oversight

Chelsea, MA, Housing Authority Review of Cost Allocation and Reasonableness of Salaries

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-04-30.

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

 OFFICE OF AUDIT
  7
 REGION 1
 BOSTON, MA




               Chelsea, MA, Housing Authority

    Review of Cost Allocation and Reasonableness of
                        Salaries




2014-BO-1002                                    April 30, 2014
                                                        Issue Date: April 30, 2014

                                                        Audit Report Number: 2014-BO-1002




TO:            Robert P. Cwieka,
               Acting Director, Office of Public and Indian Housing, 1APH

               //SIGNED//
FROM:          Edgar Moore
               Regional Inspector General for Audit, Boston Region, 1AGA


SUBJECT:        Chelsea, MA, Housing Authority, Review of Cost Allocations and
                Reasonableness of Salaries


         Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General (OIG), final results of our review of the Chelsea Housing Authority regarding
its cost allocations, and reasonableness of salaries.

        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 8M, 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 212-264-4174.
                                          April 30, 2014
                                          Chelsea, MA, Housing Authority, Review of Cost
                                          Allocations and Reasonableness of Salaries.




Highlights
Audit Report 2014-BO-1002


 What We Audited and Why                          What We Found

We audited the Chelsea, MA, Housing              Authority officials did not design their cost
Authority based on a request from the U.S.       allocation plans appropriately and did not assign
Department of Housing and Urban                  expenses properly. This condition occurred
Development (HUD), Boston Office of              because former Authority officials used
Public and Indian Housing, which was             inappropriate cost categories, made the plans
concerned about financial controls at the        unnecessarily complex, and did not consistently
Authority. Our audit objectives were to          apply expenses in accordance with the plans. As
determine whether Authority officials            a result, the improper allocations obscured the
properly implemented financial controls over     true cost of the Authority’s programs, and
the allocation of costs, and reasonableness of   decision makers did not have proper financial
salaries.                                        information. Additionally, Authority officials
                                                 could not assure HUD and other regulatory
 What We Recommend                               agencies that $6.7 million in salaries and $2.7
                                                 million in expenses were appropriately assigned
                                                 to the programs that benefited from those
We recommend that the Director of HUD’s          expenses.
Boston Office of Public and Indian Housing
instruct Authority officials to develop an       The Authority also paid unreasonable wages of
acceptable methodology to correctly allocate     $697,471. These higher wages stemmed from
the 2010, 2011 and 2012 expenditures;            the absence of wage rate ceilings, officials’
allocate the more than $9.4 million in           misunderstanding of State wage rate
expenses to the benefiting programs; repay       requirements, and the former board of
any ineligible, unsupported, and                 commissioners’ approving the former executive
unreasonable expenses to the appropriate         director’s high salary. Therefore, these funds
Federal programs; and implement a policy to      were not available to further the objectives of
annually review the cost allocation plan with    the Authority’s programs.
the Authority’s board of commissioners. In
addition, reimburse its programs $697,471
for unreasonable salary expenditures;
examine its job descriptions to ensure that
each job description reflects all of the work
that each employee performs; define a pay
scale for each job; ensure that each employee
has a signed and dated job description; and
update these job descriptions regularly.
                             TABLE OF CONTENTS


Background and Objectives                                                         3

Results of Audit
       Finding 1: Authority Officials Did Not Properly Allocate Expenses to the   5
                  Programs Benefiting From Those Expenses

       Finding 2: The Authority Paid Unreasonable Wages                           8

Scope and Methodology                                                             13

Internal Controls                                                                 15

Appendixes
A. Schedule of Questioned Costs and Funds To Be Put to Better Use                 17
B. Salaries at the Authority Compared With the Mean Average Salary for That       18
   Position in the Boston Metropolitan Area
C. Auditee Comments and OIG’s Evaluation                                          19




                                              2
                          BACKGROUND AND OBJECTIVES


The United States Housing Act of 1937 established the Federal framework for local government-
owned affordable housing. The United States Congress established public housing to promote
the general welfare of the United States by assisting cities, such as Chelsea, MA, in providing
decent and safe dwellings for low-income families. The U.S. Department of Housing and Urban
Development (HUD) disperses operating subsidies and capital funds to public housing agencies
under annual contributions contracts to provide funding for housing assistance for eligible low-
income families. The Act was amended by the Quality Housing and Work Responsibility Act of
1998 to create the Housing Choice Voucher program. HUD provides funding to the Chelsea
Housing Authority, which, in turn, pays subsidies directly to housing owners on behalf of
assisted families.

