oversight

The Housing Authority of the City of Lumberton, NC, Did Not Administer Its Public Housing Program in Accordance With Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-12-05.

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

OFFICE OF AUDIT
REGION 4
      0
ATLANTA, GA




      The Housing Authority of the City of Lumberton,
                    Lumberton, NC

                  Public Housing Program




  2014-AT-1002                              DECEMBER 5, 2013
                                                       Issue Date: December 5, 2013

                                                       Audit Report Number: 2014-AT-1002




TO:           Michael A. Williams, Director of Public Housing, Greensboro, NC, 4FPH

              //signed//
FROM:         Nikita N. Irons, Regional Inspector General for Audit, Atlanta Region, 4AGA

SUBJECT:      The Housing Authority of the City of Lumberton, NC, Did Not Administer Its
              Public Housing Program in Accordance With Requirements

       Enclosed is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG) final results of our review of the Housing Authority of the City of
Lumberton, NC’s public housing program.

        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
David L. Butcher, Assistant Regional Inspector General for Audit, Region 4, at 865-545-4400,
extension 118.
                                           December 5, 2013
                                           The Housing Authority of the City of Lumberton, NC,
                                           Did Not Administer Its Public Housing Program in
                                           Accordance With Requirements



Highlights
Audit Report 2014-AT-1002


 What We Audited and Why                    What We Found

We initiated a review of the Housing       The Authority lacked adequate controls over its
Authority of the City of Lumberton, NC,    financial operations. Its management and board failed
at the request of the U.S. Department of   to create an internal control environment that included
Housing and Urban Development’s            sufficient written policies and procedures and a
(HUD) Greensboro, NC, Office of Public     knowledgeable, properly trained staff. As a result, the
Housing. HUD staff described many          Authority did not always accurately account for its
areas of concern, including cash           interfund program balances, improperly coded $16,368
management, procurement, and               in expenses to its revolving fund and asset
inventory controls. Our objective was      management properties, and improperly drew down
to determine whether the Authority         $9,706 in capital funds.
operated its public housing program in
accordance with HUD and other Federal      The Authority generally failed to follow HUD’s
requirements.                              procurement regulations or its own procurement
                                           policy. This condition occurred because the
 What We Recommend                         Authority’s management and board failed to
                                           implement sufficient internal controls over the
                                           procurement process. As a result, the Authority could
We recommend that the Director of          not assure HUD that it procured goods and services at
Public Housing require the Authority       the lowest cost using full and open competition. For
(1) to perform a 5-year review of its      the procurements we reviewed, the Authority was
accounting records to track all Federal    unable to support more than $131,000 in spending and
funds; (2) implement written policies      another $1,500 for ineligible expenses.
and procedures for financial controls,
procurement, and inventory; (3) repay      The Authority did not maintain an adequate inventory
$1,500 for ineligible expenditures; and    control system. Management did not implement
(4) support that it disbursed $157,861     written procedures for staff to follow, and the
for eligible expenditures.                 Authority’s informal system was inadequate. As a
                                           result, it could not assure HUD that funds expended for
                                           equipment and supplies were properly used for
                                           Authority activities or that the values reflected in its
                                           inventory records were accurate.
                             TABLE OF CONTENTS

Background and Objective                                                              3

Results of Audit
        Finding 1: The Authority Lacked Adequate Financial Controls                   4
        Finding 2: The Authority Failed To Comply With Federal or Its Own Procurement 9
                   Requirements
        Finding 3: The Authority Failed To Maintain an Adequate Inventory Control     13
                   System

Scope and Methodology                                                                15

Internal Controls                                                                    17

Appendixes
   A.    Schedule of Questioned Costs                                                19
   B.    Auditee Comments and OIG’s Evaluation                                       20




                                            2
                          BACKGROUND AND OBJECTIVE

The Housing Authority of the City of Lumberton was established in 1949 to provide low-income
citizens with safe, clean, and affordable housing and help improve their quality of life. The
Authority’s board of commissioners consists of seven members appointed by the mayor. It is the
Authority’s policy-making body and selects and employs the executive director, who is
responsible for the Authority’s day-to-day operations. 1 The board has ultimate responsibility to
ensure that the Authority operates in compliance with U.S. Department of Housing and Urban
Development (HUD) and Federal Government policies. The Authority owns and manages 729
conventional low-income public housing units and administers 596 housing choice vouchers. It
also receives operating and capital funds from HUD for the operation and modernization of its
low-income public housing units.

