oversight

The Housing Authority of the City of Comer Did Not Comply With Conflict-of-Interest and Procurement Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-04-24.

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

        Housing Authority of the City of
                 Comer, GA
                            Public Housing Program




Office of Audit, Region 4                Audit Report Number: 2015-AT-1002
Atlanta, GA                                                   April 24, 2015
To:            Ada Holloway, Director, Public and Indian Housing, Atlanta Field Office, 4APH
               Craig Clemmensen, Director, Departmental Enforcement Center, CV
               //signed//
From:          Nikita N. Irons, Regional Inspector General for Audit, Atlanta Region, 4AGA
Subject:       The Housing Authority of the City of Comer Did Not Comply With Conflict-of-
               Interest and Procurement 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 City of Comer’s
financial operations and procurement practices.
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 404-
331-3369.
                    Audit Report Number: 2015-AT-1002
                    Date: April 24, 2015

                    The Housing Authority of the City of Comer Did Not Comply With Conflict-
                    of-Interest and Procurement Requirements




Highlights

What We Audited and Why
We audited the Housing Authority of the City of Comer’s financial and procurement operations.
We selected the Authority based on concerns from the U.S. Department of Housing and Urban
Development’s (HUD) Georgia State Office of Public Housing regarding significant deficiencies
identified during its August 2013 management review. HUD’s Office of Public Housing
identified findings regarding the misuse of funds, a lack of governance and internal controls,
excessive unit vacancies, and a conflict of interest by the executive director.

What We Found
The Authority did not properly manage its financial operations and procurement activities in
accordance with HUD requirements. Specifically, it paid more than $22,000 that violated
conflict-of-interest provisions and also prevented it from renovating its vacant units in a timely
manner. During the period 2006 to 2014, 10 units were taken offline for renovations, and only
two had been completed. One unit had been offline since 2006. In addition, the Authority could
not support that it complied with its procurement policies for more than $33,000 in contracts for
professional services and general labor. These conditions occurred because the board of
commissioners and the executive director failed to follow the provisions of the Authority’s
consolidated annual contributions contract and Federal regulations.

What We Recommend
We recommend that the Director of the Atlanta Office of Public Housing require the Authority to
(1) reimburse $22,178 in ineligible costs from non-Federal funds; (2) hire qualified contractors to
complete the work necessary to make the vacant units habitable and available to low-income
families; (3) support or reimburse $33,144 from non-Federal funds; and (4) ensure that its board
of commissioners is able to enforce the regulations related to the Authority’s financial
operations, conflict-of-interest relationships, and procurement. We also recommend that the
Director of the Departmental Enforcement Center, in coordination with the Director of the
Atlanta Office of Public Housing, take appropriate enforcement actions against the Authority
officials responsible for the noncompliance.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding: The Authority Did Not Comply With Conflict-of-Interest and
         Procurement Requirements ............................................................................................ 4

Scope and Methodology ..........................................................................................9

Internal Controls ....................................................................................................11

Appendixes ..............................................................................................................12
         A. Schedule of Questioned Costs .......................................................................12

         B. Auditee Comments and OIG’s Evaluation.....................................................13

         C. Schedule of Vacant Units and Work Remaining ............................................32




                                                              2
Background and Objective
The Housing Authority of the City of Comer was established on July 25, 1950, in accordance with
State and Federal laws. The Authority is responsible for administering 30 low-income units housed
over two projects. The Authority’s mission is to develop and operate its projects solely for the
purpose of providing safe and sanitary housing for eligible families in a manner that promotes the
serviceability, economy, efficiency, and stability of the projects and the economic and social well-
being of the tenants in Comer, GA.
The Authority is governed by the provisions of a consolidated annual contributions contract
between it and the U.S. Department of Housing and Urban Development (HUD). The Authority’s
oversight is the responsibility of a five-member board of commissioners appointed by the mayor of
the Comer. The board of commissioners selects the executive director. The board of
commissioners is responsible for the operational, financial, and compliance oversight of the
Authority and its employees to ensure the accomplishment of the Authority’s mission. The
Authority’s daily operations are managed by the executive director. The Authority’s maintenance
mechanic is its only other employee. Under the Authority’s consolidated annual contributions
contract, the Authority receives a Public Housing Operating Fund program subsidy for the operation
and maintenance of its low-income housing projects. The Authority’s consolidated annual
contributions contract is amended annually to provide the Authority with a Capital Fund program
subsidy. The capital funds are provided for the Authority to carry out major renovations and
management activities for its housing units to ensure that the units continue to be available to
serve low-income families. The Authority is permitted to combine its capital funds and
operating funds and may use its capital funds under the Operating Fund requirements. HUD
awarded the Authority more than $203,000 for fiscal years 2013 and 2014, which included more
than $132,000 in operating subsidies and more than $71,000 in capital funds. However, as of
October 2014, more than $37,000 in capital funds for fiscal year 2014 had not been made
available for the Authority’s use.
HUD’s Georgia State Office of Public Housing in Atlanta, GA, is responsible for overseeing the
Authority. Based on HUD’s August 2013 management review, effective May 20, 2014, HUD
required the Authority to submit invoices to the HUD Georgia State Office for approval before the
Authority could receive payments.
Our audit objective was to determine whether the Authority complied with HUD’s regulations for
financial operations and procurement activities.