Under the American Recovery and Reinvestment Act of 20091, Congress made available
additional funding to carry out capital and management activities for public housing agencies
such as the Authority. This law included formula grants awarded by the HUD Secretary and
competitive grants for priority investments. It specifically stated that funding provided under
this heading could not be used for operating or rental assistance activities. HUD provided the
Authority with both formula and competitive grants under the Public Housing Capital Fund
provisions of the Recovery Act. HUD provided $1.1 million through a 2009 ARRA Capital
Fund Formula Grant and $445 thousand through a 2009 ARRA Capital Fund Competitive Grant.

Between 2010 and 2012, HUD provided more than $25.3 million in funding to the Authority
through five programs.

                     Program                       2010             2011          2012        Total
            Housing Choice Voucher
    1                                           $5,717,519       $5,921,427     $5,562,993   $17,201,939
                   program
             Low-income operating
    2                                           $1,880,732       $1,793,617     $1,819,491    $5,493,840
                   subsidies
    3     Public Housing Capital Fund              $861,837        $716,082      $659,677     $2,237,596
           Resident Opportunities and
    4                                              $240,000                $-     $69,000      $309,000
            Self-Sufficiency grants
            Family Self-Sufficiency
    5                                               $32,779         $32,779       $64,909      $130,467
              Service Coordinator
                      Totals                    $8,732,867       $8,463,905     $8,176,070   $25,372,842




1
    Public Law 111-5, the American Recovery and Reinvestment Act of 2009

                                                       3
The Authority is an autonomous local government subdivision, which owns, manages, and
maintains subsidized public housing developments and subsidized leased housing programs
within Chelsea, MA. In addition to the Federal funding from HUD, the Authority received
funding from the Commonwealth of Massachusetts (State). It administers Federal public
housing, State public housing, the Federal Housing Choice Voucher program, the Massachusetts
Rental Voucher Program, a Federal Public Housing Capital Fund program, a State modernization
grant, and four Federal grants. The Authority is overseen by a five-member board of
commissioners and an executive director, who is responsible for the Authority’s day-to-day
operations.

The prior executive director announced his retirement in September 2011, stating that his ending
date would be February 10, 2012. The former board of commissioners immediately began a
search for a new executive director. The board hired a new executive director in November
2011; however, he was to start on January 1, 2012. The former executive director abruptly
retired in November 2011, concurrent with a media outcry about his excessive salary. The entire
board of commissioners also resigned in November and December 2011. The State forced the
Authority into receivership in November 2011. The receiver began working at the Authority in
November 2011. New commissioners were brought on board in March 2012, with the first
meeting of the new board of commissioners in March 2012. In July 2012 the Authority hired a
new fee accountant and along with the new board began implementing new policies and controls.

On February 19, 2013, the former executive director pled guilty to four counts of falsifying a
record within the jurisdiction of a Federal agency. On July 18, 2013, the former executive
director was sentenced to 36 months in prison, followed by 2 years of supervised release. He
was also fined $4,000. On October 30, 2013, the former executive director was indicted2 on
different charges for allegedly impeding Federal inspections to ensure that public housing units
at the Chelsea Housing Authority would pass.

The objectives of the audit were to determine whether Authority officials properly implemented
financial controls over the allocation of costs, and reasonableness of salaries.




2
 The court case for this indictment is working through the court system and the final outcome of this has not been
determined at the date of this report.

                                                         4
                                          RESULTS OF AUDIT

Finding 1: Authority Officials Did Not Properly Allocate Expenses to
           the Programs Benefiting From Those Expenses
Authority officials did not properly assign expenses to the benefiting programs. These
deficiencies occurred because the Authority’s cost allocation plans were not designed
appropriately, cost allocation plans were not updated when the Authority accepted new grants or
when existing grants ended, and the Authority did not allocate expenses in accordance with its
plans. As a result, the improper allocation of expenses obscured the true cost of the Authority’s
programs, and HUD and Authority officials did not have proper information to make informed
decisions. Additionally, Authority officials could not assure HUD that more than $9.4 million3
in expenses was appropriately assigned to the programs that benefited from those expenses on a
reasonable and consistent basis.



    Centralized Expenses Should
    Be Assigned to the Benefiting
    Programs

                  Cost allocation is a process whereby centralized expenses can be identified and
                  assigned to the activities that benefit from these expenses on a reasonable and
                  consistent basis. All data used to distribute the costs included in the cost
                  allocation plan should be backed by records that support the propriety of the costs
                  assigned to Federal awards. Housing authority activities include programs and
                  grants. During the 3-year audit period, the Authority operated a federally funded
                  low-income housing program, a Federal Public Housing Capital Fund program, a
                  Housing Choice Voucher program, a State low-income program, a Massachusetts
                  Rental Voucher Program, a State modernization program, and five grants4.

