oversight

The Housing Authority of the County of Lackawanna, Dunmore, PA, Needs To Improve Its Controls Over Its Operations To Comply With HUD Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-02-28.

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

 OFFICE OF AUDIT
 REGION 3
 PHILADELPHIA, PA




   Housing Authority of the County of Lackawanna
                   Dunmore, PA

                    Public Housing Program




2014-PH-1003                                 FEBRUARY 28, 2014
                                                        Issue Date: February 28, 2014

                                                        Audit Report Number: 2014-PH-1003




TO:            Dennis G. Bellingtier, Director, Office of Public Housing, Pennsylvania State
               Office, 3APH
               //signed//
FROM:          David E. Kasperowicz, Regional Inspector General for Audit, Philadelphia
               Region, 3AGA


SUBJECT:       The Housing Authority of the County of Lackawanna, Dunmore, PA, Needs To
               Improve Its Controls Over Its Operations To Comply With HUD Requirements


    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 Housing Authority of the County of
Lackawanna, PA.

    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
215-430-6730.
                                             February 28, 2014
                                             The Housing Authority of the County of Lackawanna,
                                             Dunmore, PA, Needs To Improve Its Controls Over Its
                                             Operations To Comply With HUD Requirements



Highlights
Audit Report 2014-PH-1003


 What We Audited and Why                      What We Found

We audited the Housing Authority of          The allegations in the anonymous complaint had merit.
the County of Lackawanna because we          The Authority allowed a conflict-of-interest situation
received an anonymous complaint              to exist, did not settle an interfund account balance
alleging incompetent leadership,             totaling $370,234 in a timely manner, did not check to
nepotism, misuse of funds, and poor          identify parties excluded from doing business with
quality of life at the Authority. Based      HUD, and assumed an undue risk by not controlling its
on the complaint, we performed a             employees’ use of Authority-owned vehicles. We
comprehensive audit of the Authority.        discussed these deficiencies with Authority officials
Our objectives were to determine             during the audit and they took some immediate
whether the allegations in the complaint     corrective action and informed us they planned to take
had merit and whether the Authority          additional corrective action to address our
had effective controls to prevent            recommendations.
conflicts of interest, ensure that
interfund accounts were settled in a
timely manner, identify parties excluded
from doing business with the U.S.
Department of Housing and Urban
Development (HUD), and prevent
undue risk to the Authority from its
employees’ use of Authority-owned
vehicles. This is the first of two audit
reports to be issued on the Authority.

 What We Recommend

We recommend that HUD require the
Authority to develop and implement (1)
policies and procedures to detect,
prevent, and resolve conflict-of-interest
situations and (2) controls to ensure that
interfund accounts are settled in a
timely manner, thereby putting
$370,234 to better use over a 1-year
period.
                            TABLE OF CONTENTS

Background and Objectives                                                    3

Results of Audit
      Finding: The Authority Lacked Controls Over Its Operations To Ensure
      Compliance With HUD Requirements                                       4

Scope and Methodology                                                        9

Internal Controls                                                            10

Appendixes
A.    Schedule of Funds To Be Put to Better Use                              12
B.    Auditee Comments                                                       13




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                     BACKGROUND AND OBJECTIVES

The Housing Authority of the County of Lackawanna, PA, was established 1967 to provide low-
income citizens with safe, clean, and affordable housing and help improve their quality of life.
The Authority is a nonprofit corporation, which was organized for the purpose of engaging in the
development, acquisition, and administrative activities of the low-income housing program and
other programs with similar objectives for low- and moderate-income families residing in the
County of Lackawanna in accordance with the rules and regulations prescribed by the U.S.
Department of Housing and Urban Development (HUD). The Authority is governed by a board
of commissioners consisting of five members appointed by the Lackawanna County Board of
Commissioners. The board appoints an executive director to manage the day-to-day operations
of the Authority. The Authority’s executive director during the audit was James Dartt. Its main
office is located at 2019 West Pine Street, Dunmore, PA.

The Authority’s housing inventory includes 1,132 public housing units in its 19 developments
spread throughout Lackawanna County. The Authority also provides rental subsidies for 871
units under its Section 8 Housing Choice Voucher program.