                                                 3
Results of Audit
Finding: The Authority Did Not Comply With Conflict-of-Interest
and Procurement Requirements
The Authority did not properly manage its financial operations and procurement activities in
accordance with HUD requirements. Specifically, it used its operating and capital funds to pay
salary and contract labor payments to related parties. Its failure to comply with conflict-of-
interest provisions prevented it from renovating its vacant units in a timely manner. Also, the
Authority did not comply with its procurement policies before securing contracts for professional
services and general labor. These conditions occurred because the board of commissioners and
the executive director failed to follow the provisions of the Authority’s consolidated annual
contributions contract and regulations. As a result of the Authority’s noncompliance, units
remained vacant for extensive periods from 2006 to 2014, and HUD funds were used to pay
more than $55,000 for ineligible and unsupported costs.

Conflict-of-Interest Violations
We reviewed 100 percent of the Authority’s disbursements totaling more than $141,000 from
June 1, 2013, to May 31, 2014. We identified more than $22,000 paid for services to parties in
conflict-of-interest relationships that violated the provisions in its consolidated annual
contributions contract 1 and code of conduct. 2
The Authority made payments for contract labor to the executive director and the executive
director’s husband, son, and daughter. It also paid the resident board member and the resident
board member’s friend to perform contract labor. The consolidated annual contributions contract
prohibits the Authority from entering into any agreement or contract with an officer’s immediate
family member. The executive director purchased supplies and materials for the Authority’s
maintenance and Capital Fund program units from her husband’s hardware store. Additionally,
the payments included conflict-of-interest 3 salary payments to the executive director’s husband
for his duties as the Authority’s maintenance mechanic. The Authority’s code of conduct defines
a conflict of interest as a financial interest that may arise between the Authority’s employees and
their immediate family members. Table 1 shows the payments made for each of the conflict-of-
interest relationships.




1
  Consolidated annual contributions contract, section 19, Conflict of Interest, (A)(1)(i)
2
  Housing Authority of the City of Comer Statement of Procurement Policy, section N(a)(1)(2)(3)
3
  Consolidated annual contributions contract, section 19, Conflict of Interest, (B)(1)(i) and (B)(4)



                                                           4
                               Table 1 – Conflict-of-interest relationships
          Relationship                                                 Payment amounts
          Executive director                                                     $ 8,142
          Executive director’s husband (Authority’s maintenance
          mechanic)                                                              $ 4,351
          Executive director’s son                                               $ 755
          Executive director’s daughter                                          $ 1,500
          Board of commissioners’ resident board member                          $ 358
          Board of commissioners’ resident board member’s friend                 $ 200
          Executive director’s husband’s hardware store                         $ 6,872
          Subtotal ineligible                                                   $22,178
          Executive director’s husband (unsupported salary
          payments for maintenance mechanic duties – waiver
          required)                                                             $ 8,233
          Total ineligible and unsupported                                      $30,411

The Authority’s board of commissioners hired the executive director in 1992, although her
husband was the Authority’s maintenance mechanic. The executive director stated that when she
was hired, the board did not believe that a conflict of interest existed because HUD provided a
waiver to the prior executive director, who was also married to the Authority’s former
maintenance mechanic. The current executive director stated that a lawyer reviewed the waiver
and stated that there was no issue with the prior executive director’s relationship with the
Authority’s prior maintenance mechanic. Therefore, the executive director believed there was no
reason to request an additional waiver or seek a legal opinion.
During the February 28, 1997, board meeting, the board instructed the executive director to
attempt to purchase competitively, especially large items or cases of goods, to offset any
questions or problems that might arise regarding a conflict of interest at her husband’s hardware
store.

The board approved conflict-of-interest relationships in 2006 by allowing the executive director
to be paid for maintenance duties outside her regular duties and in 2009 by approving the
executive director to hire her son and daughter to perform maintenance duties at the Authority.
Additionally, in 2012, the board approved payments to the executive director and the
maintenance mechanic for maintenance duties outside their regular duties and salaries. The
board also approved the executive director to pay her daughter to perform clerical duties and
cleaning at the Authority.

The Authority’s independent auditor’s 2012 and 2013 audit reports included a related-parties
issue. The independent auditor identified a conflict of interest when the Authority paid four
family members and a family member’s hardware store.

In August 2013, the Georgia State Office of Public Housing conducted a management review of
the Authority. It issued a report to the Authority’s board chairman that identified several
findings, including a conflict-of-interest violation. The Office of Public Housing determined that
the executive director served as the contract administrator and the contractor for the Authority’s
maintenance projects and contracted maintenance and administrative work to her son and


                                                  5
daughter. The report also identified the conflict of interest with her husband as the maintenance
supervisor. The executive director issued a response to the report, stating that the working
relationship between her and her husband did not violate any State or local laws or other
regulations concerning the Authority. As a result, on May 2014, HUD required the Authority to
submit all invoices for approval to the HUD field office before payments would be released.

The Authority’s failure to comply with conflict-of-interest provisions prevented it from
renovating its vacant units in a timely manner. The Authority’s consolidated annual
contributions contract is amended annually to include capital funds for the completion of major
renovations, regular recurring maintenance, and management expenditures. From 2006 to 2013,
the Authority placed 10 units offline for renovations. During that time, it disbursed more than
$337,000 (see table 2) in capital funds for regular recurring maintenance, management
expenditures, and the renovation of two vacant units. In May 2013, the Georgia State Office of
Public Housing denied the Authority’s request for operating subsidies for vacant units based on
the executive director’s failure to provide adequate documentation to support that the units were
undergoing modernization as provided in 24 CFR (Code of Federal Regulations) 990.145. 4 After
HUD’s May 2013 review, the Authority completed the renovation of two units, spending more
than $14,000 in capital funds. The units were placed back online in August and December 2013.
On May 27, 2014, the executive director requested more than $1,600 from HUD for her services
as the Capital Fund contract administrator. HUD refused to release the funds. As of October
2014, the remaining 2013 funds had not been disbursed for the purpose of completing the
renovations on the Authority’s remaining eight vacant units (see appendix C). In addition, the
Authority did not provide adequate documentation to HUD for approval to release the 2014
capital funds.