                  Each year, Authority officials developed a different cost allocation plan at the
                  beginning of that fiscal year to assign expenses to the programs and grants. Each
                  of these allocation plans for the Authority’s 11 programs and grants included 18
                  separate methodologies. Each methodology had a basis. Different methodologies
                  used different bases including the number of units, time, or bedroom size.
                  Different methodologies for the same fiscal year using bedrooms as a basis would
                  list different quantities of bedrooms. These methodologies were overly complex
                  and not appropriate. Authority officials allocated approximately $9.4 million in

3
  This $9.4 million consists of $6.7 million in salaries and $2.7 million in administrative expenses that the Authority
reported to HUD through financial statements.
4
  The Authority received four types of Federal grants and one type of State grant.


                                                           5
                  expenses and salaries during the audit period. We reviewed a sample of 188
                  expenses totaling $886,572 of more than $6.5 million5 in expenses. In 75 percent
                  of the sample (141 expenses), the actual allocation did not match the planned
                  allocation. For 55 of the 188 expenses, the invoices did not provide sufficient
                  information to determine whether the allocation was proper. Additionally, the
                  Authority could not support how it allocated more than $6.7 million in salaries for
                  2010, 2011, and 2012.

    Allocation Plans Were Not
    Properly Designed, Updated,
    Used, or Supported

                  Each year, Authority officials developed an allocation plan that did not adequately
                  allocate costs to all programs impacted. For example, Authority officials did not
                  allocate certain types of expenses to a State program, the Massachusetts Rental
                  Voucher program, although this program benefited from these expenses.
                  Additionally, the Authority treated the accounts of Federal security or payments
                  in lieu of taxes (PILOT) as separate programs and allocated expenses to these
                  accounts. It also inappropriately treated portability, which it called mobility, as a
                  separate program. Portability is a part of the Housing Choice Voucher program.
                  In addition, as new grants were accepted or removed from the Authority’s
                  portfolio, the Authority did not adjust its allocation plans for these changes. We
                  also were not able to trace the allocation of expenses to the methodologies listed
                  in the allocation plans. Therefore, the plans were not consistently used. Creating
                  these artificial cost centers for security, PILOT, and mobility artificially lowered
                  the amount of expenses allocated to the Authority’s remaining programs and
                  obscured the true cost of all of the Authority’s programs.

    Conclusion

                  Authority officials could not assure HUD that the approximately $9.4 million in
                  expenses was appropriately assigned to the programs that benefited from those
                  expenses on a reasonable and consistent basis. We attribute this deficiency to
                  Authority officials’ improper development of allocation plans and not properly
                  updating, using, or supporting their allocations.




5
 This $6.5 million is the total of the categories labeled as administrative expenses on the Authority’s cost allocation
plans. The cost allocation plans mislabeled some expenses as administrative expenses.

                                                           6
    Recommendations

                 We recommend that the Director of HUD’s Boston Office of Public and Indian
                 Housing instruct Authority officials to

                 1A.      Develop an acceptable methodology to correctly allocate the 2010, 2011,
                          and 2012 expenditures to ensure that expenses are properly assigned to the
                          appropriate programs benefiting from those expenditures.

                 1B.      Using the allocation method approved by HUD, allocate the $8,770,2746
                          in expenses to the benefiting programs

                 1C.      After implementing the HUD-approved allocation method, repay any
                          ineligible, unsupported, and unreasonable expenditure to the appropriate
                          Federal programs from non-Federal funds.

                 1D.      Implement a policy to annually review the cost allocation with the
                          Authority’s board of commissioners and have the board certify that the
                          plan is in accordance with HUD regulations. A resolution should also be
                          filed when the board approves the cost allocation plan.




6
 The total of expenses paid in 2010, 2011, and 2012 was $9,467,745, but the salary amount in finding 2 includes
$697,471 of this amount in unreasonable salaries. Therefore, we reduced the amount cited in this recommendation.

                                                        7
Finding 2: The Authority Paid Unreasonable Wages
The Authority paid unreasonable wages to its employees. Specifically, Authority officials paid
wages that were higher than the mean wages for similar positions in the Boston metropolitan
area. This condition occurred because retroactive increases to employee contracts were allowed
and job titles and pay did not correlate to the job duties for those positions. We also attribute
these higher wages to several factors, including the absence of wage rate ceilings and Authority
officials’ misunderstanding of State wage rate requirements. As a result, $697,471 in Authority
funds was not available to further the Authority’s programs.



