits the use of cost-plus
                contracts for CDBG-funded projects. Also, according to the Federal
                Register, Volume 73, Number 194, dated October 6, 2008, Neighborhood
                Stabilization Program grants are to be considered CDBG funds and, thus,
                would be subject to CDBG rules, including a prohibition from using cost-
                plus contracts. Therefore, Federal regulations prohibit using any of the
                three Federal funding sources for cost-plus contracts.

                We did not consider the entire prohibited cost-plus contract to be
                ineligible because the Authority received goods and services under it.
                We only considered the plus part of it to be ineligible. According to the


                                                19
                   contract, the “plus” part was comprised of three components: profit (6
                   percent), general conditions (6 percent), and overhead (2 percent). Profit
                   may have been an eligible item, but both general conditions and overhead
                   were ineligible markups and totaled 8 percent of the Federal funds in the
                   contract, or about $720,000 ($400,000 in CDBG Disaster Recovery
                   Program funds and $320,000 in Neighborhood Stabilization Program
                   funds). The Authority should repay these ineligible expenses.

                   Harris County also awarded $1.1 million in federal HOME funds for the
                   development of Cypresswood Estates on October 27, 2011,
                   approximately 5 months after the project was completed on May 31,
                   2011. 11 Because of the condition of the Authority’s books and records,
                   we could not determine for what purpose the Authority used the HOME
                   funds since the development had been completed. The Authority should
                   either provide documentation to show that the funds in table 2 were used
                   for an eligible purpose or repay them to HUD.

       Table 2: Funding sources and uses in Cypresswood Estates
           Fund source          Contract     Questioned        Reason cost was
                                 amount        amount           questionable
                                                          Markups other than profit
        CDBG disaster funds   $5,000,000 12      $400,000 were ineligible.
        Neighborhood                                      Markups other than profit
        Stabilization             4,000,000       320,000 were ineligible.
        Program
        Private funding           1,900,000         None Not questioned
        HOME                       N/A          1,105,534 Use unsupported
        Total                 $10,900,000      $1,825,534

                   The Authority entered into the prohibited cost-plus contract when it
                   replaced a general contractor with a new contractor. We reviewed the
                   cost-plus contract, but we did not review the initial contract. Cost-plus
                   contracting methods are prohibited because they provide no incentive to
                   the contractor to minimize the cost to the government.

                   According to the cost-plus contract and the chief development officer, the
                   Authority changed contractors less than 2 years into the original
                   contract 13 because the former executive director changed the
                   development plans. The former executive director wanted to obtain a

11
     According to the Authority’s audited financial statements, Cypresswood Estates was placed into service in June
     2011.
12
     The construction contract showed that CDBG funds in the amount of $5,000,000 provided partial funding for
     the project. However, the audited financial statements for Fiscal Year 2010 showed that the project received
     CDBG funds in the amount of $5,574,826.
13
     The Authority signed the original contract on April 29, 2009, and the replacement contract on March 17, 2011.



                                                        20
            higher LEED (Leadership in Energy and Environmental Design) or
            “green” building certification. The initial contractor was not going to be
            able to meet a May 31, 2011, deadline that would allow the Authority to
            fully benefit from available Federal funding for “green” development
            activities. According to the chief development officer, it would not have
            been feasible to use the normal contracting process to hire a new
            contractor and finish the project by the May 31, 2011, deadline because
            much of the subcontract work would have had to be rebid. The new
            contractor agreed to complete the development by the deadline.

            Harris County did not reimburse the Authority for more than $2.8 million
            in construction expenses for the Cypresswood Estates project because the
            Authority did not use County-approved contractors. According to the
            chief development officer, the County also did not reimburse the
            Authority $87,000 in “expediting” fees that the Authority paid directly to
            several construction company employees in violation of its contract with
            the construction company. Since the payments violated the contract, if
            the Authority used Federal funds to make the $87,000 in payments, those
            payments would also be an ineligible use of Federal funds. Therefore,
            the Authority needs to either show that it did not use Federal funds or
            repay the $87,000 from non-Federal funds.

The Authority Violated
Conflict-of-Interest
Prohibitions

           The Authority’s management violated conflict-of-interest prohibitions when it
           contracted with two companies that employed former chairmen of the Authority’s
           board of commissioners, either during or shortly after their tenure.

           In one case, the Authority’s board of commissioners awarded a DHAP
           subcontract to a consulting firm only 2 months after a former board chairman,
           who was also a partner in the consulting firm, resigned from the board in May
           2007. According to 24 CFR 982.161, a 1-year period must pass before any
           present or former officer of a housing authority can contract with the agency. In
           addition, the board of commissioners’ 2007 policies and procedures manual,
           paragraphs 2.8 and 2.9, required a 1-year waiting period. The former board
           chairman’s firm then signed a contract with the Authority after the 1-year waiting
           period expired. According to the Authority’s records, it paid the firm $436,011
           before signing a contract in September 2008.