For fiscal years 2012 and 2013, HUD authorized the Authority the following financial assistance:

                              Public housing         Public housing        Housing Choice
          Year              operating subsidies       capital funds       Voucher program
          2013                  $2,809,787             $1,491,637           $3,250,518
          2012                  $3,348,100             $1,409,125           $3,324,699

HUD provides operating funds annually to public housing agencies for the operation and
management of public housing. It provides capital funds annually to public housing agencies for
the development, financing, and modernization of public housing developments and for
management improvements and it provides Housing Choice Voucher program funds annually to
public housing agencies to provide rental housing assistance for eligible households.

Our objectives were to determine whether the allegations in the complaint had merit and whether
the Authority had effective controls to prevent conflicts of interest, ensure that interfund
accounts were settled in a timely manner, identify parties excluded from doing business with
HUD, and prevent undue risk to the Authority from its employees’ use of Authority-owned
vehicles.




                                               3
                                  RESULTS OF AUDIT


Finding: The Authority Lacked Controls Over Its Operations To Ensure
Compliance With HUD Requirements
The Authority allowed a conflict-of-interest situation to exist, did not settle interfund accounts in
a timely manner, did not properly check to identify parties excluded from doing business with
HUD, and assumed an undue risk by not controlling its employees’ use of Authority-owned
vehicles. These conditions occurred because the Authority lacked controls to prevent them from
occurring. Because the Authority did not comply with the terms of its consolidated annual
contributions contract and HUD regulations and guidance and allowed these conditions to exist,
it negatively impacted the public’s confidence in it and HUD; allowed interfund payables to
increase to $370,234 without reimbursement; was at risk of doing business with parties that were
debarred, excluded, or suspended from doing business with HUD; and exposed itself to undue
financial loss.


 The Authority Allowed a
 Conflict-of-Interest Situation
 To Exist

               Contrary to the terms of its consolidated annual contributions contract with HUD,
               the Authority hired the son of a member of its board of commissioners as a
               maintenance worker in January 2012, causing a conflict-of-interest situation. The
               board member was appointed to the Authority’s board of commissioners in May
               2011 and became the board chairman in May 2013. The board member was also
               the mayor of the Borough of Dunmore, where the Authority’s main office is
               located.

               The Authority’s consolidated annual contributions contract prohibits it from
               hiring an employee in connection with a project under the contract if the
               prospective employee is an immediate family member of any present or former
               member or officer of the governing body of the housing agency except for one
               who does not occupy a policy-making position within the agency; any employee
               of the agency who formulates policy or influences decisions with respect to the
               project; or any public official, member of the local governing body, or State or
               local legislator who exercises functions or responsibilities with respect to the
               project or the agency.

               The situation described above occurred because the Authority lacked controls to
               detect, prevent, and resolve conflict-of-interest situations. The executive director
               indicated that two members of the Authority’s board of commissioners pressured
               him to hire the board member’s son. This impropriety negatively impacted the
               public’s confidence in the Authority and HUD.

                                                  4
           As a result of our audit, the chairman of the board (the parent of the Authority
           employee) resigned from the board effective November 13, 2013. The
           Lackawanna County Board of Commissioners accepted the resignation. To avoid
           a similar situation in the future, the Authority needs to develop and implement
           policies and procedures to detect, prevent, and resolve conflict-of-interest
           situations. We discussed this issue with Authority officials during the audit, and
           they agreed to develop and implement the needed policies and procedures.

Interfund Balances Were Not
Settled in a Timely Manner

           The Authority used an interfund “due-to, due-from” account system to account for
           transactions among other funds included within its general ledger. However, it
           did not have controls in place requiring it to settle its interfund accounts in a
           timely manner.

           A program’s due-to balance (payable) represents amounts it owes another fund or
           program for disbursements or advances made on its behalf. A due-from balance
           (receivable) represents an amount owed to the program entity.

           The Authority had an interfund balance of $370,234 that had accumulated over a
           12-month period. As a result of the audit, the Authority settled this interfund
           balance on May 31, 2013. The Authority’s previous settlement of interfund
           accounts occurred on May 30, 2012, and totaled $114,342, which had
           accumulated over 5 months. To make these settlements, the Authority had to
           transfer funds from its Housing Choice Voucher program account to reimburse its
           public housing program account. The Authority’s controller stated that the
           Authority typically settled its interfund accounts every 6 to 12 months.