    Authority Officials Paid Wages
    That Were Higher Than Local
    Area Wages

                 The wages in question were provided to the Authority’s employees during 2010,
                 2011, and 2012. Federal regulations require compensation to be reasonable7.
                 Compensation for employees engaged in work on Federal programs is reasonable
                 when that compensation is consistent with the wage rates paid in the local labor
                 market. To identify reasonable wage rates in the local labor market, we obtained
                 the mean annual wage rates compiled by the Bureau of Labor Statistics8 for the
                 Boston-Cambridge-Quincy metropolitan statistical area for each job description at
                 the Authority. These data showed the wages paid in the Authority’s local labor
                 market by job title. We compared the wages paid by the Authority with the
                 mean annual wages, and found that the Authority paid select employees’ wages
                 that were more than $10,000 per year higher than the mean annual wages paid
                 that year for the same type of work. Appendix B details the differences.

                 We considered unreasonable wages to be the amount that the Authority paid to its
                 employees that exceeded the mean annual wage for that same type of position in
                 the Boston metropolitan area. In this case, we calculated that $697,471 in wages
                 paid was unreasonable. In addition to being unreasonable, some of these salaries
                 were questioned further as discussed in the following sections.




7
  Office of Management and Budget (OMB) Circular A-87, codified at 2 CFR (Code of Federal Regulations) Part
225, Cost Principles for State, Local, and Indian Tribal Governments; Attachment B, Selected Items of Costs;
paragraph 8, Compensation for personnel services.
8
  The Bureau of Labor Statistics of the U.S. Department of Labor is the principal Federal agency responsible for
measuring labor market activity, working conditions, and price changes in the economy. This agency produces
employment and wage estimates annually for more than 800 occupations. This information is publicly available.
The Bureau of Labor statistics updated its data each May in 2010, 2011, and 2012.

                                                        8
The Board of Commissioners
Approved High Wages for the
Executive Director

            A majority of the unreasonable wages identified were paid to the former executive
            director. He received $546,154 in wages, which exceeded the mean annual wages
            for all chief executives in the Boston metropolitan area.

                       Wages                       2010            2011            Total
               Former executive director         $337,276        $424,938         $762,214
                    Mean annual                  $106,620        $109,440         $216,060
                    Unreasonable                 $230,656        $315,498         $546,154

            Authority officials signed a new contract with the former executive director in
            2006. On June 10, 2009, the former chairman of the board, with buy-in from the
            former executive director, retroactively amended this contract to change the term
            from a term ending January 1, 2013, to a term ending January 31, 2014; increase
            the salary beginning January 1, 2009, by 3 percent over the 2008 salary; and
            increase the salary beginning January 1, 2010, by 3 percent over the 2009 salary.
            The 2009 contractual salary was $267,199 before the 2009 amendment. With the
            retroactive 3 percent increase, the 2009 salary became $275,215. That
            amendment provided another 3 percent increase for 2010, which increased the
            contractual salary to $283,471. Each of these contracts and each retroactive
            amendment to the contracts were signed by at least one member of the board of
            commissioners, usually the chairman.

            The Authority reported to the Internal Revenue Service that the former executive
            director received $337,276 in 2010 and $424,938 in 2011. The paychecks did not
            differentiate payments for the retroactive increases from the payments for the
            current year’s salary. Thus, not only did the former executive director receive
            payments that exceeded the mean annual wages for all chief executives in the
            Boston metropolitan area, his wages also exceeded the salary amounts under his
            contracts. As a result, we considered this salary to be unreasonable.

            It should be noted that the former executive director retired from the Authority
            abruptly in November 2011. In addition, the former chairman and entire board of
            commissioners resigned in November and December 2011.

Job Titles Did Not Correlate to
Job Duties

            The Authority had job descriptions for each employee that identified the job’s title
            and the duties associated with that job. The Bureau of Labor Statistics classifies
            each job into a specific classification, which includes a description of that job’s

                                             9
           duties. When we compared the Authority’s job descriptions with the Bureau of
           Labor Statistics classifications, we found that the Authority’s job titles did not
           correlate to the duties that the employees performed. For example, one position
           was titled assistant executive director of public housing; however, the job
           description better matched the duties of a property real estate manager than those
           of the executive categories. The Authority had 7 assistant executive directors and
           1 executive director for 41 employees in 2010 and 43 employees in 2011.
           Another position was titled senior accountant, while the associated job description
           better matched the duties of bookkeeper than those of accountant. As part of their
           2012 reorganization, Authority officials reexamined and updated job descriptions
           and eliminated a number of higher level positions. However, this issue persisted
           after the Authority updated its job descriptions. To avoid a recurrence of this
           issue, Authority officials should have each supervisor and employee go through
           each employee’s job description periodically to ensure that it is complete and up
           to date.