Operating funds are provided annually to public housing agencies for the operation and
management of public housing. Capital funds are provided annually to public housing agencies
for the development, financing, and modernization of public housing developments and for
management improvements. The Authority received operating subsidies and capital funds in the
following amounts from fiscal year 2010 to fiscal year 2012.

                  Fiscal year          Operating subsidy                 Capital funds
                     2010                 $2,868,540                      $1,303,946
                     2011                 $2,898,693                      $1,112,500
                     2012                 $2,761,109                       $989,817

We initiated our review based upon an audit request from the Greensboro, NC, HUD Office of
Public Housing. That office made the request due to procurement and internal control issues
found during a 2012 management review. That review found 13 serious programmatic findings
and 15 observations indicating potential program non-compliance.

Our objective was to determine whether the Authority operated its public housing program in
accordance with HUD and other Federal requirements.




1
  The former executive director retired on February 25, 2013, shortly before we began our review. On March 12,
2013, the Authority contracted for the executive director of the Pembroke, NC, Housing Authority to serve as
interim executive director of the Authority until a new executive director was hired.

                                                        3
                                    RESULTS OF AUDIT


Finding 1: The Authority Lacked Adequate Financial Controls
The Authority lacked adequate controls over its financial operations. This condition occurred
because the Authority’s management and board failed to create an internal control environment
that included sufficient written policies and procedures and did not have a knowledgeable and
properly trained staff. As a result, the Authority did not always accurately account for its
interfund program balances, improperly coded $16,368 in expenses to its revolving fund and
asset management properties, and improperly drew down $9,706 in capital funds.


 Financial Controls Were
 Inadequate


              Management and the board of commissioners were responsible for establishing
              internal controls sufficient to maintain the integrity of the financial management
              system. The Authority’s board of commissioners and management failed to
              ensure that adequate financial policies and procedures were in place to assure
              HUD that its financial operations complied with program requirements.

              Another responsibility of the board of commissioners was to review, approve, and
              monitor budgets and other financial documents to ensure that management’s
              expenditures complied with applicable requirements. Our review of the board
              minutes from January 2010 through February 2013 did not show that the board
              regularly received and discussed detailed information on the Authority’s financial
              operations. In addition, the Authority’s interim finance director stated that several
              of the financial reports that the board may have received contained errors.
              The failure of the Authority’s board and management to provide adequate
              financial internal controls, including the implementation of adequate written
              financial policies and procedures, and its lack of a capable, trained staff resulted
              in
              •   Questionable interfund account balances,
              •   Miscoded expenses,
              •   Excess Capital Fund Program drawdowns, and
              •   Other concerns.




                                                4
                   Interfund Account Balances
                   The Authority’s annual contributions contract permitted it to pool funds from
                   various sources to promote efficiency and facilitate program operations. The
                   pooling of funds provided the Authority a convenient method to pay shared
                   expenses for items chargeable to various program funds. The Authority could use
                   pooled funds to pay for expenses of its programs that had funds on deposit;
                   however, it should not have used program funds to pay the expenses of another
                   program.

                   The Authority’s use of a revolving fund resulted in “due to-due from” (interfund)
                   transactions between the Authority’s revolving fund and the accounts of the
                   contributing program. When using this method of accounting, it is important that
                   the Authority’s accounting system track each fund in sufficient detail to maintain
                   supporting documentation for an adequate audit trail. 2

                   We could not reconcile the Authority’s interfund balances applicable to its HUD
                   programs due to the lack of an adequate audit trail. It was not possible to
                   determine the accuracy of the individual interfund amounts that apparently
                   resulted from programs’ overfunding or underfunding the revolving fund account.

                   Since the Authority could not provide written guidance showing how the
                   accounting system worked, we interviewed the Authority’s interim finance
                   director, former finance director, and independent public accountant to gain an
                   understanding of the interfund accounting. No one interviewed could
                   satisfactorily explain how the Authority’s accounting system derived the interfund
                   balances. Thus, the Authority could not show that it had properly used HUD
                   program funds. Although HUD permits authorities to use revolving funds, the
                   system used must be capable of accurately accounting for the use of funds
                   applicable to each program and maintain accurate interfund balances.

