oversight

The Management of the Housing Authority of the City of Beeville, Beeville, TX, Did Not Exercise Adequate Oversight and Allowed Ineligible and Unsupported Costs

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-08-01.

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

                                                U.S. DEPARTMENT OF
                                HOUSING AND URBAN DEVELOPMENT
                                         OFFICE OF INSPECTOR GENERAL




                                                August 1, 2014
                                                                                               MEMORANDUM NO:
                                                                                                    2014-FW-1804


Memorandum
TO:            David G. Pohler
               Director, San Antonio Office of Public Housing, 6JPH

               //signed//
FROM:          Gerald Kirkland
               Regional Inspector General for Audit, 6AGA

SUBJECT:       The Management of the Housing Authority of the City of Beeville, Beeville, TX,
               Did Not Exercise Adequate Oversight and Allowed Ineligible and Unsupported
               Costs


                                            INTRODUCTION

In accordance with our regional plan to review public housing programs and as part of our
overall risk strategy to review smaller housing authorities, we reviewed the Housing Authority of
the City of Beeville, TX. Our objective was to determine whether the Authority operated its
public housing and related grant programs in accordance with the U.S. Department of Housing
and Urban Development’s (HUD) requirements. However, we limited our review to determining
whether the Authority (1) properly collected, deposited, and recorded its low-rent rental receipts;
(2) had adequate controls over its credit cards; and (3) made additional or improper payroll
payments. We also reviewed board oversight and expanded our testing to cover other high-risk
disbursements.

                                 METHODOLOGY AND SCOPE

We conducted our work at the Authority’s administrative office in Beeville, TX, and the Office
of Inspector General’s (OIG) offices in Houston and Fort Worth, TX, from December 3, 2013, to
April 30, 2014. The review generally covered the period March 31, 2012, to September 30,
2013. We expanded the scope as necessary to accomplish our objective.




                                                Office of Audit (Region 6)
                                 819 Taylor Street, Suite 13A09, Fort Worth, TX 76102
                                       Phone (817) 978-9309, Fax (817) 978-9316
                           Visit the Office of Inspector General Web site at www.hudoig.gov.
To accomplish our objective, we reviewed the Authority’s

   •   Policies and procedures and its available board minutes.
   •   Bylaws and annual contributions contract with HUD.
   •   Electronic fiscal year general ledgers and cash disbursements data. We used this
       information to select high-risk items for review. We determined that the electronic data
       were generally sufficiently reliable to meet our review objectives.
   •   Available credit card statements from Valero, Office Depot, Home Depot, American
       Express, Sam’s Club, and Walmart. For some months and credit cards, the Authority did
       not provide a statement. We expanded the review to December 2005 for Sam’s Club,
       March 2007 for Walmart, and December 2011 for American Express.
   •   Contract with its executive director, dated June 4, 2013.
   •   Payroll information in the general ledger.
   •   Payments made to one contractor; however, we deferred on a detailed review of this and
       the Authority’s other procurements until a later date.
   •   Travel and other payments made to the executive director.
   •   Financial statements for the 12 months ended March 31, 2012, for background
       information and findings relevant to our review objective.

We also

   •   Interviewed the executive director, eight permanent employees, a maintenance
       supervisor, and three temporary maintenance employees.
   •   Interviewed six board members, including one recently appointed board member.
   •   Obtained the Authority’s HUD program funding information for fiscal years 2012
       through 2013.
   •   Reviewed and obtained an understanding of the relevant laws, regulations, and HUD’s
       guidance.
   •   Conducted site inspections of five of the Authority’s low-rent properties and its
       community center.
   •   Analyzed rent registers, rent receipts, and bank deposits for March, July, and September
       2013.
   •   Reviewed checks and the check signatures on bank statements for 7 months.
   •   Obtained the total amount of housing assistance payments made to the executive
       director’s brother from April 2012 to May 2014.