Other Factors Contributed to
the Higher Wages

           Other factors contributed to the higher wages, including the absence of wage
           ceilings for individual jobs and a misunderstanding of State requirements that
           established minimum wage rates. The Authority had two unions: Firemen &
           Oilers and Service Employees International Union, a division of Teamsters. Each
           union had a separate contract with the Authority. Neither of these union contracts
           had wage ceilings on individual jobs; therefore, incremental increases to union
           members’ salaries contributed to raising the Authority’s total salaries. The
           contract between the Authority and Service Employees International Union
           provided for 2.5 percent increases each year over the wages from appendix A of
           the contract. However, Authority officials were not able to provide appendix A
           for review.

           The State published minimum wage rates for specific types of jobs, including
           carpenters, custodians, electricians, groundskeepers, mechanics, painters, and
           plumbers. All of the Authority employees enrolled in the Firemen & Oilers
           Union were in one of these positions. As required by their contract with the
           Firemen & Oilers union, Authority officials used these State wage rates to
           determine compensation for all employees in these positions. The 2011 State
           wage rates for some positions were lower than the 2010 rates that the Authority
           paid for the same positions; however the contract between Firemen & Oilers and
           the Authority also included a provision that an employee's compensation will not
           be reduced if the current year’s State wage rate is lower than the previous year's
           rate.

           These State wage rates also exceeded the mean annual wages published by the
           Bureau of Labor Statistics. Authority officials believed that these State wage


                                           10
                  rates were the minimum wages required by law9. However, State law provides
                  that the rates apply to State-funded projects but do not apply to federally funded
                  projects. The Authority paid all of its employees in these classifications using the
                  State wage rates. The Authority then allocated these employees’ salaries to both
                  the Federal projects and the State projects.

                  These State laws also required that payments by employers to health and welfare
                  plans, pension plans, and supplementary unemployment benefit plans under
                  collective bargaining agreements or understandings between organized labor and
                  employers be included in the total wage amount for the purpose of establishing
                  the minimum wage rates10. However, the Authority compensated its employees at
                  the State wage rate and provided employee benefits separately, further increasing
                  the compensation paid. Authority officials stated that they were not aware that
                  the wage rate schedule did not apply to federally aided projects or that the State
                  rates included benefits.

     The Authority Experienced
     Staffing Changes
                  In November and December 2011, the former executive director abruptly retired
                  from the Authority, and the entire former board of commissioners resigned after
                  selecting a new executive director. The departure of the former executive
                  director reduced the amount of unreasonable salaries paid by the Authority. In
                  November 2011, the State appointed a receiver, who began work at the Authority
                  in January 2012 and oversaw operations until a new board was put in place. The
                  new board of commissioners was in place in March 2012. In the spring of 2012,
                  the Authority was reorganized, and a number of personnel were dismissed. Some
                  of these personnel received salaries that were higher than the mean annual wages
                  for their job descriptions. This process reduced but did not eliminate the quantity
                  of unreasonable salaries paid by the Authority. Appendix B identifies instances
                  in which the Authority paid wages that were more than $10,000 per year higher
                  than the mean annual wages paid that year for the same type of work.

     Conclusion

                  The Authority paid unreasonable wages of $697,471 to employees in 2010, 2011,
                  and 2012. Several factors contributed to the higher wages, including the absence
                  of wage rate ceilings, a misunderstanding of State wage rate requirements, a
                  mismatch between job titles and job duties, and the former board of
                  commissioners’ inappropriate approval of high wages for the former executive
                  director. As a result, these funds were not available to further the Authority’s
                  programs.

9
 This provision is in Massachusetts General Law, chapter 121B, section 29.
10
  This provision is in Massachusetts General Law, chapter 149, section 26. Massachusetts General Law, chapter
121B, section 29, states that chapter 149, section 26, also applies to these wage rates.

                                                      11
     Recommendations

                   We recommend that the Director of HUD’s Boston Office of Public and Indian
                   Housing require Authority officials to

                   2A.     Reimburse the Authority’s programs from non-Federal funds for more
                           than $697,471 in unreasonable salary expenditures11.