                                          Table 2 – Grant funds
Grant year                   Amount authorized        Amount disbursed      Available balance
2006                         $ 46,325                 $ 46,325              $ 0
2007                         $ 47,418                 $ 47,418              $ 0
2008                         $ 46,425                 $ 46,425              $ 0
2009                         $ 46,182                 $ 46,182              $ 0
2010                         $ 46,027                 $ 46,027              $ 0
2011                         $ 38,001                 $ 38,001              $ 0
2012                         $ 35,177                 $ 35,177              $ 0
2013                         $ 33,799                 $ 32,109              $ 1,690
2014                         $ 37,979                 $ 0                   $37,979
Total                        $377,333                 $337,664              $39,669

The units remained vacant because the Authority completed all Capital Fund renovations using
in-house labor. The executive director stated that the Authority did not use outside contractors to
perform Capital Fund renovations because the Authority acted as its own contractor and she




4
    24 CFR 990.145 (a)(1)(i)(ii)




                                                   6
subcontracted the work to herself, her husband, her son and daughter, and residents of the
Authority. Further, the executive director stated that she purchased supplies and materials from
her husband’s hardware store because the board instructed her to buy locally. However, we
identified two hardware stores less than 10 miles from the Authority. The executive director also
stated that the in-house labor could complete the renovations for approximately $15,000 and a
contractor would charge approximately $80,000. The executive director did not provide
documentation to support her estimates for the work requirements for the vacant units.

Procurement of Goods and Services
The Authority did not document it that properly procured goods and services totaling more than
$24,000 (see table 3). Additionally, the executive director did not provide documentation to
support that she received at least three price quotes before executing small-purchase contracts
that exceeded $2,000 for services, including landscaping, accounting services, and professional
services governed by HUD requirements. Finally, the executive director did not provide
documentation, such as timesheets, invoices, or contractor-prepared statements of work, to
support the reasonableness of prices for the Authority’s general contract labor when the cost did
not exceed the micropurchase amount of $2,000.

                              Table 3 – Procured goods and services
                                                                        Total amount
 Services performed             Missing documentation                   unsupported
                                   No contract bids
     Lawn care                                                             $ 3,100
                                    No contract bids
     Pest control                                                          $ 1,020
                                    No contract bids
    Fee accountant                                                         $ 5,260
  Public information                No contract bids
   center contractor                                                       $ 3,250
                                    No contract bids
 Independent auditor                                                       $ 4,800
                         Timesheets and contractor statements of
General contract labor                   work                              $ 7,481
        Total                                                              $24,911

The board of commissioners failed to ensure that the Authority complied with the documentation
requirements governing procurement of goods and services. The board chairman was
responsible for signing all checks for the Authority’s disbursements. He stated that before
signing the Authority’s disbursements, he reviewed the supporting documentation to ensure that
the purchases were for valid services but he relied on the executive director to provide him with
the necessary regulations to make decisions. The board chairman’s failure to ensure that he had
adequate knowledge of the regulations and the executive director’s failure to comply with
procurement policies and procedures resulted in disbursements that did not have adequate
supporting documentation.




                                                 7
Conclusion
Overall, the executive director did not eliminate the conflict-of-interest relationships or use
outside contractors to complete the renovation of units approved under the Capital Fund
program. In addition, the Authority’s board of commissioners failed to ensure that the executive
director complied with conflict-of-interest and procurement regulations to ensure that HUD
funds were used for eligible services and disbursements were adequately supported.

Recommendations
We recommend that the Director of the Atlanta HUD Office of Public Housing require the
Authority to

       1A.    Reimburse its Public Housing Operating Fund and Capital Fund programs
              $22,178 from non-Federal funds for disbursements that violated conflict-of-
              interest regulations.

       1B.    Support or reimburse its Public Housing Operating Fund and Capital Fund
              programs $33,144 from non-Federal funds for disbursements that lacked
              supporting documentation.

       1C.    Hire qualified contractors to complete the work necessary to make the vacant
              units habitable and available to low-income families
       1D.    Ensure that its board of commissioners understands the requirements relevant to
              the Authority’s financial operations and procurement. The board should also
              enforce the requirements to ensure that the Authority’s disbursements are
              supported and used for eligible services.

       1E.    Require the Authority to comply with HUD guidance and its policies and
              procedures to eliminate any present and prevent future conflict-of-interest
              relationships.

We also recommend that the Director of the of Departmental Enforcement Center, in
coordination with the Director of the Atlanta HUD Office of Public Housing,

       1F.    Take appropriate administrative sanctions against the Authority officials
              responsible for the noncompliance with Federal regulations.




                                                8
Scope and Methodology
We performed the audit from July through October 2014 at the Authority’s office located in
Comer, GA, and the HUD Office of Inspector General’s (OIG) Atlanta regional office. The audit
generally covered the period June 1, 2013, through May 31, 2014. We adjusted the period when
necessary.
To accomplish our audit objective, we

    •   Interviewed Authority employees, the board of commissioners’ chairman, and HUD
        officials.
    •   Reviewed the most recent HUD monitoring report to assess the Authority’s financial
        operations and procurement procedures.
    •   Reviewed reports issued by an independent auditor’s office.
    •   Reviewed and obtained an understanding of the Authority’s written policies and
        procedures, relevant laws and regulations, the Authority’s bylaws and consolidated
        annual contributions contract with HUD, and HUD’s guidance.
    •   Reviewed HUD’s files for the Authority.