           In a second case, the former executive director and the board allowed a consulting
           firm that was contracted with the Authority to subcontract with a law firm to
           provide services pertaining to the contract with the Authority. The Authority’s
           board chairman at the time was a litigation partner employed by the law firm.
           This former board chairman, who served as chairman from June 2007 until


                                            21
                 February 2012, also personally incurred charges against the contract, and the
                 Authority paid the law firm for his work performed under the contract while he
                 was still the board chairman. According to its accounting records, the Authority
                 paid the consulting firm a total of $920,315 for this contract, which included
                 $773,731 charged for the subcontracted law firm’s services. On January 3, 2013,
                 the Authority’s interim executive director recovered the $773,731 from the
                 subcontractor. Therefore, the Authority effectively only paid the consulting firm
                 $146,584 14 under the contract.

                 Both paragraph 2.8 of the board of commissioners’ 2007 policies and procedures
                 manual and paragraph 3.64 of its draft 2009 policies and procedures manual
                 prohibit commissioners from having a significant financial interest or a direct or
                 indirect interest in a contractor or consultant with which the Authority conducted
                 business. Figure 3 outlines the relationship between the board chairman and the
                 Authority, the consulting firm, and the law firm. It shows how the board
                 chairman could indirectly receive funds from the Authority.

                 Figure 3




                 A payment to a person or organization with a conflict-of-interest is not in and of
                 itself an ineligible payment because the Authority may have received some value
                 for its money. However, the $582,595 15 paid to the employer of one former board
                 chairman and to the consulting firm that subcontracted the law firm which
                 employed the other former board chairman was particularly questionable because
                 of the chairmen’s attempts to circumvent conflict-of-interest rules. Further,
                 according to the Authority, the $146,584 paid to the consulting firm may have

14
     $920,315 - $773,731 = $146,584
15
     $436,011 + $146,584 = $582,595



                                                 22
           included markups of legal fees paid to the law firm with a conflict of interest.
           Since the legal fees were the result of an improper subcontract, the markups on
           those fees may also be ineligible. The Authority should show that it received the
           services for which it was charged and that those services cost the same or less
           than comparable services from a source without a conflict-of-interest relationship
           with the Authority. If it used Federal funds to pay for the services and either did
           not receive them or paid more for them than it would have paid a source without a
           conflict-of-interest relationship, it should repay the funds to the appropriate
           source program or to HUD.

           Appendix F provides additional evidence of a former board chairman’s
           conflict-of-interest. It is a notification letter of the executive director’s bonus,
           which appears to have been prepared on stationery from the law firm for which he
           worked.

           To further demonstrate the board’s disregard for its fiduciary responsibilities, on
           August 6, 2007, the Authority’s general counsel told the board in a letter that
           awarding a contract to a consulting firm, the partners of which included a former
           board chairman, could be viewed as a conflict-of-interest and that the board could
           apply for a waiver from HUD. However, instead of selecting a different
           consulting firm or applying for the waiver, the Authority continued to make
           payments to the former board chairman’s firm.

           The former board chairman, who was a partner in the consulting firm that was
           contracted with the Authority, tried to conceal the conflict-of-interest relationship
           of the law firm that it subcontracted. According to a note attached to a $215,595
           invoice, he instructed his staff to remove the law firm’s name from the invoice.

The Authority Did Not Have
Required Contracts for
Recurring and Large Expenses

           The Authority’s staff could not identify all of its contracts. Since the Authority
           did not maintain a contract log or other means to identify its procurements, its
           staff prepared a list of its contracts for the audit; however, the list was incomplete
           and did not contain some vendors to which the Authority paid more than $25,000,
           including one of its largest vendors. We selected for review 14 vendors, to which
           the Authority paid more than its small purchase limit of $25,000, and requested
           copies of the contracts. We also selected a $25,000 contract with a vendor that
           had a conflict-of-interest relationship with the Authority. The accounting staff
           was able to provide contracts for only 7 of the 15 vendors. We obtained copies of
           contracts for 2 more of the 15 vendors from other sources.

           For the nine contracts obtained, the Authority sometimes paid more than the
           maximum amount shown on the contract. For example, the Authority executed a
           contract with SMASH Visual for $3,000 plus reimbursable expenses to provide


                                             23
                  architectural drawings. According to the September 16, 2009, board minutes, the
                  board authorized the Authority to execute another contract with SMASH Visual
                  for an amount not to exceed $42,000 to design and maintain the Authority’s Web
                  site. The Authority did not have a copy of this second contract in its file. It had
                  paid SMASH Visual $171,100 as of March 31, 2012.