                   2B.     Examine and update, when necessary, job descriptions to ensure that they
                           reflect all of the work that each employee performs and any specialty
                           licenses required or recommended for an employee.

                   2C.     Define a pay scale for each job description that includes a defined upper
                           limit or wage ceiling.

                   2D.     Ensure that each employee has a job description signed and dated by the
                           employee and his or her direct supervisor. These job descriptions and
                           signatures should be updated periodically as duties and responsibilities
                           change.




11
     Recommendation 1B and 2A are linked.

                                                    12
                        SCOPE AND METHODOLOGY

We conducted the audit between January and September 2013. Our fieldwork was completed
at the Authority’s main office located at 54 Locke Street, Chelsea, MA. The audit generally
covered the period January 1, 2010, to December 31, 2012, and was extended when necessary to
meet our objectives. To accomplish our audit objectives, we

      Reviewed applicable laws, regulations, HUD handbooks and guidebooks, HUD public
       housing notices, annual contributions contracts , and the Authority’s policies and
       procedures.

      Conducted discussions with Authority officials to gain an understanding of the Authority’s
       operations, financial structure, cost allocation, internal controls, and job descriptions.

      Reviewed independent public auditors’ reports as part of our testing for control
       weaknesses.

      Reviewed recent Real Estate Assessment Center inspections and walked through the
       projects on February 19, 2013, to determine the general physical condition of the Federal
       properties.

      Evaluated internal controls and conducted sufficient tests to determine whether the
       controls functioned as intended. This process included obtaining an understanding of the
       computer systems used at the Authority and the controls used to ensure the accuracy of
       the data. Our assessment of the reliability of the computer system was limited to the data
       sampled; therefore, we did not rely solely on the computerized data; instead, we
       performed a minimal level of testing and found the data to be adequate for our purposes.

      Reviewed Authority board minutes and media articles about the Authority to identify
       information relevant to the Authority’s programs and personnel.

      Selected and reviewed a sample of expenditures to determine whether they were properly
       allocated to programs. We selected a sample of 188 expenses for review. The 188
       expenses totaled $886,572 of more than $6.5 million in expenses paid by the Authority
       between January 1, 2010, and December 31, 2012.

      Reviewed job descriptions, employment contracts, Bureau of Labor Statistics mean
       annual wages for the Boston metropolitan area, employee timesheets, overtime requests,
       and weekly time reports to determine the reasonableness of salaries.

      Examined bank statements and general depository agreements to determine the propriety
       of banking fees.

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
                                               13
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objective(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.




                                               14
                              INTERNAL CONTROLS

Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

      Effectiveness and efficiency of operations,
      Reliability of financial reporting, and
      Compliance with applicable laws and regulations.

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations, as well as the
systems for measuring, reporting, and monitoring program performance.


 Relevant Internal Controls

               We determined that the following internal controls were relevant to our audit
               objectives:

                  Program operations – Policies and procedures that management has
                   implemented to reasonably ensure that a program meets its objectives.

                  Reliability of data – Policies and procedures that management has implemented
                   to reasonably ensure that valid and reliable data are obtained, maintained, and
                   fairly disclosed in reports.

                  Laws and regulations – Policies and procedures that management has
                   implemented to reasonably ensure that resource use is consistent with 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.

                                                 15
Significant Deficiencies

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

                   The Authority did not have adequate controls over program operations,
                    relevance of information, and compliance with laws and regulations as
                    officials did not design cost allocation plans to only include appropriate
                    categories that would ensure that expenses were properly allocated to the
                    programs benefiting from the expenses (see finding 1).

                   The Authority did not have adequate controls to safeguard assets and
                    resources as officials did not properly allocate administrative expenses and
                    paid unreasonable wages (see findings 1 and 2).




                                              16
                                            APPENDIXES


Appendix A

                    SCHEDULE OF QUESTIONED COSTS
                   AND FUNDS TO BE PUT TO BETTER USE

                                                                                    Unreasonable
     Recommendation number                   Unsupported 1/
                                                                                  or unnecessary 2/
                       1B                      $8,770,27412
                       2A                                                          $697,471




1/      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.

2/      Unreasonable or unnecessary costs are those costs not generally recognized as ordinary,
        prudent, relevant, or necessary within established practices. Unreasonable costs exceed
        the costs that would be incurred by a prudent person in conducting a competitive
        business.