                                       BACKGROUND

The Authority is chartered as a public corporation under the laws of the State of Texas for the
purpose of providing safe, decent, and affordable housing. It is governed by a five-member
board of commissioners, who are appointed and can be removed by the mayor of Beeville. The
board is responsible for establishing operating policies and overseeing the executive director,
who manages the Authority’s day-to-day operations. The Authority has eight permanent




                                               2
employees, an executive director, a maintenance supervisor, and three temporary maintenance
employees.

The Authority owns and manages 194 low-rent public housing units and administers 226 housing
choice vouchers out of the 230 vouchers it receives from HUD. It also has 76 U.S. Department
of Agriculture-funded rural housing units. HUD provided operating subsidies and Public
Housing Capital Fund program funds to the Authority to manage, maintain, operate, and improve
its public housing developments. HUD also provided the Authority Housing Choice Voucher
program administrative fees and housing assistance payments. In addition, the Authority
received rental income from its tenants. The Authority’s fiscal year is from April 1 to March 31.

       Table 1: HUD’s reported funding for the Authority
                                            Fiscal year       Fiscal year
        HUD program                            2012 1             2013          Total
        Low-rent operating subsidy          $    90,655      $ 593,287         $ 683,942
        Housing Choice Voucher program          944,262          855,038        1,799,300
        Capital Fund program                    224,714          231,538          456,252
        Total                               $ 1,259,631      $ 1,679,863       $2,939,494

                                        RESULTS OF REVIEW

The Authority’s management did not properly manage its public housing and related grant
programs in accordance with HUD requirements. Specifically, it (1) did not properly oversee its
rent receipts, (2) mismanaged its credit cards and vehicles, (3) paid ineligible and unsupported
costs, and (4) failed to hold regular board meetings. These conditions occurred because the
Authority’s management, consisting of its executive director and board of commissioners, did
not exercise adequate oversight of and control over the Authority. Further, management did not
ensure that staff followed policies, procedures, and controls. As a result, the Authority’s tenant
accounts receivable balances were inaccurate, and it overcharged a few tenants. Additionally, it
paid ineligible and unsupported costs totaling $75,583.

The Authority Did Not Properly Oversee Its Rental Income
The Authority did not properly oversee its rental income as it did not reconcile its rent receipts,
rent registers, and bank deposits monthly for the 18 month review scope. It lacked basic
segregation of duties as the staff responsible for maintaining the rent register and bank deposit
sometimes collected the rent. Further our testing of 3 months showed that it accepted cash
without adequate controls, did not deposit a few receipts, and provided incomplete or illegible
rent receipts to the tenants. The Authority’s staff also did not ensure the amount recorded on the
rent receipts provided to the tenant matched amounts in its rent register and, in a few cases, did
not record the tenant’s rent payment in the rent register. Further, staff improperly charged
tenants late fees. In addition, the Authority’s staff did not know how to account for payments
made on old outstanding accounts. The executive director had known for years that the staff had
not reconciled rental income; however, she did not establish or inform the board of the need for a
policy. As a result, the Authority’s tenant accounts receivable balances were inaccurate, and it

1
    HUD’s fiscal year is from October 1 to September 30.



                                                       3
overcharged a few tenants. Further, since the necessary controls to prevent improper activity did
not exist, theft of rent receipts could have gone undetected.

The Authority Mismanaged Its Fuel Cards and Vehicles
The Authority’s staff misused its fuel cards and did not properly manage the six Authority-
owned vehicles. Authority management did not require staff to provide fuel card purchase
receipts or maintain vehicle mileage logs. Authority management also allowed staff to take
vehicles home. During the review period, Authority staff possessed and used as many as five
fuel cards. Three credit card statements showed that a staff member purchased fuel three times
in 1 day. Further, all but one of the other credit card statements showed that one or more of the
staff members purchased fuel twice in 1 day. In addition, the executive director stopped using
her fuel card and used other staff members’ cards for fuel because the Authority’s accountant
advised her that she would have to report her fuel use to the Internal Revenue Service as income.
This abusive behavior occurred because the Authority did not have a credit card or a vehicle use
policy. The executive director said that she did not have a vehicle policy and did not need one
because she trusted her employees. The executive director’s actions showed a lack of sound
business ethics. During the review period, the Authority paid $24,821 for fuel, which was about
$230 monthly per vehicle. 2 As the City of Beeville covered 6 square miles and the Authority’s
properties were generally within 2 miles of the main office, the fuel charges appeared excessive.
Further, the Authority’s practice of allowing staff to use Authority vehicles for personal use
created a significant risk and potential liability for the Authority should the employee have an
accident. In addition, the Authority should have reported the staff’s personal use of the
Authority’s vehicles to the Internal Revenue Service as income.

