oversight

The Anderson Housing Authority Mismanaged Its Public Housing Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-09-30.

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

           Anderson Housing Authority,
                 Anderson, MO
                            Public Housing Program




Office of Audit, Region 7                Audit Report Number: 2015-KC-1010
Kansas City, MO                                          September 30, 2015
To:            Frances Cleary, Director, Office of Public Housing, 7APH
               //signed//
From:          Ronald J. Hosking, Regional Inspector General for Audit, 7AGA
Subject:       The Anderson Housing Authority Mismanaged Its Public Housing Program




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 Anderson Housing Authority’s public housing
program.
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 913-
551-5870.
                    Audit Report Number: 2015-KC-1010
                    Date: September 30, 2015

                    The Anderson Housing Authority Mismanaged Its Public Housing Program




Highlights

What We Audited and Why
We audited the Anderson Housing Authority as a spinoff assignment of our review of the
Pineville Housing Authority (report number 2015-KC-1009) because it was run by the same
executive director, used the same credit cards, operated under identical policies and procedures,
and used the same waiting list as the Pineville Housing Authority. Our objective was to
determine whether the Authority operated its public housing program in accordance with U.S.
Department of Housing and Urban Development (HUD) requirements.

What We Found
The Authority did not operate its public housing program in accordance with HUD requirements.
Specifically, it did not properly procure $53,550 in goods and services, used $3,178 of public
housing funds for ineligible expenses, could not support that it used $47,057 on allowable
expenses, did not properly admit or recertify tenants, did not properly account for and report the
fringe benefits it provided to employees, and did not maintain auditable books and records.

What We Recommend
We recommend that HUD’s Kansas City Office of Public Housing require the Authority to
provide adequate documentation to support that the $53,550 spent for improperly procured goods
and services was spent at the most competitive prices, repay its program $3,178 for ineligible
expenses, provide adequate support that it spent $47,057 on allowable expenses, conduct a 100
percent review of its tenant files for compliance with requirements, implement appropriate
inventory and records management systems, and account for and report all taxable income of its
employees to the Internal Revenue Service. We also recommend that HUD determine whether
the Authority is capable of properly implementing HUD requirements and consider remedies to
address the default of its annual contributions contract.
Table of Contents
Background and Objectives ....................................................................................3

Results of Audit ........................................................................................................5
         Finding 1: The Authority Did Not Comply With Procurement Requirements ......... 5
         Finding 2: The Authority Made Ineligible and Unsupported Expenditures .............. 8
         Finding 3: The Authority Improperly Admitted and Recertified Tenants .............. 13
         Finding 4: The Authority Did Not Comply With Internal Revenue Service
         Requirements................................................................................................................... 19
         Finding 5: The Authority Did Not Maintain Auditable Books and Records ........... 21

Scope and Methodology .........................................................................................26

Internal Controls ....................................................................................................28

Appendixes ..............................................................................................................30
         A. Schedule of Questioned Costs .................................................................................. 30
         B. Auditee Comments and OIG’s Evaluation ............................................................. 31
         C. Criteria ....................................................................................................................... 34




                                                                     2
Background and Objectives
The Anderson Housing Authority is located in Anderson, MO, a rural town in southwest Missouri.
The Authority is governed by a four-member board of commissioners appointed by the mayor of
Anderson. The board of commissioners employs the executive director, who manages Authority
operations, and two employees, a maintenance man and an administrative assistant. The Authority
also employed several part-time maintenance assistants during our review period, but none were
employed at the time of our review.
The executive director also manages the Lanagan and Pineville Housing Authorities. All three
housing authorities shared the same staff, used the same credit cards, operated under identical
policies and procedures, and used the same waiting list to select applicants for housing. Since all
three authorities shared staff, policies, a waiting list, and many of the same financials, we conducted
audits of the Lanagan (see report 2015-KC-1011) and Pineville (see report 2015-KC-1009) Housing
Authorities concurrently with this assignment. The Authority’s administration building and records
are located at 500 Tatum Street, Anderson, MO.




The Authority has two individual programs: a low-rent public housing program and a Public
Housing Capital Fund program. The low-rent program consists of 46 dwelling units. Funding is
provided based on dwelling rents paid by the tenants and Public Housing Operating Fund payments
received from the U.S. Department of Housing and Urban Development (HUD). Under the Capital
Fund program, HUD provides funding for the modernization and improvement of the low-rent
program. These resources allow the Authority to provide capital improvements for the dwelling
structures and assist in their operations.

                              Anderson Housing Authority funding
                                            2013                                   2014
      Operating subsidies                 $76,668                                 $84,259
     Capital Fund program                 $35,725                                 $36,291
            Totals                            $112,393                            $120,550




                                                   3
HUD regulations allow full flexibility for small public housing agencies. Public housing agencies
that operate fewer than 250 units and are not designated as troubled and operate and maintain their
public housing in a safe, clean, and healthy condition may use any amounts for eligible activities,
regardless of whether the funding was provided from Operating Fund or Capital Fund payments.
Our objective was to determine whether the Authority operated its public housing program in
accordance with HUD requirements.




                                                  4
Results of Audit

Finding 1: The Authority Did Not Comply With Procurement
Requirements
The Authority did not properly procure goods and services. The executive director did not
understand the requirements in the Authority’s procurement policy. As a result, the Authority
was unable to support that it procured $53,550 in goods and services at the most reasonable
price, restricted competition, and placed Federal funds at risk.
The Authority Improperly Procured Goods and Services
The Authority did not properly procure its lawn maintenance contract, which was the only
contract it awarded during our audit period. In addition, it hired and paid at least seven vendors
without following procurement procedures or executing a contract and purchased a truck without
board approval and without obtaining quotes.