12
  This figure is net of the $9,467,745 in expenses minus the $697,471 in unreasonable salaries in recommendation
2A.

                                                       17
Appendix B

  SALARIES AT THE AUTHORITY COMPARED WITH THE
  MEAN AVERAGE SALARY FOR THAT POSITION IN THE
           BOSTON METROPOLITAN AREA

                              2010 mean annual
                                                     Unreasonable
      Employee   2010 wages    - reasonable wage
                                                      difference
                              for that type of job
        24       $ 337,276          $106,620           $230,656
        35       $ 90,524           $ 62,540           $ 27,984
        25       $ 56,107           $ 36,470           $ 19,637
        26       $ 58,698           $ 44,860           $ 13,838
         3       $ 82,707           $ 72,200           $ 10,507
        17       $ 65,614           $ 55,480           $ 10,134
      Subtotal   $ 690,926          $378,170           $312,756


                              2011 mean annual
      Employee   2011 wages    - reasonable wage     Unreasonable
                              for that type of job
        24        $424,938          $109,440           $315,498
        35        $ 91,588           $ 64,570          $ 27,018
        25         $ 57,000          $ 36,120          $ 20,880
         3        $ 84,755           $ 74,270          $ 10,485
      Subtotal    $ 658,281         $284,400           $373,881


                              2012 mean annual
      Employee   2012 wages    - reasonable wage     Unreasonable
                              for that type of job
         6        $ 48,034           $37,200           $ 10,834
      Subtotal    $ 48,034           $37,200           $ 10,834
                                   Grand total         $697,471




                               18
Appendix C

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         19
Ref to OIG Evaluation   Auditee Comments




Comment 1


Comment 2


Comment 3



Comment 4




Comment 5




                         20
Ref to OIG Evaluation   Auditee Comments




Comment 5




Comment 6




                         21
Ref to OIG Evaluation   Auditee Comments




Comment 6




Comment 7




Comment 8




Comment 7



Comment 9




                         22
Ref to OIG Evaluation   Auditee Comments




Comment 8




Comment 10




Comment 11




Comment 12




                         23
Ref to OIG Evaluation   Auditee Comments




Comment 12




Comment 13




                         24
                         OIG Evaluation of Auditee Comments

Comment 1   Authority officials’ plan to work with the Boston Office of Public and Indian
            Housing to develop an acceptable methodology is responsive to our
            recommendation.

Comment 2   Authority officials stated that they have developed an acceptable allocation
            methodology with the Department of Housing and Community Development
            (DHCD), which is part of the Commonwealth of Massachusetts (State). During
            the exit conference, HUD agreed that Authority officials had developed an
            acceptable methodology to allocate the 2013 and 2014 expenditures. However;
            during the audit resolution process, this plan should be provided to HUD-OIG for
            concurrence.

Comment 3   Authority officials’ plan to allocate the 2010, 2011, and 2012 expenditures to the
            benefitting programs is responsive to our recommendation. The composition of
            the $2.7 million in administrative expenses came from the Authority’s audited
            financial statements and we will provide a table showing the $2.7 million in
            administrative expenses by category to HUD for use during the audit resolution
            process with the Authority.

Comment 4   Authority officials’ plan to discuss with the Boston Office of Public and Indian
            Housing how to properly and equitably treat ineligible, unsupported and
            unreasonable expenditures is partially responsive to our recommendation.
            Authority officials also need to implement a policy to annually review the cost
            allocation with the Authority’s board of commissioners and have the board certify
            that the plan is in accordance with HUD regulations.

Comment 5   Officials believe that the HUD-OIG computed reasonable mean salary for the
            former executive director is less than the salary in the budget that they submitted
            to DHCD. DHCD approved this budget. Officials are using the salary approved
            by DHCD in their litigation to obtain reimbursement from the former executive
            director. As such, they believe that HUD-OIG’s use of a lower average salary
            penalizes them twice, once from paying the executive director and once for
            repaying HUD. Note that HUD did not previously require the Authority to submit
            a budget identifying all salaries for approval. Also, DHCD and State rules do not
            supersede HUD regulations. When an Authority accepts funding from multiple
            government sources, the Authority must abide by the rules of the government
            sources. In this instance, the Authority’s absence of adequate internal controls
            allowed the excessive payments to the former executive director. While these
            payments occurred in a former administration, the current administration has
            inherited all the benefits and problems of the former administration. Further,
            enforcement of HUD regulations to repay the HUD programs for the
            unreasonable expenses is not a penalty for the Authority's absence of internal
            controls; instead, this is a requirement of the Authority's annual contributions



                                            25
                    contracts with HUD. Nevertheless, officials can negotiate with HUD during the
                    audit resolution process as to what they consider to be reasonable.