                   In addition, for fiscal year 2010, we were unable to reconcile the amounts that the
                   Authority reported to HUD on its financial data schedule to the Authority’s
                   general ledger. 3 Although the Authority’s independent public accountant could
                   not explain why the interfund balances would not reconcile, he told us that the
                   financial records for fiscal year 2010 were in such disarray that he had requested
                   that the Authority hire an outside accountant to put them in order before he could
                   perform the audit.




2
    HUD Guidebook 7510.1G, paragraph II-15
3
 Although we could not confirm the accuracy of the individual balances, we were able to reconcile the general
ledger and financial data schedule interfund balances for fiscal years 2011 and 2012 using trial and error.

                                                         5
                  Miscoded Expenses
                  The Authority operated under asset management, in which funding, budgeting,
                  accounting, management, and oversight was performed at the project level as
                  opposed to the Authority level or entity-wide. Therefore, Authority expenses
                  incurred should have been charged directly to the affected asset management
                  property whereas other expenses, such as maintenance inventory or central
                  management fees should have been charged to the Authority’s central office cost
                  center.

                  For the sample items reviewed, the Authority incorrectly coded expenses totaling
                  $16,368. 4 It incorrectly coded $14,693 in expenses for its central maintenance
                  inventory and lodging to its revolving fund. In addition, the Authority incorrectly
                  coded $1,675 for board meeting meals to its asset management property accounts
                  instead of the central office cost center account. The coding errors occurred
                  because the Authority failed to properly train its financial staff members, leaving
                  them unaware of the applicable requirements.

                  According to HUD requirements, 5 the costs of the Authority’s central warehouse
                  should have been charged to its central office cost center account. In addition,
                  HUD prohibits charging board-related expenses to asset management property
                  accounts except for board training expenses. 6 Thus, the $1,675 that the Authority
                  charged for board meeting meals was ineligible and should be returned to the
                  appropriate property accounts.

                  Five of the twelve journal vouchers 7 reviewed also evidenced incorrect account
                  coding or other deficiencies. The journal vouchers coded expenses to incorrect
                  accounts and incorrectly transferred funds for an interfund payment to the
                  revolving fund. The entries lacked sufficient descriptions, and in some cases, the
                  financial staff could not adequately explain the purpose of the entries. This
                  condition occurred because the Authority neither adequately trained its financial
                  staff members nor provided sufficient written policies and procedures for them to
                  follow.



4
 This amount is comprised of incorrect coding that we found while reviewing samples for cash disbursements and
credit card transactions. Authority staff had miscoded $13,193 out of $93,589 cash disbursements and $3,175 out of
$22,345 credit card transactions.
5
Public and Indian Housing Notice 2007-9, Supplement to HUD Handbook 7475.1, REV., CHG-1, Financial
Management Handbook, page 49, table 7.2, 1st column, last bullet
6
Public and Indian Housing Notice 2007-9, Supplement to HUD Handbook 7475.1, REV., CHG-1, Financial
Management Handbook, page 50, table 7.2, 2nd column, last bullet
7
 Journal vouchers are accounting records used to note the details of a financial transaction for recordkeeping and
auditing purposes.

                                                          6
                   Excess Capital Fund Drawdowns
                   For the sample items reviewed, the Authority drew down $12,300 for its Capital
                   Fund Program without having expenses to support the draw and $9,586 for
                   expense items that it had not previously identified on its Capital Fund Program
                   annual statements. The regulations required that the Authority inform HUD of
                   the capital improvements, including estimated cost, planned for each year. 8
                   Although the Authority accumulated expenses to cover all but $120 of the excess
                   draw over several months, it lacked controls for preventing drawdowns in excess
                   of needs or for ineligible items. The Authority’s financial staff members had not
                   been properly trained and had no written procedures to follow, leaving them
                   unaware of the program’s requirements.
                   Other Concerns
                   We attempted to obtain both the general ledger and check register from the
                   financial staff. Although the staff could not provide us with the requested
                   information, we were ultimately able to review accounting transactions via read-
                   only access to the Authority’s computer system. The vendor for the financial
                   software was able to provide a check register. The staff’s apparent lack of
                   knowledge regarding the Authority’s financial system and data was troubling
                   since we requested only basic financial data that should have been readily
                   available.