    •   Reviewed board of commissioners’ minutes.

    •   Conducted site inspections of five of the Authority’s vacant units.

The Authority received $33,799 in capital funds and $132,182 in operating funds for fiscal years
2013 and 2014. We conducted a 100 percent review of the Authority’s disbursements of more
than $141,000 from June 1, 2013, through May 31, 2014, or 85 percent of the Authority’s
disbursements for fiscal years 2013 and 2014, to determine whether the disbursements were for
eligible and properly supported expenses. We relied on computer-processed data from the
eLOCCS 5 system to determine the amount of funding the Authority received from operating and
capital funds. We validated computer-processed data by performing tests and procedures to
ensure the integrity of the data relevant to our audit objective. The tests included but were not
limited to comparisons of computer-processed data to invoices and other supporting
documentation. We found the data to be generally reliable. We also performed a detailed
assessment of the reliability of the data provided by the Authority by validating each processed




5
 The Line of Credit Control System (LOCCS) is HUD’s primary grant and subsidy disbursement system that
handles disbursement and cash management for most of HUD grant programs. In 1990, the LOCCS Voice
Response System (VRS) was developed to handle grantees’ access to their HUD funds using a touchtone phone
system. In 2001, an Internet version of LOCCS VRS called eLOCCS was introduced, allowing public housing
agencies, Section 8 performance-based contract administrators, and other approved HUD-trusted business partners
access to their HUD portfolios through the Web.



                                                        9
check with supporting invoices and bank statements. We found the data to be generally reliable
for our purposes.

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




                                                10
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

•   Effectiveness and efficiency of operations,
•   Reliability of financial reporting, and
•   Compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.

Relevant Internal Controls

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

•   Program operations – Policies and procedures that management has implemented to provide
    reasonable assurance that a program meets its objectives, while considering cost
    effectiveness and efficiency.
•   Relevance and reliability of information – Policies and procedures that management has
    implemented to reasonably ensure that operational and financial information used for
    decision making and reporting externally is relevant, reliable, and fairly disclosed in reports.

•   Compliance with laws and regulations – Policies and procedures that management has
    implemented to reasonably ensure that program implementation 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.
Significant Deficiency

Based on our review, we believe that the following item is a significant deficiency:

•   The Authority did not properly manage its program operations (see finding).




                                                  11
Appendixes

Appendix A


                          Schedule of Questioned Costs
                 Recommendation
                                  Ineligible 1/   Unsupported 2/
                     number
                         1A              $22,178
                         1B                                 $33,144

                       Totals            $22,178            $33,144



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.




                                              12
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




Comment 1




Comment 2




                               13
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 3
Comment 3




Comment 4




Comment 5




                               14
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 5



Comment 5




Comment 5

Comment 6




                               15
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 7


Comment 8


Comment 9


Comment 9

Comment 9

Comment 9


Comment 10

Comment 11


Comment 12

Comment 13




                               16
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 14



Comment 6

Comment 6

Comment 15



Comment 16



Comment 17


Comment 18
Comment 18




                               17
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 19



Comment 20
Comment 21




Comment 4




Comment 22
Comment 22




                               18
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation


Comment 22




Comment 23
Comment 22

Comment 24

Comment 25


Comment 26




Comment 5




Comment 5

Comment 5




                               19
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation


Comment 5




Comment 9



Comment 27




Comment 28



Comment 28




Comment 20




                               20
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation

Comment 13




Comment 28



Comment 20




Comment 13




Comment 29




                               21
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 4




                               22
                         OIG Evaluation of Auditee Comments


Comment 1   The Authority’s comments state that it was not given enough time to provide the
            most accurate and comprehensive responses to the details of the report.

            We provided the draft findings to the Authority on October 16, 2014. We
            conducted a formal draft finding discussion on October 20, 2014. The discussion
            draft report was provided to the Authority via email and FedEx on December 12,
            2014, and was discussed at the exit conference on December 16, 2014. The draft
            findings and discussion draft audit report mirror one another, and the dollar
            findings are exactly the same in both documents. On December 22, 2014, the
            Authority requested an extension to January 27, 2015, to provide comments. We
            granted an extension to January 9, 2015. Therefore, the Authority was afforded
            more than 80 days to gather information to support the findings in the discussion
            draft report.

Comment 2   The Authority’s comments state that as a part-time employee (20 hours per week),
            the executive director had spent many hours since the entrance conference on July
            23, 2014, beyond her regular 20 working hours per week to provide information
            requested.

            The information we requested was supporting documentation on transactions
            conducted by the Authority. This information should be readily available. The
            Authority needed significant time to collect the information because the state of
            its books and records did not allow for efficient retrieval of supporting
            information.

Comment 3   The Authority’s comments state that the Authority did not concur with the
            statement, “The Authority’s daily operations are managed by two part-time
            employees.” We revised the statement in the report to state that the Authority’s
            daily operations are managed by the executive director. The Authority’s
            maintenance mechanic is the Authority’s only other employee.

Comment 4   The Authority’s comments state that the Authority does not agree with our finding
            that it did not properly manage its financial and procurement activities in
            accordance with its consolidated annual contributions contract and HUD
            requirements. The Authority also states that it has consistently followed its
            Capital Fund program and 5-year and annual plans and continues to modernize
            and rent units as money has become available.

            The Authority did not properly manage its financial and procurement activities in
            accordance with its consolidated annual contributions contract and HUD
            requirements. The Authority used its operating and capital funds to pay salary
            and contract labor payments to related parties. It also did not comply with
            procurement requirements before securing contracts for professional services and
            general labor. The Authority’s failure to comply with conflict-of-interest
            provisions prevented it from renovating its vacant units in a timely manner and


                                              23
            meeting the requirements of its Capital Fund program, along with its 5-year and
            annual plans.