Comment 6           Authority officials disagree that the unreasonable wages occurred because of
                    officials misunderstanding of State wage regulations. They also state that HUD-
                    OIG did not consider that the State wages do not include fringe benefits.
                    Therefore, they believe that the wages they paid to union employees were within
                    the state wage rates and should not be questioned. Further, they believe it is
                    impractical to require different rates for maintenance employees who work on
                    both state and federal projects. However, HUD-OIG’s review of Massachusetts
                    General Law13 found that payments by employers (such as the Authority) to
                    health and welfare, pension, and supplementary unemployment benefit plans
                    under collective bargaining agreements shall be included for the purpose of
                    establishing minimum wage rates. Since the Authority provided a letter from the
                    State Agency that contradicts OIG’s review of Massachusetts General Law, HUD
                    may wish to have its attorneys evaluate the cited Massachusetts General Law and
                    the State Agency’s letter during the audit resolution process. Additionally, the
                    existence of collective bargaining does not eliminate the requirement on the
                    Authority that the salaries paid must be reasonable in price for the duties
                    performed. As such, Authority officials cannot charge the Federal programs for
                    compensation that is not reasonable in price. Thus, this is another issue that needs
                    to be negotiated during the audit resolution process with HUD.

Comment 7           Authority officials advise that DHCD approved the 2010 and 2011 salary
                    amounts. Although DHCD approved the 2010 and 2011 salary amount for this
                    employee, if the approved amount is not reasonable in price, it should not have
                    been charged (See above comment 6). In addition, the Authority's elimination of
                    the position and the departure of the employee may prevent recurrence; but it does
                    not address the unreasonable salary paid during 2010 and 2011.

Comment 8           The Authority disagrees that Employee 25's salary in 2010 and 2011 was
                    unreasonable because the employee was performing the functions of two separate
                    positions. Each employee needs to have a job description that describes the duties
                    and responsibilities of the position, not two separate job descriptions, in this case,
                    Senior Accountant and Purchasing Agent. Each of these job descriptions
                    describes a full time position, yet according to our review of timecards for this
                    employee, this employee was not working two full time positions. When a person
                    is fulfilling multiple tasks within a single full time position, the Authority needs to
                    develop a single job description that addresses those multiple tasks. Without
                    such, it is difficult to determine whether the salary charges are reasonable.

Comment 9           The Authority disagrees that the 2012 wages for Employee 6 were unreasonable
                    because Employee 6 assumed additional responsibilities after the departure of
                    another employee and Employee 6 is a union member whose pay increases were
                    approved by DHCD. The employee's job description should be updated to reflect

13
     This provision is in Massachusetts General law Chapter 149, Section 26.

                                                          26
                   all of the duties performed by the employee. Also, as mentioned in comment 2,
                   DHCD and State rules do not supersede HUD regulations. When an Authority
                   accepts funding from multiple government sources, the Authority must abide by
                   the rules of the government sources.

Comment 10 Authority officials contend that the HUD-OIG’s emphasis on a wage rate ceiling
           is inappropriate. While the Authority needs to adhere to its union contracts, we
           believe that wage rate ceilings are appropriate, and the Authority should
           implement wage rates and a wage ceiling concurrent with a union contract cycle.
           Nevertheless, the authority’s planned actions to implement wage rates with
           nonunion employees are partially responsive to our recommendation.

Comment 11 Authority officials believe that unionized employees are not permitted to sign and
           agree to their individual job description because that is a conflict with State law14.
           Our review of the cited law does not confirm this belief. While we do not agree
           that a signed job description would interfere with unionized employees being
           represented by their union; we agree that Authority officials should consult with
           their labor counsel and determine the legality of this issue during the audit
           resolution process with HUD.

Comment 12 Authority officials objected to the finding on bank fees because the Authority
           began the process of challenging and removing the unreasonable bank fees prior
           to any inquiry by HUD-OIG. Based on the information provided by Authority
           officials and their written comments, we eliminated the finding on bank fees and
           have revised the report accordingly.

Comment 13 This audit report clearly mentions (in the scope section) that the audit period was
           from January 1, 2010 to December 31, 2012. In addition, the report background
           section gives a chronology of how the former executive director and board left the
           Authority and when the new executive director and board started their term and
           began implementing new procedures and controls. As such, the report delineates
           the two administrations at the Authority and needs no clarification.




14
     The Authority cited Massachusetts General Law Chapter 150E

                                                       27