                  In another example, the Authority paid a consulting firm, in which a former board
                  chairman was a partner, significantly more than the contract amount. The former
                  board chairman resigned from the Authority’s board in May 2007. On September
                  8, 2008, the Authority signed a $25,000 contract with the firm for emergency
                  management services shortly after Hurricane Ike. The contract was to end on
                  December 31, 2010. The contract amount was based on hourly rates, according to
                  a schedule in the contract, and included out-of-pocket expenses. According to the
                  contract, the fees were to be renegotiated after reaching the limit; however, there
                  was no evidence that the fees were renegotiated. A sample of invoices showed
                  that the Authority paid at least $78,887 under the $25,000 contract. Therefore,
                  the Authority paid at least $53,887 more than the contract amount.

                  Further, the Authority did not have required contracts for some recurring expenses
                  with aggregate costs well above the small purchase threshold. Table 3 contains
                  recurring expenses that the Authority should have procured through contracts. It
                  also shows payments that the Authority made to vendors in excess of the contract
                  amounts. The Authority should provide evidence to show that these payments
                  totaling more than $1.2 million were either not made with Federal funds or were
                  eligible uses of Federal funds that were properly supported.

 Table 3: Payments to vendors without a contract or in excess of contract amounts
         Vendor            Payments as     Contract      Less payments Unsupported
                           of March 31,      on file      supported by        amount
                                2012                       contract(s)
  Nan McKay                   $ 705,187       No               $         0    $ 705,187
                                                                        16
  SMASH Visual                    171,100     Yes                 3,000          168,100
  Carona’s Housekeeping           109,216     Yes                   6,317        102,899
  Berg Oliver Associates          171,313     Yes                  55,500        115,813
  Possible contract                63,525     No               N/A                63,525
  employee
  Condrey & Associates             35,000     No               N/A                35,000
  PC Mall Gov. Inc.                26,012     No               N/A                26,012
  McConnell, Jones,
  Lanier, and Murphy             78,887 17    Yes                  25,000         53,887
  Totals                      $ 1,360,240                        $ 89,817    $ 1,270,423

16
     The contract for architectural drawings included allowable reimbursable expenses, if any. The Authority could
     not provide a copy of the $42,000 contract to design and maintain its Web site.
17
     The actual amount paid under this contract was likely much higher. We questioned payments on only five
     invoices that could be conclusively identified as payments for the emergency services contract.



                                                        24
The Authority’s Management
and Board Failed To Establish
Controls Over Procurement


           In further noncompliance with procurement requirements, the Authority
           did not have an adequate contract administration system in place.
           Specifically, it did not implement and maintain a contract administration
           system sufficient to record and track the significant history of each
           procurement action as required by Federal and State procurement
           requirements and its own internal policies. This condition occurred
           because the former executive director, who was also the Authority’s
           contracting officer and performed most of the contracting, failed to
           establish adequate controls over procurement and the board ignored its
           oversight responsibilities. As a result, the Authority could not identify all
           of its contracts or show that it had received the goods and services that it
           paid for.

           In some cases, the board meeting minutes showed that a request for proposal,
           which is required in public bidding, had been issued and the number of
           respondents, but other critical information was missing, such as whether the
           Authority performed independent cost estimates, the method of procurement
           chosen, the contract type selected, the rationale for selecting or rejecting offers,
           and the basis for the contract price. However, there was no evidence in the board
           meeting minutes that the board discussed many of the contracts. Further, the
           board ratified some contracts after the former executive director informed the
           board that he had signed the contracts. The former executive director also did not
           obtain board approval for contracts over its small purchase limit of $25,000, and
           the Authority could not provide contracts for several vendors to which it had paid
           funds well in excess of its small purchase limit of $25,000.

           Staff members stated that they were unaware of whether there had ever been an
           established procurement function at the Authority or the existence of procurement
           files. Due to the lack of procurement files and documentation, we could not
           determine what procurement procedures the Authority used in its contracting and
           procurement for goods and services.

           Although the Authority had a written procurement policy, the board repeatedly
           failed to approve this and other policies such as its own Board of Commissioners’
           Policy and Procedures Manual, although they were brought up for discussion at
           board meetings more than once. The September 2, 2009 board minutes also
           showed that there were arguments among board members regarding policies and
           procedures. The minutes showed that when one board member questioned the
           Authority’s contracting process, arguments ensued between him and the board
           chairman, who accused the board member of trying to destroy the Authority. This


                                            25
             board chairman was involved in a contractual relationship that violated conflict-
             of-interest rules with the Authority and tried to hide the relationship.

             The board members also failed to follow their own policies by not requiring
             members to complete required conflict-of-interest reporting forms and informing
             fellow board members when the possibility of a conflict might exist. HUD should
             require current and prospective board members to obtain HUD-approved training
             that explains their roles and responsibilities.