Comment 5   The Authority’s comments state that it does not agree with the ineligible and
            unsupported costs of $55,000. The Authority asserts that all funds paid were
            clearly documented in accordance with requirements, specifically the $22,177
            identified in the report.

            We do not agree with the Authority’s statement that it clearly documented all of
            its disbursements and complied with all requirements referenced in the report.
            The Authority violated its annual contributions contract and HUD’s requirements
            related to its conflict-of-interest and procurement activities from June 1, 2013,
            through May 31, 2014. The documentation the Authority provided during the
            audit did not satisfy the requirements established by Federal or local requirements
            for small-purchase and micropurchase procurement.

Comment 6   The Authority’s comments state that due to its rural location, the Authority has
            limited access to vendors, supplies, laborers, and materials. The comments also
            state that the board made decisions in the best interest of the Authority due to its
            limited access to laborers and for security purposes.

            The Authority’s statement that the board made decisions in the it’s best interest,
            due to its rural location; security issues; and limited access to vendors, supplies,
            laborers, and materials is not supported. The Authority is located 20 miles from
            an area with a population of more than 100,000 inhabitants with Lowe’s and
            Home Depot hardware stores, and it is less than 10 miles from two other hardware
            stores.

Comment 7   The Authority’s comments state that it has contractor accounts at the executive
            director’s husband’s hardware store, Lowe’s, and Home Depot to ensure that the
            Authority gets the best prices available.

            The majority of the Authority’s supplies and material were purchased from the
            executive director’s husbands’ hardware store, which was a violation of conflict-
            of-interest provisions provided in the Authority’s consolidated annual
            contributions contract. Furthermore, maintaining an account at a store is not
            assurance that the best price is obtained.

Comment 8   The Authority’s comments state that the funds it spent were necessary operating
            expenses of the Authority for nonroutine maintenance, administration over 20
            hours per week, or modernization improvements.

            We determined that the Authority’s expenditures complied with cost eligibility
            requirements at 24 CFR Part 968, Catalog of Federal Domestic Assistance
            (CFDA) 14.872, 24 CFR Part 905, and 42 U.S.C. (United States Code) 1437,
            referenced by the Authority; however, we did not question the eligibility of the
            Authority’s charges, because we considered the costs in violation of conflict-of-
            interest requirements.


                                               24
Comment 9     The Authority’s comments state that it has provided documentation to the Atlanta
              HUD office and auditors to support that any conflicts-of-interest were declared to
              the Atlanta HUD office and approved by the HUD Director of Public Housing. In
              addition, the Authority states the in accordance with its 1996 consolidated Annual
              contributions contract section 22, page 11, and further acknowledged by the
              signature of the Director of Public Housing and an executed copy of Form HUD-
              53012A, dated June 14, 1996, the Authority had declared all conflicts-of-interest
              between any related parties and any ownership conflict. Further, the Authority
              states that HUD acknowledged the possible conflict-of-interest, and the Atlanta
              HUD office deemed it declared and in accordance with directions issued by HUD
              in September 1995.

              Section 22, page 11, of the Authority’s signed 1996 Form HUD-53012A,
              Consolidated Annual Contributions Contract, certifies that all conditions before
              the valid execution and delivery of the consolidated annual contributions contract
              have been complied with and in all respects are duly authorized in accordance
              with law. It was signed by the Authority’s board chairman and the Director of
              Public Housing. However, the Authority has not provided support that it declared
              all conflicts of interest among related parties and any ownership conflict before its
              execution. Furthermore, HUD’s signing of the Consolidated Annual
              Contributions Contract does not document its receipt or approval of disclosures or
              support that disclosures were made.

Comment 10 The Authority’s comments state that is has been open and transparent concerning
           conflicts of interest.

              The Authority did not disclose the conflict-of-interest to the HUD Office of
              Public Housing. Therefore, HUD was not able to provide the Authority with a
              waiver to exempt it from conflict-of-interest provisions.

Comment 11 The Authority’s comments state that nothing in section 19A(5) of the 1996
           consolidated annual contributions contract prohibit a tenant of the Authority from
           serving on its governing body.

              We did not question the eligibility of the Authority’s allowing a tenant to serve on
              its governing board.

Comment 12 The Authority’s comments state that section 19(B)(4) of the consolidated annual
           contributions contract states that the requirements of subsection (B) may be
           waived by the Authority’s board of commissioners for good cause.

              Section 19(B)(4) allows the Authority to waive section 19(B)(1), which states that
              the Authority may not hire an employee in connection with a project under this
              consolidated annual contributions contract if the prospective employee is an
              immediate family member of any person belonging to one of the following
              classes: “(i) any present or former member or officer of the governing body who



                                                25
              formulates policy or the HA [housing agency]; and (ii) any employee of the HA
              who formulates policy or who influences decisions with respect to the project(s).”

              The Authority did not hire employees who violated conflict-of-interest provisions.
              It hired contractors who violated requirements. Contractor conflict-of-interest
              provisions are governed by section 19(A)(1) of the Authority’s consolidated
              annual contributions contract. It states that in addition to any other applicable
              conflict-of-interest requirements, neither the Authority nor any of its contractors
              or their subcontractors may enter into any contract, subcontract, or arrangement in
              connection with a project under its consolidated annual contributions contract.

Comment 13 The Authority’s comments state that its board of commissioners consistently
           discussed and documented, in board minutes and policy, decisions necessary for
           the effective operation of the Authority in accordance with the 1996 consolidated
           annual contributions contract. The Authority also states that the board approved
           payments to be made for work incurred beyond normal working hours. The
           Authority further states that the Authority’s board is aware of its responsibilities.