                   We also reviewed a sample of travel vouchers, including board of commissioners’
                   travel. The Authority’s travel policy provided that if a travel advance was
                   granted, the traveler was required to submit a travel expense voucher within 10
                   days of the scheduled return date. For three of the four board-member travel
                   orders reviewed, the board members submitted their travel expense vouchers from
                   50 to 144 days late. Although the Authority’s travel policy required adverse
                   action to be taken when a staff member failed to submit a travel expense voucher
                   in a timely manner, there was no such provision for board members.

    Recent Developments


                   During our review, the interim executive director began to address the lack of
                   financial controls that we discussed with him during the review, as well as those
                   which HUD reported in its recent management review. The Authority

                       •    Hired a fee accountant to assist the finance department with the day-to-day
                            operations of the Authority, including correctly posting journal entries and
                            preparing monthly financial statements;
                       •    Began developing written financial policies and procedures; and
                       •    Began an effort to upgrade the Authority’s computer system.


8
    24 CFR (Code of Federal Regulations) 903.7 (g)
                                                     7
Conclusion

             The Authority must develop, document, and implement financial policies and
             procedures to create a control environment which allows it to maintain complete
             and accurate records of its pooled fund transactions, correctly code its expenses,
             draw down only eligible program costs, properly use accounting journal vouchers,
             and ensure the board’s involvement in the Authority’s financial operations. After
             the Authority makes these needed improvements, it will be able to more reliably
             assure HUD that its financial records are maintained accurately.

Recommendations

             We recommend that the Director, Office of Public Housing, Greensboro, NC,
             require the Authority to

             1A.    Implement fiscal controls in the form of written policies and procedures to
                    better ensure the accuracy of its financial records and reports. The
                    controls should include accounting procedures for pooled funds.

             1B.    Perform a 5-year forensic review of its accounting records to track all
                    Federal funds, show the proper amounts available in each pooled fund,
                    and include the appropriate due to-due from balances. The Authority
                    should reclassify any improperly classified transactions and pay back the
                    appropriate programs.

             1C.    Revise the accounting records to charge the $16,368 in improperly coded
                    expenses to the appropriate account.

             1D.    Support that it used $9,706 in grant funds for eligible items.

             1E.    Assure HUD that the financial staff has the capability to perform the
                    Authority’s daily financial operations in accordance with HUD’s
                    requirements.

             We also recommend that the Director, Office of Public Housing, Greensboro, NC,

             1F.    Ensure that all board members obtain HUD-approved training that
                    explains their overall roles and responsibilities, including those related to
                    internal control and financial matters.




                                              8
Finding 2: The Authority Failed To Comply With Federal or Its Own
Procurement Requirements
The Authority generally failed to follow HUD’s procurement regulations or its own procurement
policy. It obtained services without following procurement requirements, failed to maintain
documentation for the history of its procurements, failed to perform required cost analyses, failed
to properly execute contracts, and contracted with public officials in violation of its annual
contributions contract with HUD. This condition occurred because the Authority’s management
and board failed to implement sufficient internal controls over the procurement process. As a
result, the Authority could not assure HUD that it procured its goods and services at the lowest
cost using full and open competition. For the procurements reviewed, the Authority was unable
to support more than $131,000 in procurement spending and another $1,500 for ineligible
expenses.


    The Authority Failed To Follow
    Procurement Requirements

                    The Authority’s management did not consistently follow HUD’s procurement
                    regulations 9 or its own procurement policy. Authority records were insufficient to
                    identify the total universe of contracts procured for the review period. The
                    Authority maintained no contract register or other document listing its
                    procurement activity and did not keep its procurement documents filed in a
                    central location. We selected and reviewed 5 of the 43 contracts represented by
                    staff as having been procured during our audit period. The five contracts
                    represented $716,847 of the $5.6 million (about 13 percent) of the contracts
                    identified. Each of the procurements had at least one deficiency, and four had
                    serious deficiencies, resulting in $131,787 in unsupported costs.