Conclusion

             The Authority engaged in poor procurement and sometimes prohibited
             procurement practices such as cost-plus contracts and contracts that violated
             conflict-of-interest restrictions. It also did not use contracts for several large or
             recurring expenses and did not have an adequate contract administration system in
             place. These conditions occurred because the Authority’s management and board
             failed to enact policies and procedures to ensure compliance with procurement
             requirements. Further, they attempted to conceal conflicts-of-interest. As a
             result, the Authority paid at least $1.2 million in unsupported contracting costs. It
             also paid and $582,595 in questionable costs to two contactors due to conflict-of-
             interest violations and possible ineligible markups. Further, the Authority
             incurred $720,000 in ineligible contract costs using CDBG Disaster Recovery and
             Neighborhood Stabilization Program funds by using a prohibited cost-plus
             contract for one of its developments and did not explain how it used another $1.1
             million in HOME funds after the development was completed. The Authority
             should repay HUD and the State of Texas $720,000 for the ineligible payments
             using the prohibited cost-plus contract and support or repay more than $3 million
             to its programs or HUD as appropriate and implement a procurement process that
             complies with requirements.

Recommendations

             We recommend that the Director, Office of Public Housing, Houston, TX,
             require the Authority to

             3A. Support that it did not pay the $87,000 in expediting fees with Federal funds
                 or repay those funds to the appropriate program or HUD.

             3B. Determine whether it received the services for which it paid $582,595 under
                 two contracts that violated conflict-of-interest prohibitions and that those
                 services cost the same or less than comparable services from a source without
                 a conflict-of-interest relationship with the Authority. If it used Federal funds
                 to pay for the services and it either did not receive the services or paid more
                 for them than it would have paid from a source without a conflict-of-interest
                 relationship, it should repay the funds to its appropriate program or HUD.


                                              26
3C. Support or repay the $1,270,423 in questionable contract and procurement
    payments to its appropriate program or HUD.

3D. Implement procurement and contracting policies and procedures that comply
    with HUD requirements, including

       •   Establishing and maintaining procurement files that document the
           history of procurements and
       •   Implementing procedures to identify its contracts and monitor contract
           performance.

3E. Ensure its current and prospective board members obtain HUD-approved
    training that explains their roles and responsibilities.

We recommend that HUD’s Deputy Assistant Secretary for Grant Programs
require the Authority to

3F. Repay the State of Texas the $400,000 in CDBG Disaster Recovery Program
    funds that was an ineligible contract expense under a prohibited cost-plus
    contract.

We recommend that the Director, Office of Community Planning and
Development, Houston, TX, require the Authority to

3G. Repay HUD $320,000 in Neighborhood Stabilization Program funds that
    were an ineligible contract expense under a prohibited cost-plus contract.

3H. Support that it used $1,105,534 in HOME funds for eligible costs for
    Cypresswood Estates or repay the funds to HUD.




                                27
                         SCOPE AND METHODOLOGY

We performed our fieldwork at the Authority’s office located at 8933 Interchange Drive,
Houston, TX, and at our office located in Houston, TX. We performed our audit work from
April 2012 through January 2013. Our audit scope was April 1, 2009, through March 31, 2012.
We expanded the scope of the review as needed to accomplish our objectives.

To accomplish our objectives, we

•   Reviewed relevant laws, regulations, and HUD guidance
•   Reviewed the Authority’s policies and procedures.
•   Reviewed the Authority’s board of commissioners meeting minutes for the period January
    2009 through March 2012.
•   Reviewed the Authority’s audited financial statements for its fiscal years 2010 and 2011.
•   Analyzed the Authority’s financial records.
•   Reviewed a list of the Authority’s contracts.
•   Selected 3 contracts and 15 vendors to review the procurement history.
•   Reviewed 156 disbursement transactions that occurred from April 1, 2009, through March
    31, 2012.
•   Reviewed data supporting salary equalization payments made to employees.
•   Interviewed Authority and HUD staff in Houston and Ft. Worth, TX, and Kansas City, KS.

Sampling Methodology
We determined that a nonrepresentative sample of financial transactions was appropriate because
we knew enough about the population to focus on certain items in the population that were
potentially problematic. We selected a judgmental sample of 156 of the more than 6,400
transactions in the Authority’s check registers for the period April 2009 through March 2012.
We selected transactions that had been previously identified by the media, the current executive
director, HUD, and our review. The sample transactions represented more than $10 million of
the more than $94 million that the Authority spent from April 1, 2009, through March 31, 2012.

We also determined that a nonrepresentative sample of contracts was appropriate because we
knew enough about the population to identify a relatively small number of items of interest that
were likely to be misstated or otherwise had a high risk. We selected seven vendors from the
Authority’s contract list and nine other vendors that were not on the contract list.

We reviewed the general expenses listed in the compensation section of the Cypresswood
contract. We did not try to determine how the contractor used Federal funds.