              We identified board meeting minutes from 1992, 2006, 2009, and 2012, in which
              the board approved the executive director to hire or make payments to individuals
              that violated conflict-of-interest provisions. The board minutes documented the
              board’s approval of the executive director’s request that she and the maintenance
              mechanic be paid as contract labor for maintenance and physical labor duties
              incurred during preparation for HUD’s Real Estate Assessment Center physical
              inspection. In addition, the board of commissioners failed to enforce conflict-of-
              interest provisions in the Authority’s consolidated annual contributions contract
              and the Authority’s own procurement policy; therefore, it is not aware of its
              responsibilities.

Comment 14 The Authority’s comments state that it does not agree with the statement that the
           executive director was hired January 1, 1993.

              The Authority’s 1992 board minutes showed that the commissioners approved the
              executive director on December 18, 1992, and the executive director’s term began
              on January 1, 1993.

Comment 15 The Authority’s comments state that the issue regarding the Authority’s payments
           to the executive director, the maintenance mechanic, and the executive director’s
           children for the performance of contract labor were addressed and cleared by
           HUD’s Georgia State Office of Public Housing in 2009 by HUD employees from
           the regional procurement office and HUD’s legal department.

              The Authority’s statement that the issue regarding its payments to the executive
              director, the maintenance mechanic, and the executive director’s children for the
              performance of contract labor were addressed and cleared by HUD’s Georgia
              State Office of Public Housing in 2009 is not supported.




                                                26
              The documentation provided by the Authority was for two reviews related to its
              2009 American Recovery and Reinvestment Act funds. These reviews were
              conducted by a HUD facilities management representative and public housing
              revitalization specialist. Neither review addresses the Authority’s conflict-of-
              interest violations. Additionally, we did not review any expenditures from the
              Authority’s Recovery Act funds.

              Additionally, HUD identified conflict-of-interest payments to the executive
              director, maintenance mechanic, and the executive director’s children for the
              performance of contract labor in its 2013 management review.

Comment 16 The Authority’s comments state that its independent auditor and fee accountant
           have disclosed conflict-of-interest relationships in the auditor’s reports and the fee
           accountant’s management, data, and analysis reports for years.

              The Authority’s independent auditor was aware of the Authority’s conflict-of-
              interest relationships; however, he did not report it in the audit report before 2012
              because the executive director stated that the Authority had a waiver, which
              exempted it from conflict-of-interest requirements. In August 2013, the HUD
              Atlanta field office identified the conflict-of-interest violations during its
              management review of the Authority. In September 2013, following HUD’s
              review, the independent auditor issued the Authority’s 2012 audit report with a
              related-parties issue. The independent auditor also included a related-parties issue
              in the Authority’s 2013 audit report. In addition, the fee accountant stated that he
              did not report the conflict of interest because the executive director also informed
              him that the Authority had a waiver for related-party activities.

Comment 17 The Authority’s comments state that the conflict of interest has been declared for
           more than 20 years.

              The Authority has acknowledged that there is a conflict of interest; however, it
              has not provided support showing that HUD approved a waiver exempting the
              Authority from conflict-of-interest provisions.

Comment 18 The Authority’s comments state that three employees from the HUD Atlanta
           office scheduled a 3-day management onsite review in August 2013 of a 30-unit
           housing authority. Following the management review on May 20, 2014, 9 months
           later, the HUD Atlanta field office presented the Authority’s board of
           commissioners its findings at a board of commissioners training meeting.

              We revised the date to May 2014, which is the effective date the corrective action
              took effect.

Comment 19 The Authority’s comments state that it does not agree that its failure to comply
           with conflict-of-interest provisions prevented it from renovating its vacant units in
           a timely manner.




                                                27
              The Authority did not use qualified outside contractors to complete the
              renovations of its vacant units. Instead, it paid the executive director, the
              Authority’s maintenance mechanic, the executive director’s children, and
              residents of the Authority to complete the renovations. Time constraints caused
              by the executive director’s and the maintenance mechanic’s regular recurring
              work responsibilities and the Authority’s failure to hire qualified contractors
              prevented the Authority from completing the renovation projects in a timely
              manner.

Comment 20 The Authority’s comments state that the HUD Atlanta office’s restriction on its
           2013 capital funds caused an extreme amount of unnecessary paperwork and
           stress on the Authority. Additionally, the Authority had to discontinue paying the
           executive director the board-approved salary for necessary extra administrative
           duties.

              HUD’s restriction on the Authority’s capital funds was because the Authority
              used its capital funds to pay ineligible salary and administrative costs to the
              executive director and her family members. As a result, the Authority’s capital
              needs were not adequately addressed, and units were not made available to low-
              income families. To correct the condition, HUD required the Authority to
              distribute all capital funds intended for use on capital activities to appropriate
              capital-related accounts and withdraw the funds from eLOCCS accordingly until
              the Authority meets its significant capital improvement needs. The payments
              referenced by the Authority were discontinued because the payments violated
              conflict-of-interest provisions.

Comment 21 The Authority’s comments state that all modernization has been completed using
           Authority employees, residents, and local persons. The Authority provided
           criteria references 24 CFR Part 968, the Authority’s maintenance policy, and 24
           CFR Part 905 to support its compliance with Federal regulations. Additionally,
           the Authority states that restrictions and misstatements against it by the HUD
           Atlanta field office are not in accordance with 24 CFR Part 968 and CFDA
           14.850 and have hindered the Authority from meeting its goals and caused an
           enormous amount of unjustifiable administrative work.