                                                  Lack of                                  Chairperson
                Type
                   T of         Unsupported                    Lack of      Lack of cost
                                                 executed                                  did not sign
                contract
                   h              amount                       history        analysis
                                                 contract                                    contract
             Legal
                    e              $9,728                        X               X              X
             Information
                    A              52,536           X            X               X              X
             technology
             Auditoru              33,200                        X               X              X
             Multi-
                    t
                    h
             functional            36,323                        X               X              X
             deviceso
                    r
             Construction
             contract
                    i                                                                          X
             Total t              $131,787




9
    24 CFR (Code of Federal Regulations) 85.36
                                                     9
                  Failed To Execute Required Contracts
                  The Authority hired and paid at least two vendors without following procurement
                  requirements or executing a contract. One contractor provided information
                  technology services for the Authority for more than 10 years without an executed
                  contract. The Authority paid the contractor more than $52,000 in Federal funds
                  during our audit period. The independent public accountant who performed the
                  Authority’s fiscal years 2011 and 2012 annual audits also had no contract. The
                  Authority paid the auditor $33,200, including $16,600 for the 2 years during
                  which he had no contract, and $15,600 for 3 years for which the Authority lacked
                  adequate supporting documentation of its procurement process.

                  The Authority Failed to Maintain Procurement Documentation
                  The regulations required the Authority to maintain a complete history for each
                  procurement. 10 However, for all five contracts reviewed, the Authority failed to
                  comply and could not produce adequate documentation. The records for the
                  history of the procurements were generally incomplete and in some cases,
                  scattered among different Authority locations. Without the required
                  documentation, the Authority was unable to show that it had complied with the
                  requirements. We were generally unable to determine whether some information
                  had been lost, misplaced, or did not exist.

                  The Authority Failed To Perform Cost Analyses
                  Four of the five procurements lacked evidence that the Authority prepared the
                  required cost analyses. The regulations required that the Authority perform a cost
                  or price analysis for each procurement before receiving bids or proposals. 11 An
                  architect and engineering firm performed the cost analysis for a construction
                  contract. Although Authority staff failed to include the analysis in the contract
                  file, we were able to obtain it from the firm.

                  The Authority Failed To Properly Execute Contracts
                  Although the Authority’s bylaws required the board chairperson to sign all
                  contracts, 12 the chairperson had not signed any of the five contracts reviewed.
                  When contracts existed, the executive director had executed them.

                  The Authority Contracted With Public Officials
                  Authority management executed contracts with two public officials in violation of
                  the Authority’s annual contributions contract with HUD. 13 The Authority
                  contracted with a Lumberton City Council member to serve on the Authority’s
                  grievance hearing board and paid him $1,500 for services rendered.

10
   24 CFR 85.36(b)(9)
11
   Regulations at 24 CFR 85.36(f) read in part, “Grantees and subgrantees must perform a cost or price analysis in
connection with every procurement action including contract modifications.”
12
   The Authority bylaws, page 3, article II, section 2, state that the chairman must sign all contracts.
13
   Section 515 of part II of the executed annual contributions contract prohibited either the Authority or any of its
contractors from entering into a contract with any member of the governing body of the locality in which the
Authority was activated.
                                                          10
             The Authority also executed a contract with a Robeson County Commission
             member. The contract allowed the individual to purchase surplus appliances that
             the Authority had removed from its housing units.

The Authority Failed To
Establish Adequate Internal
Controls

             The Authority failed to provide staff with detailed written instructions for the
             procurement function, as required by its procurement policy, and failed to
             adequately train its staff regarding either Federal procurement requirements or its
             own procurement policy.

             Some Authority staff members involved with procurements stated that
             management had not provided them with written instructions for procurements
             and admitted that they were unaware of Federal procurement requirements or the
             Authority’s own procurement policy. Although some requirements were
             outdated, the Authority’s procurement policy otherwise complied with HUD’s
             requirements; however, the former executive director and the staff generally
             failed to follow it. At HUD’s request, the interim executive director executed an
             updated procurement policy on April 1, 2013.