The Authority Made Payments in Violation of Conflict-of-Interest Requirements
The Authority made housing assistance payments to the executive director’s brother, a landlord,
in violation of the housing assistance payment contract’s conflict-of-interest requirements. The
executive director said HUD had granted a waiver allowing these payments; however, HUD said
it had no knowledge of a waiver. As it lacked a waiver, the Authority made ineligible payments
totaling $17,097.

The Authority Paid for Ineligible Advertising Costs
According to the Authority’s general ledger, it paid advertising costs to various entities, such as
the Boys and Girls Club, a cheerleader’s booster club, churches, and various community
festivals. Paying such costs is ineligible according to Federal cost principles. 3 The executive
director thought such costs were allowable. As a result, the Authority paid a total of $9,313 in
ineligible advertising costs.

The Authority Paid Its Executive Director Unsupported Compensation
The Authority paid its executive director for unused vacation days without obtaining the
necessary board approval. The executive director directed the bookkeeper via “inter-office
memo” to issue her checks in lieu of vacation days, stating “As approved by Board.” The board
meeting minutes did not contain discussion or approval for any of these payments. These

2
    ($24,821/18 months)/6 vehicles
3
    2 CFR Part 225, Cost Principles for State, Local, and Indian Tribal Governments (Office of Management and
    Budget Circular A-87)



                                                       4
improper payments occurred because the executive director circumvented the board’s oversight.
As a result, the Authority paid its executive director unsupported compensation in six checks,
issued from April 2012 to July 2013, totaling $8,721.

The Authority Lacked Support for the Executive Director’s Pay Increase
The executive director received several pay increases; however, the Authority lacked board
approval for one of the pay increases. In addition, the executive director instructed the
bookkeeper to issue her pay increases in checks separate from the Authority’s regular bimonthly
payroll. These additional payments conflicted with the Authority’s personnel policy. In two
cases, the Authority also paid the executive director’s salary increase retroactive to the beginning
of the Authority’s fiscal year in which the raise occurred. However, the Authority lacked
support or evidence of board oversight, such as board approval for the two retroactive payments.
The executive director received a total of $6,895 for the unsupported pay increase and two
retroactive pay increases.

The Authority Reimbursed the Executive Director for Unnecessary, Ineligible, and
Unsupported Costs
The executive director submitted “inter-office memos” for reimbursement for travel and other
costs. The Authority made unnecessary reimbursements to the executive director totaling $1,724
for personal mileage when the Authority owned six vehicles and the executive director used the
Authority’s fuel cards to purchase fuel. In addition, the Authority reimbursed her a total of $620
for ineligible costs, such as Christmas parties, a meal for a trip to “SAM” and an inspection, door
prizes for parties, lunches, meals, and buffets for meetings. The Authority recorded many of
these ineligible costs as travel expenses. The Authority also reimbursed the executive director
$1,682 for travel costs that lacked receipts or support. The payments occurred because the
executive director submitted the reimbursement requests directly to the bookkeeper and the
board did not oversee the payments. As a result, the Authority paid the executive director $1,724
in unnecessary, $620 in ineligible, and $1,682 in unsupported travel costs.

The Authority Improperly Used Its Other Credit Cards
The Authority’s staff made improper purchases on its Walmart Community credit card, Sam’s
Club credit card, and American Express card in violation of Federal cost principles. 4 The
executive director purchased Christmas decorations, gifts, toys for donations, meals, and food.
The Authority expensed most of these purchases as office supplies and maintenance materials.
This condition occurred because the board had not implemented a credit card policy. As a result,
the Authority made $4,321 in ineligible purchases.