           The Authority’s consolidated annual contributions contract states that it may
           withdraw funds from the general fund only for the payment of the costs of
           development and operation of the projects under the consolidated annual
           contributions contract with HUD, the purchase of investment securities as
           approved by HUD, and such purposes as may be specifically approved by HUD.
           However, in practice, HUD generally allows short-term uses of funds to pay
           expenses on behalf of other programs as long as reimbursement is made in a
           timely manner, which the Authority did not do.

           The situation described above occurred because the Authority did not have
           controls in place that required it to settle its interfund accounts in a timely
           manner. The Authority needs to develop and implement these controls. We
           discussed this issue with Authority officials during the audit, and they agreed to
           develop and implement the needed controls.




                                             5
The Authority Did Not Properly
Screen for Debarred,
Suspended, or Excluded Parties

           The Authority did not properly screen contractors and its other business partners,
           such as owners participating in its Housing Choice Voucher program, to prevent
           debarred, suspended, or ineligible parties from participating in HUD-funded
           activities.

           The regulations at 24 CFR (Code of Federal Regulations) 85.35 prohibit the
           Authority from making any award to any party that is debarred or suspended or is
           otherwise excluded from or ineligible for participation in Federal assistance
           programs. HUD Handbook 7460.8, REV-2, states that before a contract is
           awarded, the public housing agency must check to determine whether HUD has
           issued a limited denial of participation or whether a contractor has been debarred
           or suspended.

           The situation described above occurred because the Authority was checking the
           Pennsylvania State debarment listing and was not aware that it could screen
           parties against the Federal System for Award Management. We screened 20 of
           the Authority’s contractors and business partners against the Federal system and
           although we identified no problems, by not properly screening its contractors and
           business partners, the Authority was at risk of doing business with parties that
           were debarred, excluded, or suspended from doing business with HUD. The
           Authority needs to develop and implement controls to ensure that it screens its
           current and future contractors and other business partners against the Federal
           System for Award Management. We discussed this issue with Authority officials
           during the audit, and they agreed to start using the Federal System for Award
           Management to screen the Authority’s contractors and business partners.

Employees’ Use of Authority-
Owned Vehicles Could Put the
Authority at Financial Risk

           The Authority lacks controls over its employee’s use of its vehicles. The
           Authority owned 21 vehicles. Twelve of the vehicles (pick-up trucks, a dump
           truck, a van, etc.) were used by the Authority’s maintenance staff and were parked
           on Authority property when they were not in use. Nine vehicles (sedans, pick-up
           trucks, and small SUVs) were assigned to Authority employees (directors,
           managers, and housing inspectors). The Authority allowed the employees to
           drive the vehicles to and from work and for personal use. The Authority did not
           have a policy addressing employees’ personal use of the vehicles. It did not
           maintain logs on the use of the vehicles, nor did it require the employees to record
           their personal use of the vehicles. The Authority’s insurance policy states that its



                                            6
             vehicles are for business and commercial use and they should be garaged on the
             Authority’s premises.

             The Authority’s consolidated annual contributions contract requires it to procure
             adequate insurance to protect the Authority from financial loss. Based on the use
             of the vehicles and the terms of the Authority’s insurance policy, the Authority
             could be exposed to financial risk if an accident were to occur with a vehicle
             while being used for nonbusiness purposes or while being driven by an
             unauthorized driver.

             The situation described above occurred because the Authority mistakenly
             believed that its policy for vehicle safety and equipment use adequately addressed
             the personal use of Authority-owned vehicles. The policy only required
             employees who operate Authority-owned vehicles to have a valid driver’s license,
             notified them that they will be financially responsible for any citations received
             while operating the vehicles, expected employees to exercise care and follow
             operating instructions, and cautioned them against receiving violations such as
             alcohol and controlled substance violations and leaving the scene of an accident.
             It also required employees to promptly report accidents, citations, and incidents
             resulting in a revoked or suspended driver’s license. The Authority needs to
             develop and implement controls governing employees’ personal use of Authority-
             owned vehicles. It also needs to review its insurance policy to ensure that it is
             adequate to cover potential claims that could result from employees’ personal use
             of Authority-owned vehicles. We brought this issue to the attention of Authority
             officials during the audit, and they agreed to develop and create the needed policy
             and to review the Authority’s insurance policy.

Conclusion

             The allegations in the complaint had some merit. The Authority allowed a
             conflict-of-interest situation to exist, did not settle interfund accounts in a timely
             manner, did not check to identify parties excluded from doing business with
             HUD, and assumed an undue risk by not controlling its employees’ use of
             Authority-owned vehicles. The Authority needs to improve its controls over its
             operations to comply with HUD requirements.

