oversight

The Truth or Consequences Housing Authority's Financial Controls Were Not Adequate To Ensure That It Used Its Low-Rent Funds Appropriately

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-05-27.

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

OFFICE OF AUDIT
REGION 6
FORT WORTH, TX




    Truth or Consequences, NM, Housing Authority

                  Low-Rent Public Housing




    X
2014-FW-1002                                May 27 , 2014
                                                        Issue Date: May 27, 2014

                                                        Audit Report Number: 2014-FW-1002




TO:            Floyd R. Duran
               Program Center Coordinator, Office of Public Housing, 6BPHO

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


SUBJECT:       The Truth or Consequences Housing Authority’s Financial Controls Were Not
               Adequate To Ensure That It Used Its Low-Rent Funds Appropriately


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

    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
(817) 978-9309.
                                           May 27, 2014

                                           The Truth or Consequences Housing Authority’s
                                           Financial Controls Were Not Adequate To Ensure
                                           That It Used Its Low-Rent Funds Appropriately


Highlights
Audit Report 2014-FW-1002


 What We Audited and Why                    What We Found

 We audited the Truth of Conseqences       We did not find an indication that the Authority
 Housing Authority of Truth or             improperly transferred ownership of properties to the
 Consequences, NM, in response to an       Corporation. However, the Authority could not
 anonymous complaint alleging that the     support $267,633 in maintenance labor and $327,478
 Authority inappropriately transferred     in administrative salary expense cost allocation
 ownership of some of its properties to    percentages. As a result, it could not ensure that the
 the New Mexico Housing and                maintenance labor and administrative salaries charged
 Community Development Corporation         to its low-rent public housing were appropriate. This
 and used its assets to support the        condition occurred because the Authority’s financial
 Corporation’s activities. Our audit       controls were not adequate to ensure that it properly
 objective was to determine whether the    allocated costs.
 Authority had adequate controls to
 ensure that it complied with its annual
 contributions contract and other U.S.
 Department of Housing and Urban
 Development (HUD) requirements.

 What We Recommend

We recommend that HUD require the
Authority to (1) develop and implement
supported cost allocation methods for
its maintenance labor and
administrative salaries and update them
annually or charge the appropriate
programs based on actual costs, and (2)
discontinue using its low-rent public
housing fund as a general fund to pay
costs associated with its business
activities until it has established
appropriate controls.
                           TABLE OF CONTENTS

Background and Objective                                                          3

Results of Audit
      Finding: The Truth or Consequences Housing Authority’s Financial Controls
               Were Not Adequate To Ensure That It Used Its Low-Rent Public
               Housing Funds Appropriately                                        4

Scope and Methodology                                                             7

Appendixes
A.    Auditee Comments and OIG’s Evaluation                                       8




                                            2
                     BACKGROUND AND OBJECTIVES

The Truth or Consequences Housing Authority incorporated under the laws of the State of New
Mexico on December 13, 1963. It operates under the governance of a five-member board of
commissioners appointed by the mayor. The board oversees the executive director, who
manages the Authority’s operations.

The Authority created a nonprofit, the New Mexico Housing and Community Development
Corporation, to develop and provide decent, safe, and sanitary housing for low- and moderate-
income families and individuals, including the elderly, handicapped, and disabled. The
executive director headed both the Authority and Corporation until 2006. On June 30, 2006, the
executive director requested a waiver to retire and continue performing executive director type
services as a professional services contractor. The U.S. Department of Housing and Urban
Development (HUD) denied the waiver. The executive director retired from the Authority on
July 31, 2006, but continued to be the president of the Corporation.

In April 2004 and March 2006, the Corporation purchased eight multifamily properties. The
eight properties were designed for low- to moderate-income individuals. The Authority provided
maintenance and administrative support for 362 Section 8 project-based units at the properties
and collected management agent fees from the Corporation for managing them. The Authority
also owns and manages 100 low-rent public housing units and 52 rural development units. It
administers 190 housing choice and mainstream vouchers.

The Authority received funding from HUD and other sources to administer its HUD programs as
shown in the table below.