Scope Limitation
We encountered a scope limitation because some records, especially records of procurement,
were incomplete, were destroyed, or never existed. This condition limited our ability to gain a
complete understanding of the control environment that existed at the Authority and reasons
behind decisions for past actions. In most cases, this limitation resulted in program costs being


                                                28
deemed unsupported. However, despite the scope limitation, 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.




                                              29
                              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
                        have been 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 have been 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.




                                                 30
Significant Deficiencies

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

                  • The Authority did not enact adequate written policies and procedures.
                    Further, the executive director and board chairmen circumvented the
                    existing policies and procedures (findings 1, 2, and 3).
                  • The Authority lacked adequate controls to ensure that all disbursements
                    were for supported activities or that it properly allocated costs. Further, it
                    did not have adequate controls to account for its inventory (findings 1 and
                    2).
                  • The Authority lacked adequate controls to ensure that it maintained
                    complete and accurate records of its pooled fund transactions and did not
                    comingle funds (finding 2).
                  • The Authority did not have controls in place to ensure that procurement
                    activities complied with applicable laws and regulations (finding 3).




                                              31
                                   APPENDIXES

Appendix A

                 SCHEDULE OF QUESTIONED COSTS


                 Recommendation
                                        Ineligible 1/      Unsupported 2/
                     number

                         1A                                     $2,466,779
                         2C                 $3,811,179
                         2D                                       2,827,829
                         2E                                       7,010,079
                         2F                                       8,011,036
                         3A                                          87,000
                         3B                                         582,595
                         3C                                       1,270,423
                         3F                    400,000
                         3G                    320,000
                         3H                                       1,105,534



                       Totals               $4,531,179         $23,361,275



1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or Federal, State, or local
     policies or regulations.

2/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of the audit. Unsupported
     costs require a decision by HUD program officials. This decision, in addition to
     obtaining supporting documentation, might involve a legal interpretation or clarification
     of departmental policies and procedures.




                                             32
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         33
Comment 1
(continued)




              34
Comment 1




Comment 2




            35
Comment 2




            36
Comment 2




Comment 1




            37
Comment 1
(continued)




Comment 3




Comment 4




              38
Comment 4




Comment 4




Comment 4



Comment 5




            39
Comment 5




Comment 2




            40
Comment 5




            41
Comment 2




Comment 2




Comment 6




            42
Comment 7




Comment 8




            43
Comment 2




Comment 2




Comment 2




Comment 2




            44
Comment 2
(continued)




Comment 2




Comment 2




Comment 2




Comment 2




              45
Comment 2




Comment 9




Comment 10




             46
Comment 10




Comment 11




             47
Comment 12




Comment 13




             48
Comment 13



Comment 13




             49
Comment 14




Comment 2




Comment 11




             50
Comment 13




Comment 14




Comment 2




Comment 2




Comment 10




             51
Comment 10




Comment 12




             52
53
Comment 15




             54
55
                         OIG Evaluation of Auditee Comments

Comment 1   The Authority stated that requiring it to reimburse its accounts would have a
            devastating financial impact, and would punish both the Authority and its
            low-income clients for decisions made by former managers. The Authority
            proposed that a better recommendation would be for HUD to continue to assist
            the Authority’s current managers in implementing its policies and procedures to
            prevent such an abuse of power from recurring in the future.

            The majority of the questioned costs in the report are unsupported. Appendix A
            contains a definition of unsupported costs. During the audit resolution process the
            Authority will have an opportunity to provide HUD with support for these
            expenditures. Further, since the Authority was not properly maintaining its
            financial records, OIG recommended that it correct them. Doing so may reveal
            that non-federal funds were used to pay some of the questioned costs. If so, those
            costs would not have to be repaid. The actions of the prior board and
            management have unfortunately placed the Authority and its residents in a
            precarious financial position. However, the OIG’s responsibility is to report the
            conditions, which in this case largely involve misuse of HUD funds, and make
            appropriate recommendations. By definition, any ineligible costs must be repaid,
            and unsupported costs must be adequately supported or repaid. The Authority
            will need to work with HUD to reach acceptable solutions. We did not change
            recommendations for reimbursement based on the comment.

Comment 2   The Authority was responsive to our findings and recommendations, and it
            outlined steps that it had taken to improve its operations.

            We commend the Authority for being proactive and taking what appears to be
            aggressive steps to improve operations at the Authority. HUD’s program offices
            will determine whether the Authority’s actions address the recommendations.

Comment 3   The Authority stated that most of the questioned costs in the report should be
            considered eligible and should not be required to be repaid. However, it also
            agreed that the expenditures were likely the result of bad decisions that the current
            managers would not have approved.

            Disagreements on unsupported and ineligible costs are addressed in later
            comments. The Authority will need to provide support to HUD for any
            unsupported costs and repay any ineligible costs.