The Authority Lacked Support for a Commissioner’s Travel
The Authority lacked support for payments made to one of its commissioners for travel. The
Authority’s policy was unclear as to whether commissioners had to provide receipts for travel
except in high-cost areas where it required expenses to be itemized. However, the State of Texas
requires that commissioners support all travel costs with receipts. 5 As a result, the Authority
could not support the $389 it paid to its commissioner.


4
    ibid
5
    Texas Attorney General’s opinion, dated April 26, 1994



                                                       5
The Authority’s Board of Commissioners Did Not Hold Regular Meetings
Based on interviews and the Authority’s records, the board did not hold any regular meetings
during the 18 months from March 2012 to September 2013. The Authority held eight special
meetings instead. The Authority’s bylaws stated that regular meetings must be held the third
Wednesday of every month. The executive director held special board meetings to conduct
regular business because she was not able to get all of the board members together for a regular
meeting. In June 2013, the Authority amended its bylaws to no longer have regular meetings,
allowing for special meetings instead. All of the board members interviewed confirmed their
inability to meet. They believed the executive director was doing a good job, had confidence in
her, and stated that she had been the executive director for a number of years, making oversight
unnecessary. By not meeting regularly and performing adequate oversight, the board failed to
detect and correct the problems noted in this memorandum.

Conclusion
The Authority did not properly manage its public housing and related grant programs in
accordance with HUD requirements. It did not properly oversee its rent receipts, mismanaged its
credit cards and vehicles, paid ineligible and unsupported costs, and failed to hold regular board
meetings. These conditions occurred because the Authority’s management, consisting of its
executive director and board of commissioners, did not exercise adequate oversight of and
control over the Authority. Further, management did not ensure that staff followed policies,
procedures, and controls. As a result, the Authority paid questioned costs detailed in the
following table totaling $75,583.

Table 2: Total questioned costs
                                                       Ineligible    Unsupported    Unnecessary
                       Description                     amounts        amounts        amounts
 Unsupported fuel card charges                                           $24,821
 Ineligible conflict-of-interest payments                 $17,097
 Ineligible advertising costs                               9,313
 Unsupported executive director compensation                                8,721
 Unsupported pay increases                                                  6,895
 Improper credit card purchases                              4,321
 Unnecessary executive director mileage payments                                          $1,724
 Unsupported executive director travel payments                             1,682
 Ineligible reimbursements to the executive director          620
 Unsupported commissioner’s travel                                            389
 Grand total                                              $31,351         $42,508         $1,724


                                     RECOMMENDATIONS

We recommend that the Director of the San Antonio Office of Public Housing require the Authority
to

   1A.     Implement internal controls, policies, and procedures for rental income, including
           requiring monthly reconciliations.
   1B.     Either support or repay $24,821 from non-Federal funds for unsupported fuel charges.


                                                   6
    1C.     Implement a policy for its credit cards that includes restricting access, requires a
            review of charges by an appropriate manager or board member, and provides for
            actions to be taken against employees who violate the policy.
    1D.     Implement a vehicle use policy that (1) includes provisions for tracking mileage for
            each vehicle, determining the extent of employee personal use of Authority vehicles,
            and reporting the income to the Internal Revenue Service; and (2) establishes
            objective criteria for determining who is authorized to use Authority vehicles based
            upon the benefit obtained by the Authority.
    1E.     Determine whether the executive director should use an Authority-provided vehicle
            for Authority business or have her track the use of her personal vehicle for business
            use to support mileage reimbursements.
    1F.     Update its personnel policy to include prohibiting conflicts of interest in housing
            assistance payments contracts.
    1G.     Repay from non-Federal funds $17,097 paid for ineligible housing assistance
            payments made in violation of the housing assistance payments contract’s conflict-of-
            interest requirements.
    1H.     Adopt a policy that ensures that only allowable costs are charged to its Federal
            programs with Federal requirements. 6
    1I.     Repay from non-Federal funds $9,313 paid for ineligible advertising costs.
    1J.     Support or repay from non-Federal funds $8,721 in unsupported vacation payments.
    1K.     Support or repay from non-Federal funds $6,895 in unsupported pay increases.
    IL.     Repay from non-Federal funds $4,321 paid for ineligible credit card purchases.
    1M.     Repay from non-Federal funds $1,724 paid for unnecessary costs paid for mileage.
    1N.     Support or repay from non-Federal funds $1,682 paid to its executive director for
            unsupported costs.
    1O.     Repay from non-Federal funds $620 paid to the executive director for ineligible costs.
    1P.     Support or repay from non-Federal funds $389 paid for a commissioner’s
            unsupported travel.
    1Q.     Update its personnel policy to comply with State of Texas requirements for
            commissioners’ travel, including requiring supporting documentation for travel.
    1R.     Hold regular board meetings and provide adequate oversight of the Authority’s
            operations.
    1S.     Consult with the mayor of Beeville and evaluate the board of commissioners,
            determine its effectiveness, and remove and replace commissioners as appropriate.