                                  Authority sources of funds
      Program                      Restricted amount         Unrestricted amount
                                   (program activities only) (any Authority use)
      Vouchers                                   $2,159,105
      Administrative fees                            241,285
      Capital funds                                  346,080
      Low-rent public housing
       • Operating subsidy                            294,842
       • Public housing rents                         715,084
      Management agent fees                                                  $413,712
      Totals                                       $3,756,396                $413,712

Our audit objective was to determine whether the Authority had adequate controls to ensure that
it complied with its annual contributions contract and other HUD requirements.




                                               3
                                 RESULTS OF AUDIT


Finding: The Truth or Consequences Housing Authority’s Financial
         Controls Were Not Adequate To Ensure That It Used Its
         Low-Rent Public Housing Funds Appropriately
The Authority could not support its maintenance labor and administrative salary expense cost
allocation percentages. Specifically, Authority staff did not maintain documentation to support
the Authority’s allocation percentages. This condition occurred because the Authority did not
implement adequate financial controls to ensure that it used its low-rent public housing funds in
accordance with its annual contributions contract and HUD requirements. As a result, it could
not ensure that maintenance labor and administrative salaries charged to its low-rent public
housing between April 1, 2010, and March 31, 2013, were appropriate.


 The Authority Could Not Ensure
 That Maintenance Labor and
 Administrative Salary Charges to
 Its Low-Rent Funds Were
 Appropriate

               The Authority used its low-rent public housing fund as a general fund to pay costs
               associated with its business activities, including public housing and management
               agent activities. However, it did not implement appropriate systems to ensure that
               its programs and the Corporation repaid the low-rent public housing fund for
               maintenance and administrative salary expenses at appropriate rates.

               Maintenance Labor Expenses
               While the Authority charged overtime directly to its and the Corporation’s
               developments, it allocated regular maintenance labor expenses. However,
               maintenance staff timesheets did not differentiate between regular time spent on
               public housing developments and regular time spent on management agent
               developments; thus, the Authority could not determine the actual labor costs to be
               charged to the various developments. For example, the partial timesheet in
               exhibit 1 shows that a staff member worked 8 hours per day from Monday
               through Friday, but it does not show which developments the staff member
               worked on. According to the maintenance supervisor, the Authority did not have
               documentation, including work orders, to show where maintenance staff worked
               during their normal day.




                                                4
Exhibit 1: Maintenance timesheet




In contrast, the overtime recorded on July 1 and July 3 in the maintenance
timesheet was supported by the work orders in exhibit 2. The work orders show
which development the employee worked at.

Exhibit 2: Work orders
 Project: FHA for Puesta del Sol           Project: Tradewinds Carriage




Since the Authority did not determine the actual time charged to each
development, it used allocation percentages for its maintenance labor expenses.
The Authority provided copies of its 2010, 2011, and 2012 allocation tables but
could not support the basis for the percentages or the changes in the percentages
from year to year. For example, the allocation percentage for the maintenance
supervisor decreased from 30 percent charged to the low-rent program in 2010
and 2011 to 20 percent in 2012. However, there was no support for the
percentages or why they changed. According to the Authority’s general ledger, it
spent $873,923 in low-rent public housing funds for maintenance labor between
April 1, 2010, and March 31, 2012. It reimbursed its low-rent account $606,290
from other programs through invoices during that period. The remaining
$267,633 paid from the low-rent public housing fund was not supported by a cost
allocation plan that included a supportable basis for the percentages charged to the
various developments.




                                 5
             Administrative Salary Expenses
             The Authority allocated administrative salaries and benefits to its housing
             programs but did not have supporting documentation for the allocation
             percentages. The 2010, 2011, and 2012 cost allocation tables showed that
             percentages changed during those years. For example, the executive director’s
             allocation to public housing increased from 15 percent in 2010 to 34 percent in
             2012, but the executive director, finance manager, finance assistant, and fee
             accountant admitted that the Authority did not have support for the percentages.
             Therefore, the Authority could not ensure that its low-rent public housing funds
             were charged appropriately for administrative salaries. This condition occurred
             because the Authority did not require its staff to track actual time spent per
             project, separating its public housing activities from its non-public housing
             management activities. According to the Authority’s general ledger, it paid
             $859,532 in low-rent public housing funds for all administrative salaries between
             April 1, 2010, and March 31, 2012. It reimbursed $532,054 in administrative
             salaries from other programs through invoices for that period. Because it could
             not support its allocation percentages, it could not ensure that the balance of
             $327,478 paid from low-rent public housing funds was appropriate.