Comment 4   The Authority said that since its executive salaries did not exceed a federally
            imposed cap, it did not violate any HUD requirements. However, the Authority
            also agreed that at least some of the payroll expenses were “not defensible from a
            business perspective”, and said that it had reduced payroll by nearly $1 million
            and that its current salaries were consistent with local pay scales.




                                             56
            OIG did not cite the federally imposed salary cap in the report. The basis for
            questioning excessive salaries and bonuses paid to Authority executives is 2 CFR
            (Code of Federal Regulations) Part 225, “Cost Principals for State, Local, and
            Indian Tribal Governments” (formerly Office of Management and Budget
            Circular A-87). As with other expenses covered by this Federal regulation,
            whether a particular expense is allowed is determined in part by whether the
            expense is reasonable. Appendix B, Section 8.b. of the regulation also says
            “compensation surveys providing data representative of the labor market involved
            will be an acceptable basis for evaluating reasonableness.” The salaries violated
            the reasonableness standard both because payments for some employees exceeded
            the maximum salaries recommended in the two compensation studies
            commissioned by the Authority’s Board, and because the performance and bonus
            pay for some employees sometimes exceeded their annual base salaries during
            fiscal year 2010. We did not change the report based on the comment.

Comment 5   The Authority stated that the expenditures of $13,000 for gift cards for housing
            development residents and $4,326 for an employee holiday party were for good
            causes. It said that the expenditures helped the residents and improved workplace
            morale, and were not prohibited.

            The expenses violated 2 CFR Part 225, “Cost Principals for State, Local, and
            Indian Tribal Governments”. This regulation states that entertainment expenses
            as well as contributions and donations are unallowable costs to be included in
            Federal awards. While the expenses may have been for good causes, they cannot
            be paid with Federal grant funds. If the Authority can show that Federal funds
            were not used for these costs, they may be allowable. We did not change the
            report based on the comment.

Comment 6   The Authority disputed the conclusion that Cypresswood expenditures should
            have been primarily non-federal.

            The Authority misunderstood the statement on page 14 of the report. We did not
            say that all expenditures to build Cypresswood Estates should have been non-
            Federal and we recognized on page 15 that the development was built with a
            mixture of Federal and non-Federal funds. However, affordable housing
            developments are typically considered non-Federal properties because their
            revenues, including developer fees and ground lease revenues, are considered
            non-Federal funds that are not subject to HUD oversight. We did not change the
            report based on the comment.

Comment 7   The Authority stated it agreed that expenditures for land acquisition and
            construction costs for the Patriots on the Lake project were not prudent from a
            business perspective, but it disagreed with the conclusion that the expenditures
            were ineligible because the project failed.

            The expenditures were ineligible because they violated 2 CFR 225 regarding
            allowable costs and the reasonableness standard. We also noted that the


                                             57
              Authority agreed they were not prudent business decisions. We did not change
              the report based on the comment.

Comment 8     The Authority stated that expenditures for the Hurricane Ike damage assessment
              should be an eligible use of Federal funds as they were directly related to housing
              needs, even though FEMA did not reimburse the Authority for the expenditures.

              We questioned the expenditures because they did not appear to be a necessary or
              reasonable use of Federal funds, and were not prudent business decisions.
              Therefore, they violate the allowable costs and reasonableness standard of 2 CFR
              225. We did not change the report based on the comment.

Comment 9     The Authority said that it had made the recommended adjustment to the net
              restricted assets account balance and provided the OIG with documentation.

              The former chief financial officer provided us with documentation of the amount
              of the adjustment that should have been made. However, he did not provide
              documentation to show that the adjustment was actually made. The Authority
              will have to work with HUD during the audit resolution process to determine
              whether the adjustment was made. We did not change the recommendation based
              on the comment.

Comment 10 The Authority stated that the Cypresswood Estates contract was not a prohibited
           cost-plus contract because the Authority kept costs within a budget and it and not
           the contractor approved all costs. The Authority also stated that the amount of
           markups for “general conditions” and “overhead” were consistent with other
           HUD regulations. Further the Authority stated that the costs may have been paid
           with non-federal funds.

              We disagree with the Authority’s assessment of the type of contract. The first
              paragraph of Article IV, page 3 of the contract states that the Authority “shall pay
              the CONTRACTOR….the cost of work…plus markups thereon” and specifies the
              percentages of markups for profit, overhead, and general conditions. Chapter
              10.1, paragraph A.5.a of HUD Handbook No. 7460.8 REV 2 clearly prohibits this
              type of cost-plus-a-percentage-of-cost contract. The contractor had no incentive
              to reduce costs, and every incentive to increase them regardless of whether the
              Authority exercised final approval authority over those costs.

              We discussed the contract and the eligibility of markups for general conditions
              and overhead with a representative of HUD’s Office of Community Planning and
              Development. The representative stated that HUD will review the contract and its
              costs and confirm whether the contract was eligible. If the Authority shows that
              non-Federal funds paid for the markups, they will not be ineligible.