              We determined that the Authority did not comply with the requirements of 24
              CFR 968.112(o)(5), which state that ineligible costs include ineligible activities as
              specified by HUD. The Authority’s maintenance policy states that when
              employees of the Authority have the skills to do the work required but there is
              more work than there is time available to complete it, the Authority will
              determine whether it is more cost effective to use a contractor to complete the
              work. The Authority did not provide documentation to support that it had
              determined whether it was cost effective to use a contractor. Instead, the
              Authority paid the executive director and her family, a member of the board of
              commissioners, and the board member’s friend to complete the Capital Fund
              renovations. The Authority’s reference to 24 CFR Part 905 relates to streamlining
              the Capital Fund program and does not support the Authority’s compliance with
              conflict-of-interest provisions or procurement requirements. Further, CFDA


                                                28
              14.850, which provides guidance to the Authority for proper uses of its program
              and funds, does not provide information to support the Authority’s statement that
              the HUD Atlanta field office violated any regulations that prevented the Authority
              from meeting its goals or caused unjustifiable administrative work.

Comment 22 The Authority’s comments state that the HUD Atlanta office refuses to
           acknowledge the part-time executive director as a contract administrator
           according to regulations at Official Code of Georgia Annotated 8-3-51, CFDA
           14.872, and 42 U.S.C 1437. Additionally, the Authority states that the contract
           administration of capital funds for a part-time director is allowable as it is hours
           worked over normal hours according to CFDA 14.872, 24 CFR Part 968, and 24
           CFR Part 90. Further, the Authority states that it can act as its own contractor and
           due to HUD’s failure to acknowledge this fact, the 2013 capital funds cannot be
           closed out at the last payout.

              HUD stated that the Authority can act as its own contractor for contract
              administration of its capital funds. HUD further states that it has not questioned
              the executive director’s duties as the Authority’s contract administrator.
              However, HUD determined that the Authority’s executive director violated
              conflict-of-interest provisions in the Authority’s consolidated annual
              contributions contract by acting as the contract administrator and contractor. The
              criteria references provided by the Authority did not exempt the executive
              director from the conflict-of-interest provisions in the Authority’s annual
              consolidated contributions contract. Further, the criteria referenced did not state
              that the part-time director is allowed payments in excess of her normal salary for
              hours worked over part-time hours for extra administrative services. The
              Authority has access to its 2013 and 2014 capital funds; however, its
              disbursements must be approved by the HUD Atlanta office before disbursement.
              The executive director has not provided the HUD Atlanta office with adequate
              documentation to support disbursement of the Authority’s remaining 2013 capital
              funds.

Comment 23 The Authority’s comments state that units are vacant because funds allotted allow
           for renovating approximately two units per year.

              The Authority’s statement that funds allocated allow for the renovation of
              approximately two units per year is not supported. After a physical inspection of
              the Authority’s vacant units, HUD determined that if properly managed, the
              Authority’s 2013 capital funds would be sufficient to renovate its vacant units.

Comment 24 The Authority does not agree with our conclusions regarding the Capital Fund
           renovations. It states that materials and supplies purchased at the hardware store
           comply with HUD Handbook 7460.8, REV-2, and that this compliance was
           declared before the consolidated annual contributions contract was signed in
           compliance with Regulatory Flexibility Act and the board minutes.




                                                29
              All Authority purchases from the executive director’s husband’s hardware store
              are a direct violation of HUD Handbook 7460.8, chapter 4.4; Conflicts-of-
              Interest.

Comment 25 The Authority’s comments state that it provided information to the audit team
           regarding approximately $14,000 for the complete renovation of a two-bedroom
           unit.

              The Authority provided checks and invoices to support more than $14,000 in
              capital funds that it used to complete the renovation of two vacant units, not one
              two-bedroom unit.

Comment 26 The Authority’s comments state that approximately $80,000 was paid to a HUD-
           approved architect and his contractor for renovating two two-bedroom units for
           handicap accessibility.

              The Authority did not provide documentation to support that it paid a HUD-
              approved architect and a contractor $80,000 to renovate two two-bedroom units.

Comment 27 The Authority’s comments state that it does not agree with recommendation 1B to
           properly support all disbursements. The Authority stated that it documented all of
           its disbursements in compliance with the HUD handbook and HUD approved fee
           accountants and auditors.

              The Authority and its board chairman did not comply with small-purchase and
              micropurchase requirements of Procurement Handbook 7460.8, REV-2. For
              purchases that exceed $2,000, the executive director failed to provide at least
              three price quotations as required by Handbook 7460.8, REV- 2. Further, the
              executive director failed to provide contractors’ statements of work, adequate
              invoices, and timesheets to support payments that do not exceed $2,000. The
              board chairman failed to comply with procurement requirements by signing and
              approving disbursements that did not meet Handbook 7460.8, REV-2,
              requirements.

Comment 28 The Authority’s comments state that it would hire qualified contractors.
           However, it should be noted that the Authority does not have the funds to do so
           and operating funding from HUD has continually been cut back to the extent that
           the Authority cannot operate effectively. Additionally, the Authority states that
           sequestration of operating funds of more than $25,000 in 2013 caused enormous
           constraints on the Authority. It further states that the Authority had to transfer
           $5,000 of $15,000 out of its money market account due to the sequestration of
           funding.

              The Authority did not provide documentation to support that it sought out
              alternative actions other than violating conflict-of-interest provisions to fund
              Authority activities. When current grants are not sufficient to fund necessary
              capital improvements under Section 30 of the U.S. Housing Act, public housing
              agencies are authorized to pledge land, structures, and equipment to obtain loan


                                                30
              proceeds. The Authority did not attempt to obtain the financing needed through
              Section 30 of the Housing Act.