             According to the 2 CFR (Code of Federal Regulations) Part 225, section C, Basic
             Guidelines, “All activities which benefit from the governmental unit’s indirect
             cost … will receive an appropriate allocation of indirect costs.” Further, the
             section requires costs to be necessary and reasonable; allocable; consistent with
             policies, regulations, and procedures that apply uniformly to both Federal awards
             and other activities of the governmental unit; and adequately documented.

Conclusion

             The Authority did not have support for its 2010, 2011, and 2012 cost allocation
             percentages. Therefore, it could not ensure that it appropriately charged
             maintenance labor and administrative salaries to its low-rent public housing fund
             from April 1, 2010, through March 31, 2012. Since we did not perform an
             analysis to determine the appropriate percentages of costs to be allocated to the
             various programs, we are not recommending repayment of amounts charged to the
             low-rent public housing fund. However, the Authority must develop and
             implement supportable cost allocation percentages or charge the costs based on
             actual costs to ensure that only appropriate amounts are charged to its programs.




                                              6
Recommendations

          We recommend that the Program Center Coordinator, Office of Public Housing,
          Albuquerque, NM, require the Authority to

          1A.     Develop and implement supported cost allocation percentages for its
                  maintenance labor and administrative salaries and update them annually or
                  charge the appropriate programs based on actual costs.

          1B.     Discontinue using its low-rent public housing fund as a general fund to
                  pay costs associated with its business activities until it has established
                  appropriate controls.




                                            7
                        SCOPE AND METHODOLOGY
We performed the audit at our offices in Albuquerque, NM, and the Authority’s offices in Truth
or Consequences, NM, from May 2013 through March 2014. The review period included April
1, 2010, through March 31, 2013.

To accomplish our objective, we performed the following related to the Authority’s programs:

   •   Reviewed and obtained an understanding of relevant laws and program regulations and
       the Authority’s policies and procedures.
   •   Reviewed and analyzed the Authority’s
           o Audited financial statements and prior HUD monitoring reviews,
           o Budget,
           o Administrative and financial operations activities, and
           o Mortgage and management agreements.
   •   Interviewed the Authority’s management and staff and HUD staff to obtain an
       understanding of the Authority’s background, grants, and operations.
   •   Reviewed applicable Authority board minutes.
   •   Analyzed the Authority’s compliance with its annual contributions contract related to its
       use of HUD funds.
   •   Reviewed the data in the Authority's QuickBooks 2010 system as it related to our audit
       objective. We did not evaluate the reliability of the data because we used the data for
       background purposes only.
   •   Conducted site visits to the Authority’s two rural developments, two public housing
       developments, one Section 8 project-based apartment development for the elderly and
       disabled, and one HUD-assisted Section 8 project-based apartment development.

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




                                                8
                        APPENDIXES
Appendix A

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation      Auditee Comments




                             9
Comment 1




Comment 2




            10
                         OIG Evaluation of Auditee Comments

Comment 1   The Authority agreed to work with the Albuquerque Field Office to ensure that its
            cost allocation percentages for maintenance labor and administrative salaries are
            appropriate. The Authority also provided a copy of its fiscal year 2015 proposed
            cost allocation percentages, which we did not include in the report.

            The Authority should obtain HUD approval of the allocation percentages prior to
            their implementation.

Comment 2   The Authority stated that it would cease using its Public Housing general
            operating account as a general fund at the beginning of its next fiscal year on July
            1, 2014. Instead, it would start using a non-federally funded account to pay costs
            associated with its business activities.

            In addition to ceasing the use of the Public Housing operating fund as a general
            fund, the Authority needs to establish appropriate controls over the account to
            ensure that it is only used to pay public housing expenses.




                                             11