             Review of the board minutes from January 2010 through February 2013 failed to
             show that the board provided sufficient oversight of the Authority’s
             procurements. Although the Authority entered into at least 43 contracts during
             the review period, the board minutes showed very little discussion of contracts
             and only two instances in which the board approved a contract.

Conclusion

             Because of its failure to comply with HUD’s procurement regulations or its own
             policies, the Authority must support $131,787 in procurement disbursements or
             repay the funds. It must also repay the appropriate fund $1,500, which it paid a
             Lumberton City Council member in violation of its annual contributions contract.
             This condition occurred because the board and the former executive director
             failed to implement adequate controls. Therefore, it is imperative that
             management make a serious effort to improve internal control over the
             procurement function. A large part of this effort will involve ensuring that both
             its board members and its staff are educated regarding their duties and
             responsibilities and that staff members are provided appropriate written
             instructions for performing their respective duties. After the Authority makes the
             needed improvements, it will be able to more reliably assure HUD that
             procurements are made at a reasonable cost and obtained using fair and open
             competition.

                                              11
Recommendations

          We recommend that the Director, Office of Public Housing, Greensboro, NC,
          require the Authority to

          2A.     Support $131,787 in unsupported contracts and procurement payments or
                  repay the appropriate program from non-Federal funds.

          2B.     Repay the ineligible $1,500 paid to the Lumberton City Council member
                  from non-Federal funds.

          2C.     Ensure that all staff involved with the procurement process are adequately
                  trained and provided with comprehensive procurement procedures for
                  future procurements.

          We also recommend that the Director, Office of Public Housing, Greensboro, NC,

          2D.     Direct the board chairman to sign all contracts as required by the bylaws.




                                           12
Finding 3: The Authority Failed To Maintain an Adequate Inventory
Control System

The Authority did not maintain an adequate inventory control system. Management did not
implement written procedures for staff to follow, and the Authority’s informal system was
inadequate. As a result, the Authority could not assure HUD that funds expended for equipment
and supplies were properly used for Authority activities or that the values reflected in its
inventory records were accurate.


     The Authority Failed To
     Develop and Implement
     Adequate Inventory Controls


                   Although the regulations 14 required the Authority to maintain effective control
                   and accountability over all assets and keep detailed property records, it did not
                   have written policies or procedures for inventory. Staff used informal, unwritten
                   procedures but failed to apply them in a consistent or effective manner to ensure
                   that the Authority completed required periodic physical inventories, safeguarded
                   inventory, or maintained accurate inventory records.

                   The Authority had not performed a complete physical inventory of its assets since
                   2000. Regulations 15 required the Authority to perform a physical inventory and
                   reconcile the results with property records at least once every 2 years. Staff
                   reported that performing complete physical inventories had not been a priority of
                   the former executive director and that only certain assets, such as vehicles, some
                   equipment, and maintenance supplies, had been included in previous inventory
                   reviews.

                   The Authority failed to maintain physical security for inventory. Staff members
                   told us that they used a “trust system.” The maintenance supply room was open
                   to anyone in the maintenance department, and staff did not consistently monitor
                   the removal of inventory items. Staff also told us that they could not accurately
                   account for maintenance supplies used during four months of fiscal year 2013 due
                   to missing records. During our review, the interim executive director improved
                   physical security by keeping the supply room locked and assigning a maintenance
                   employee to oversee the inventory checkout process.

                   The Authority’s inventory records also contained errors and omissions. Review of
                   the inventory listing showed many deficiencies, such as incorrect or missing
                   equipment purchase or installation dates and missing serial numbers. We attempted
                   to locate 37 appliances that the Authority purchased during 2010 and 2012. Only 26
14
     24 CFR 85.32 (d)(1)
15
     24 CFR 85.32 (d)(2)
                                                   13
             of the appliances appeared on the Authority’s inventory lists, and some of those
             listings contained errors. After about a week, Authority staff members reported that
             they found the11 missing appliances in various locations.

Conclusion

             The Authority must develop, document, and implement an adequate inventory control
             system, which includes procedures for conducting and documenting periodic physical
             inventory counts and adjusting the asset records. After the Authority makes these
             needed improvements, it will be able to more reliably demonstrate what assets it has
             and their correct locations and account for any assets which may have been lost,
             stolen, or disposed of due to their condition. It will also be able to better assure HUD
             that funds expended for equipment and supplies were properly used for Authority
             activities and that the values reflected in its inventory records are accurate.