Comment 29 The Authority’s comments state that it will comply with appropriate written
           guidance from the Atlanta field office and OIG. The Authority also stated that the
           maintenance man has been suspended based on verbal recommendations from
           HUD and OIG and all purchasing has been suspended at the executive director’s
           husband’s hardware store according to specific verbal directive from OIG.

              We acknowledge that if the Authority complied with the appropriate written
              guidance from HUD and OIG, the actions would eliminate the conflicts of
              interest. However, the Authority’s suspension of the maintenance man and
              purchases from the hardware store does not eliminate all conflicts of interest. The
              Authority’s consolidated annual contributions contract’s conflict-of-interest
              provisions require that the Authority stop all payments to the resident board
              member and the resident board member’s friend for contract services.
              Additionally, the executive director must not pay herself as a contractor for the
              performance of maintenance or administrative tasks performed at the Authority.

              Further, the executive director must comply with all of the consolidated annual
              contributions contract conflict-of-interest provisions and the Authority’s own
              procurement policies to ensure that the Authority is in complete compliance. OIG
              did not direct the Authority to suspend its maintenance mechanic and all
              purchases at the executive director’s husband’s hardware store. OIG
              recommended that the Authority communicate with the HUD Atlanta office to
              ensure that it is in complete compliance with its consolidated annual contributions
              contract and Federal regulations related to conflicts of interest and procurement.




                                               31
                                   Appendix C
                   Schedule of Vacant Units and Work Remaining

 Unit                               Years vacant as of
number         Vacancy date           May 31, 2014       Remaining work items
                                                          • Install new kitchen
                                                            cabinets
                                                          • Frame closets and
                                                            windows
                                                          • Caulk windows
                                                          • Refinish flooring
                                                          • Update plumbing
                                                          • Update electrical
1        April 1, 2006                       8              wiring
                                                          • Install vent hood
                                                          • Install appliances
                                                          • Repair plasterboard
                                                          • Repair walls
                                                          • Repair bathroom
                                                            tiles
                                                          • Paint
                                                          • General cleaning
                                                          • Major ceiling repair
                                                          • Install heating,
                                                            ventilating, and air
                                                            conditioning
                                                            (HVAC) system
                                                          • Caulk and frame
                                                            closets
                                                          • Caulk and frame
                                                            windows
                                                          • Caulk, paint, and
                                                            patch walls
2        March 15, 2007                      7            • Install kitchen
                                                            appliances
                                                          • Update the electrical
                                                            wiring for lights and
                                                            ground-fault circuit
                                                            interrupter (GFCI)
                                                            outlets
                                                          • Install vent hood
                                                          • Install water heater
                                                          • Update plumbing
                                                          • Paint
                                                          • General cleaning



                                        32
              Schedule of Vacant Units and Work Remaining

 Unit                          Years vacant as of
number    Vacancy date           May 31, 2014       Remaining work items
                                                     • Refinish floors
                                                     • Install new cabinets
                                                     • Install appliances
                                                     • Caulk and frame
                                                       windows and closets
                                                     • Install electrical
  3        April 1, 2007                7              wiring for GFCI
                                                       outlets and vent
                                                       hood
                                                     • Update plumbing
                                                     • Paint
                                                     • General cleaning

                                                     •      Caulk and frame
                                                            windows
                                                     •      Install insulation
                                                     •      Install electrical
                                                            wiring for light
                                                            fixtures and GFCI
                                                            outlets
                                                     •      Repair plumbing on
  4      December 1, 2007               6                   drains and water
                                                            lines
                                                     •      Refinish flooring
                                                     •      Install appliances
                                                     •      Update kitchen
                                                            cabinets
                                                     •      Paint
                                                     •      General cleaning




                                   33
              Schedule of Vacant Units and Work Remaining

 Unit                          Years vacant as of
number    Vacancy date           May 31, 2014       Remaining work items
                                                     • Major ceiling repair
                                                     • Install HVAC
                                                       system
                                                     • Caulk and frame
                                                       closets
                                                     • Caulk and frame
                                                       windows
                                                     • Caulk, paint, and
                                                       patch walls
  5      December 1, 2007               6            • Install kitchen
                                                       appliances
                                                     • Update the electrical
                                                       wiring for lights and
                                                       GFCI outlets
                                                     • Install vent hood
                                                     • Install water heater
                                                     • Update plumbing
                                                     • Paint
                                                     • General cleaning
                                                     • Refinish flooring
                                                     • Update drain lines
                                                     • Install electrical
                                                       wiring
  6        July 1, 2009                 4            • Install appliances
                                                     • Install new cabinets
                                                     • Paint
                                                     • General cleaning




                                   34
              Schedule of Vacant Units and Work Remaining

 Unit                          Years vacant as of
number     Vacancy date          May 31, 2014       Remaining work items
                                                     • Major ceiling repair
                                                     • Install HVAC
                                                       system
                                                     • Caulk and frame
                                                       closets
                                                     • Caulk and frame
                                                       windows
                                                     • Caulk, paint, and
                                                       patch walls
  7      November 1, 2010               3            • Install kitchen
                                                       appliances
                                                     • Update the electrical
                                                       wiring for lights and
                                                       GFCI outlets
                                                     • Install vent hood
                                                     • Install water heater
                                                     • Update plumbing
                                                     • Paint
                                                       General cleaning
                                                     • Install HVAC
                                                       system
                                                     • Total kitchen
                                                       renovation
  8        April 9, 2013                1            • Caulk and frame
                                                       windows
                                                     • Refinish flooring
                                                     • Major renovations to
                                                       main drain line




                                   35