Comment 11 The Authority disagreed that the expediting fees paid to employees of the general
           contractor were ineligible to be paid from Federal funds. However, it also noted
           that Harris County had determined that it should have paid the fees from one of its



                                               58
              non-Federal accounts, and was in the process of transferring the non-Federal
              funds.

              The Authority should provide documentation of the resolution of this issue to
              HUD.

Comment 12 The Authority disputed the finding that it could not support the use of the $1.1
           million in HOME funds. It provided documentation which it said supported the
           use of the funds and said that Harris County’s Community Services Department
           reviewed each request for dispersal of funds.

              We reviewed the documentation provided. The documents did not include a
              contract or contractor invoices showing that the funds were used for an eligible
              purpose in the Cypresswood Estates development. Therefore, we did not deem
              the documentation to be sufficient to change the report.

Comment 13 The Authority stated that it had recouped all funds paid under a subcontract with a
           law firm that had a conflict-of-interest with the Authority. It stated that additional
           funds noted in the report were for consulting services performed by a consulting
           firm or were markups of the legal fees.

              After additional review, we changed the report to clarify that the amount of funds
              the Authority recouped was what was paid to the law firm as a subcontractor.
              However, we did not reduce the questioned cost because, as the Authority pointed
              out, the $146,584 paid to the consulting firm may have included markups on legal
              fees which could be ineligible since the legal fees were the result of an improper
              conflict-of-interest subcontract.

Comment 14 The Authority stated the services received from the vendors identified as
           receiving payments in finding 3 were eligible uses of Federal funds.

              Large payments without a contract and payments in excess of a contract are
              questionable, and could be evidence of an attempt to circumvent procurement
              controls. We did not change the report based on the comment.

Comment 15 The Authority provided an Appendix A to its response which is a letter from a
           former board chairman who recently departed. This former board chairman,
           although a board member during part of our audit period, is not either of the
           former board chairmen that are discussed in the report.




                                               59
Appendix C

                    SCHEDULE OF QUESTIONABLE
                   MISCELLANEOUS EXPENDITURES

                             Questionable contributions
    Date     Payee                                   Description              Amount
08/20/2009   Helping A Hero.Org           To support military personnel        $ 25,000
10/21/2009   NAACP Houston Branch         Freedom Fund banquet                    5,000
                                          sponsorship
10/22/2009   NAACP Houston Branch         Freedom Fund gala                       5,000
10/23/2009   NAACP Houston Branch         Centennial Freedom Fund banquet         1,500
             National Japanese American
11/02/2009   Memorial Foundation          Rescue of Lost Battalion dinner        10,000
             National Japanese American
11/04/2009   Memorial Foundation          Commemorative book                      6,500
                                          To help construct a home for a
12/21/2009   Helping a Hero.Org           retired serviceman                     25,000
             Housing authority employee   Gift cards for affordable housing
12/21/2009   reimbursements               development residents                   1,500
             Housing authority employee   Gifts for family in need-five
12/21/2009   reimbursements               children for Christmas                  1,500
01/14/2010   Space Center Rotary          Extreme Makeover home                  25,000
             Foundation                   construction
                                          Gift cards for affordable housing
12/20/2010   Walmart                      development residents                   3,000
10/21/2011   Humble 24 Hour House         Donation                                  500
                                          Christmas gift cards to housing
12/16/2011    Walmart                     development residents                  8,500
Total questionable contributions                                              $118,000




                                          60
               Questionable entertainment, travel, and personal expenses
     Date                     Payee                      Description                                      Amount
                                          Christmas party – food, beverage, and
12/11/2009 Dave & Buster’s                bowling for 50 people                                            $ 4,326
             Previous executive director Dental reimbursement claims for
06/22/2010                                executive director and his daughter                                 4,969
08/02/2010 Incredible Events, Inc.        Band for an event                                                   4,000
                                          Golf tournament – executive director and
08/10/2010 Texas Housing Association three employees                                                              240
                                          2011 Chevy Avalanche for board
02/25/2011 Davis Chevrolet                chairman’s use                                                     44,142
             U.S. Green Building          Golf tournament – executive director,
05/18/2011 Counsel Texas Gulf Coast two employees, and one nonemployee                                        1,200
             Chapter
                                          Performance at Sierra Meadows housing
07/22/2011 Seven The Poet                 development grand opening on July 18,                               1,500
                                          2011
                                          Foreign travel to South Africa from
09/30/2011 Various                        August 12, 2011, through September 30,                                  940
                                          2011 18
Total questionable entertainment, travel, and personal expenses                                            $61,317




18
     Original charges totaled $25,403; however, the former executive director, the chief development officer, a
     County staff person, and two contractors repaid all but $940.