Recommendations

             We recommend that the Director, Office of Public Housing, Greensboro, NC,
             require the Authority to

             3A.     Develop and implement an improved inventory control system, including
                     procedures for conducting and documenting periodic physical inventory
                     counts and adjusting its asset records.

             3B.     Perform a complete physical inventory and adjust the accounting records
                     as needed.




                                               14
                          SCOPE AND METHODOLOGY

We performed our field work at the Authority’s offices located at 900 North Chestnut Street and
613 King Street, Lumberton, NC, and at our office in Greensboro, NC. We performed our audit
work from March through July 2013. Our audit period was January 2010 through February
2013. We expanded the audit period as needed to accomplish our objective.

To accomplish our objective, 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 2010 through February 2013;
   •    Reviewed the Authority’s audited financial statement for its fiscal years 2011 and 2012;
   •    Analyzed the Authority’s financial records;
   •    Reviewed a list of Authority contracts; and
   •    Interviewed Authority and HUD staff in Greensboro, NC.

We reviewed the Authority’s general ledger interfund reports, financial data schedule, and
independent public accountant reports to determine whether the Authority maintained large
interfund balances during our audit period. We also attempted to reconcile these balances to
those reported to HUD.

We selected a sample of 20 cash disbursements exceeding $1,500 from 4 months in the
Authority’s check register during our audit period. We reviewed the disbursements to determine
whether they were made in compliance with HUD and Authority requirements.

We reviewed a sample of 6 American Express credit card statements for questionable charges.
During our audit period, the Authority purchased $22,345 in goods and services using an
American Express card. The six statements reviewed accounted for $9,952, or about 45 percent,
of the $22,345 in goods and services charged to the credit card during our audit period.

We reviewed a sample of 12 journal vouchers between December 2011 and March 2013 to
determine whether each had an adequate description, approval, and justification.

We selected a sample of 4 Line of Credit Control System payment vouchers to review for
accuracy and eligibility. The sample included each Capital Fund Program grant during the audit
period as well as a drawdown from each calendar year.

We selected a sample of 10 travel orders or vouchers paid during our audit period. The sample
included the executive director, Authority employees, and the board of commissioners. We
reviewed the sample to determine whether the travel vouchers were properly supported and
eligible.

                                               15
We selected a sample of 5 contracts. We selected the contracts based on discussions with the
Authority’s staff and HUD’s concerns about potential conflicts of interest in the form of
contracting with public officials. We selected four vendors from the Authority’s contract list and
one additional vendor not on the contract list.

We tested electronic data relied upon during the performance of the various review steps. We
conducted tests and procedures to ensure the integrity of computer-processed data that were
relevant to our audit objective. The tests included, but were not limited to, comparisons of
computer-processed data to invoices and other supporting documentation. We found the data to
be generally reliable for our purposes.

We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objective. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




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                                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.


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Significant Deficiencies

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

             •   The Authority lacked adequate financial controls (see finding 1).

             •   The Authority did not have adequate controls in place to ensure that procurement
                 activities complied with applicable laws and regulations (see finding 2).

             •   The Authority did not have adequate controls in place to ensure that funds
                 expended for equipment were properly used for Authority activities or that the
                 values reflected in its inventory records were accurate (see finding 3).




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                                   APPENDIXES

Appendix A

                 SCHEDULE OF QUESTIONED COSTS


                 Recommendation
                          number          Ineligible 1/      Unsupported 2/
                      1C                                          $16,368
                      1D                                            9,706
                      2A                                          131,787
                      2B                       $1,500           ________
                     Total                     $1,500            $157,861

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.




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Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments

Comment 1




                         20
                        OIG Evaluation of Auditee Comments

Comment 1   The Authority’s comments state that it is in complete agreement with the audit
            report and is fully committed to strengthening its policies and procedures to
            come into full compliance with applicable program regulations. We commend
            the Authority for its commitment to strengthening internal controls. In addition,
            the Authority must implement corrective actions to clear all the report
            recommendations. The Greensboro Office of Public Housing will be responsible
            for reviewing and approving these corrective actions.




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