6
    See footnote 3.



                                                7
                                       APPENDIXES

Appendix A

                    SCHEDULE OF QUESTIONED COSTS

         Recommendation            Ineligible 1/       Unsupported 2/     Unreasonable or
             number                                                        unnecessary 3/
                 1B                                          $24,821
                 1G                     $17,097
                  1I                      9,313
                 1K                                             8,721
                 1L                                             6,895
                1M                        4,321
                 1N                                                                 $1,724
                 1O                                             1,682
                 1P                         620
                 1Q                                              389
               Total                    $31,351              $42,508                $1,724



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.

3/ 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.




                                                   8
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation   Auditee Comments




Comment 1




                          9
Ref to OIG Evaluation   Auditee Comments




Comment 1



Comment 2



Comment 1


Comment 3




Comment 4



Comment 1



Comment 1


Comment 5




                         10
Ref to OIG Evaluation   Auditee Comments




Comment 6




                         11
Ref to OIG Evaluation   Auditee Comments




Comment 6




                         12
Ref to OIG Evaluation   Auditee Comments




                         13
                         OIG Evaluation of Auditee Comments

Comment 1   The executive director agreed to adopt new policies to address many of the issues
            identified in the memorandum. However, she did not provide any of these
            policies for review. We acknowledge these actions. However, the executive
            director needs to obtain board approval of any new policies and the board needs to
            appropriately exercise its oversight authority to prevent issues from reoccurring.

Comment 2   The executive director requested additional time to respond to the conflict of
            interest issues. HUD will provide the Authority time to respond to this issue after
            issuance of the final memorandum.

Comment 3   The executive director admitted to paying herself for her vacation without board
            approval because the Authority has a policy allowing such payments. Further, she
            said she was not trying to circumvent the board’s oversight. However, the
            Authority’s personnel policy stated that board shall establish the salary of the
            executive director and it allowed payment of vacation days upon written request
            by the eligible employee. By directing the bookkeeper to issue her checks and not
            making a request and seeking board approval, the executive director did
            circumvent the board’s oversight.

Comment 4   The executive director stated she was paid amounts approved by the board. The
            board approved the Authority’s budgets, but the budget may not have clearly
            detailed she was receiving a pay increase. Further, the executive director received
            additional and retroactive payments not in accordance with the Authority’s policy
            or as approved by the board.
Comment 5   The executive director provided receipts for the commissioner’s lodging and a
            handwritten note for mileage. As a result, we reduced the amount in the
            memorandum accordingly. The note lacked support for meals, taxis, and parking
            costs. As the State of Texas requires commissioners to be paid for expenses “as
            long as such expenses are supported by adequate evidence of actual money
            expended”, the amount in the memorandum is unsupported. We did not include
            the information provided as support as it contained personal identification
            information.
Comment 6   The executive director indicated that a search for new board commissioners was
            underway. Further, the mayor indicated that two commissioners had resigned and
            two whose terms had ended would not be reappointed. He further stated that he
            was taking action to have a responsible board. We acknowledge their comments;
            however, the new board needs to hold regular meetings and provide adequate
            oversight. The mayor also provided resignation letters from two board
            commissioners and termination letters for two additional board commissioners.
            We did not include them in the memorandum, but they are available upon request.




                                            14