Recommendations

             We recommend that the Director of HUD’s Pennsylvania State Office of Public
             Housing direct the Authority to

             1A.     Pass a board resolution approving the development and implementation of
                     policies and procedures to detect, prevent, and resolve conflict-of-interest
                     situations.



                                                7
1B.   Develop and implement written policies and procedures to ensure that
      interfund accounts are settled in a timely manner and, thereby, put
      $370,234 to better use over a 1-year period.

1C.   Develop and implement written policies and procedures to ensure that it
      screens future contractors and other business partners against the Federal
      System for Award Management to prevent debarred, excluded, or
      suspended parties from doing business with HUD.

1D.   Screen its current contractors and other business partners against the
      Federal System for Award Management to identify parties debarred,
      excluded, or suspended from doing business with HUD and take
      corrective action as appropriate.

1E.   Develop and implement written policies and procedures governing
      employees’ personal use of Authority-owned vehicles.

1F.   Review its insurance policy to ensure that it provides adequate coverage
      against potential claims that could result from employees’ personal use of
      Authority-owned vehicles.




                                8
                        SCOPE AND METHODOLOGY

To accomplish our objectives, we

   •   Reviewed relevant HUD regulations guidance,

   •   Reviewed the Authority’s policies and procedures and its consolidated annual
       contributions contract with HUD,

   •   Reviewed the minutes from meetings of the Authority’s board of commissioners for the
       period July 2012 to April 2013,

   •   Reviewed the Authority’s audited financial statements for its fiscal year ending
       June 30, 2012,

   •   Reviewed the Authority’s vehicle inventory and insurance policy,

   •   Analyzed the Authority’s financial records, and

   •   Interviewed Authority and HUD staff.

We conducted our onsite audit work from May through November 2013 at the Authority’s
offices located at 2019 West Pine Street, Dunmore, PA, and at our office located in Philadelphia,
PA. The audit covered the period July 2012 through May 2013 but was expanded when
necessary to include other periods. To achieve our audit objectives, we relied in part on
computer-processed data from the Authority’s computer system. Although we did not perform a
detailed assessment of the reliability of the data, we did perform a minimal level of testing and
found the data to be adequate for our purposes.

We used the random number generator feature of the U.S. Army Audit Agency Statistical
Sampling System, version 6.3, software to select 20 of 609 owners participating in the
Authority’s Housing Choice Voucher program as of May 2013 and all 7 contractors with current
contracts with the Authority greater than $20,000 as of May 2013 and screened them against the
Federal System for Award Management to determine whether any of them were debarred,
suspended, or ineligible from doing business with HUD.

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 objectives.




                                                9
                              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.

               •   Validity and reliability of data – Policies and procedures that management has
                   implemented to reasonably ensure that valid and reliable data are obtained,
                   maintained, and fairly disclosed.

               •   Compliance with laws and regulations – Policies and procedures that
                   management has implemented to reasonably ensure that the use of resources is
                   consistent with laws and regulations.

               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.




                                                 10
Significant Deficiencies

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

             The Authority did not

             •   Establish controls to prevent, detect, and resolve apparent conflict-of-interest
                 situations.

             •   Establish controls requiring it to settle its interfund accounts in a timely
                 manner.

             •   Screen its business partners against the Federal System for Award
                 Management to prevent debarred, excluded, or suspended parties from doing
                 business with HUD.

             •   Establish policies and procedures to control employees’ use of Authority-
                 owned vehicles.

Separate Communication of
Minor Deficiencies

             Minor internal control and compliance issues were reported to the Authority by a
             separate letter, dated January 9, 2014.




                                               11
                                     APPENDIXES

Appendix A

     SCHEDULE OF FUNDS TO BE PUT TO BETTER USE

                            Recommendation          Funds to be put
                                number              to better use 1/

                                    1B                 $370,234



1/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified. In this instance, if the Authority implements our
     recommendation, it will cease to allow interfund payables from accumulating, thereby
     putting $370,234 in program funds to better use. Once the Authority successfully
     improves its controls and ensures that interfund accounts are settled in a timely manner,
     this will be a recurring benefit. Our estimate reflects only the initial year of this benefit.




                                               12
Appendix B

             AUDITEE COMMENTS




                    13