                                                         61
                Other unreasonable and unnecessary expenses
                               Description                            Amount
       Excessive payroll expenses                                     $1,786,287
       Statues and monuments for housing developments                    192,739
       Shirts                                                             66,071
       Museum district apartments                                         54,006
       Book project                                                       24,000
       Trophies, plaques, and awards                                      27,248
       Letters handwritten by Abraham Lincoln                             18,000
       Helicopter, chartered bus, and golf cart rentals for a grand       14,582
       opening
       Antique gold-plated “Challenge” coins                              11,138
       Former HUD Secretary speaker fee                                   10,000
       Presidential signed collage                                         5,195
       Other, including public relations for a grand opening, local       78,196
       lodging for employees, and food for employee appreciation
       award lunch and banquet
       Total other unreasonable or unnecessary expenses               $2,287,462

Total questionable miscellaneous expenses                             $2,466,779




                                            62
Appendix D

      SCHEDULES OF FEDERAL AND NON-FEDERAL FUNDS
                       RECEIVED

Federal funds received
             Federal funding                   FY 2010            FY 2011            FY 2012             Total
Public and Indian housing (PIH) funds:
Section 8 - housing choice vouchers            $26,767,175        $35,595,433        $31,950,755     $ 94,313,363
DHAP                                            36,520,909         11,494,162          2,752,608       50,767,679
Housing choice vouchers-Disaster                 1,105,425            476,324             90,710        1,672,459
Voucher Program
Veterans Assistance Supportive Housing                    0            557,594            667,442        1,225,036
Section 8 Moderate Rehabilitation-Single            327,233            329,498            333,391          990,122
 Room Occupancy
Section 8 Moderate Rehabilitation                   57,344             49,924             49,496          156,764
Total PIH funding                              $64,778,086        $48,502,935        $35,844,402     $149,125,423

Other HUD funding - passed through
Harris County
 Community Development Block Grant               $1,761,665         $2,126,385         $6,240,541     $10,128,591
 & Neighborhood Stabilization
 Program 19
HOME Investment Partnerships                      1,882,297                                              1,882,297
Program 20
 Total other HUD funding                        $3,643,962         $2,126,385         $6,240,541     $ 12,010,888
 Total Federal funds                           $68,422,048        $50,629,320        $42,084,943     $161,136,311

 Non-Federal funds received
 Type of funds                                 FY 2010            FY 2011            FY 2012            Total
 Developer fee revenue                          $1,125,884         $1,143,523          $741,714        $3,011,121
 Ground lease revenue                               71,000             71,000             73,000          215,000
 Partnership management fee revenue                                                       44,423           44,423
 Other revenue                                      169,061            201,975           225,209          596,245
 Total non-Federal funds                         $1,365,945         $1,416,498        $1,084,346       $3,866,789




19
     These funds were passed through the County’s Community and Economic Development Department for the
     purpose of acquiring and codeveloping affordable housing for senior citizens and families using the Federal
     Low-Income Housing Tax Credit program. They include funds used for the Cypresswood Estates seniors
     development.
20
     These funds were passed through the County’s Community and Economic Development Department for the
     purpose of acquiring and codeveloping affordable housing for seniors and families using the Federal Low-
     Income Housing Tax Credit program.



                                                         63
Appendix E

               FUND BALANCES AS OF MARCH 31, 2012


 Program name                   FY 2009             FY 2010       FY 2011       FY 2012
Housing Choice Voucher         $3,450,412          $1,062,357    $3,442,077   ($1,217,150)
Moderate Rehabilitation             7,509               5,051        24,400         32,016
Jackson Hinds Garden               67,134              29,255         2,421         53,838
Disaster Voucher Program        1,227,695           1,142,351     1,168,789      1,708,139
Cypresswood Estates                     0             793,001       235,055    (4,481,290)
Affordable Housing                198,877             286,782       116,152    (1,046,336)
LA187 – St Bernard Parish       (103,500)                   0             0              0
Veterans Affairs Supportive             0                   0       439,140        498,989
Housing
DHAP                            4,289,941           1,514,841     (114,455)       (73,353)
TX999 DHAP – USA                3,390,537           2,458,528        31,627         31,434
LA001 DHAP – Housing
Authority of New Orleans        4,692,482                  0             0              0
LA999 DHAP – Jefferson
Parish                          1,701,915           1,618,915            0              0
LA998 DHAP – St. Bernard
Parish                            243,037             189,037             0             0
LA997 DHAP – Slidell              580,438             503,938             0             0
DHAP-IKE – Harris County       15,523,202          10,106,258     4,401,794     5,385,206
DHAP-IKE –Texas                 4,911,683           3,361,499     1,474,758       760,360
LA996 DHAP – New Orleans
phase 2B & later               (2,287,987)                  0             0             0
             Totals           $37,893,375         $23,071,813   $11,221,758    $1,651,853




                                             64
Appendix F

             BONUS NOTIFICATION LETTER




                        65