Improperly Procured Lawn Care Contract
The Authority failed to maintain all required documentation, did not perform a cost analysis, and
did not justify why it did not select the lowest responsive bidder for its lawn care contract.
HUD required the Authority to maintain procurement records sufficient to detail the significant
history of a procurement action; however, the Authority’s procurement file did not contain the
bid from the vendor that was awarded the contract, the rationale for selecting the contractor, or
the contract. The Authority eventually located the contract but could not produce the bid.
The Authority did not perform the required cost analysis for its lawn care contract. HUD
required the Authority to perform a cost analysis in connection with every procurement action
and conduct an independent cost estimate before receiving bids or proposals. The Authority did
not perform a cost analysis or conduct an independent cost estimate before it received bids for
the contract.
The Authority awarded its lawn care contract to a contractor that was not the lowest, most
responsive bidder. It received four bids, ranging from $330 per month to more than $830 per
month. It selected the second highest bidder for its contract at $650 per month without providing
justification. The executive director stated that the Authority selected the higher priced
contractor because several of the Authority’s board members had used that particular service and
could attest to the quality of the service. The Authority spent $5,350 on this contract.

Paid Vendors Without Contracts
The Authority hired and paid at least seven vendors on a recurring basis without following
procurement requirements or executing a contract. The Authority’s procurement policy required
it to obtain at least three quotes or publicly advertise for bids for small purchases between $2,000
and $100,000. The Authority’s board of commissioners was also required to approve all
purchases of $10,000 or greater.


                                                 5
The Authority spent the following amounts during our audit period without entering into
contracts, obtaining three quotes, publicly advertising, or obtaining board approval for the
services (see table 1).

                            Table 1: Improperly procured services

       Purchase                      Purchase type                 Amount spent (2013-2014)

  Accounting service               Monthly service                           $5,740
     Exterminator                  Monthly service                           $4,336
    Satellite service        Annual contract and as needed                   $7,343
     Annual audit                  Annual expense                             $3,300
  Maintenance service            Recurring as needed                          $2,205
 Heating and air service         Recurring as needed                         $14,886
     Duct cleaning               Recurring as needed                         $2,700
          Total                                                              $40,510

The Authority also purchased a maintenance truck before receiving board approval and without
obtaining quotes. The maintenance truck was a shared purchase among the Anderson, Lanagan,
and Pineville Housing Authorities. The executive director purchased the truck on June 16, 2014,
but did not receive board approval for the purchase until June 19, 2014. The total purchase price
was $19,250, and the Authority’s share of the purchase was $7,690.
The Executive Director Did Not Understand Requirements
The executive director did not understand the requirements in the Authority’s procurement
policy. She did not believe that all HUD
regulations applied to the Authority since      The executive director explained that
it was a small housing authority in a small
town. The Authority’s procurement policy HUD requirements did not consider
was consistent with HUD requirements.           the unique situations of a small town.
However, the executive director explained
that HUD requirements did not consider
the unique situations of a small town. She
further stated that the Authority did not do any contracting since it was so small. For example,
the executive director believed that local audit firms in her small town would charge much more
than the audit firm that usually conducted the Authority’s audits so she did not solicit bids for the
audit.
The executive director also did not know what a cost estimate was or its purpose. When we
asked whether the Authority conducted a cost estimate for the lawn service procurement, the
executive director did not understand what a cost estimate was. She further stated that she
evaluated the pricing of the contracts based on past experience and did not keep her rationale in
writing.



                                                  6
The Authority May Have Overspent for Goods and Services
The Authority was unable to support that it procured $53,550 in goods and services at the most
reasonable price, all interested parties may not have had an equal opportunity to participate in
Authority business, and the procurement violations placed Federal funds at risk. Federal
procurement requirements help to ensure that purchases are made through full and open
competition at the most reasonable prices.
By failing to advertise or obtain quotes and failing to select the lowest bidder when it did, the
Authority did not always obtain the lowest price. It also did not have an adequate basis for
evaluating the prices it paid because it did not complete cost estimates. It had no basis for
evaluating the prices it paid for its maintenance truck or the various services since it did not
obtain quotes.
The Authority did not allow all interested parties an equal opportunity to participate in Authority
business. It restricted competition for its lawn maintenance contract when it failed to select the
lowest bidder. The Authority also restricted competition when it noncompetitively procured
goods and services without advertising or obtaining quotes.
The Authority’s failure to execute contracts for its procurements also placed the Federal funds
the Authority spent at risk since the purchases were not subject to the required contract
provisions, such as antikickback requirements, the Davis-Bacon Act, access to records relating to
the contract, and retention of records.
Conclusion
The Authority was unable to support that it procured $53,550 in goods and services at the most
reasonable price, restricted competition, and placed Federal funds at risk because the executive
director did not understand the requirements in the Authority’s procurement policy.
Recommendations
We recommend that the Director of HUD’s Kansas City Office of Public Housing

       1A.     Require the Authority to provide adequate documentation to support that the
               $53,550 spent for improperly procured goods and services was spent at the most
               competitive prices. Any amounts determined ineligible should be reimbursed
               from non-Federal funds to its program or to HUD as the field office deems
               appropriate based on the funding source.
       1B.     Require the Authority’s executive director to obtain appropriate procurement
               training.
       1C.     Monitor the Authority’s expenditures after training to ensure that the executive
               director understands and correctly applies procurement requirements.




                                                  7
Finding 2: The Authority Made Ineligible and Unsupported
Expenditures
The Authority used public housing funds for ineligible and unsupported expenses. This
condition occurred because the Authority did not have adequate controls over expenditures. As a
result, it did not have $3,178 in public housing funds available for the purposes intended, and
HUD could not be assured that the Authority spent $47,057 in public housing funds for
allowable purposes.
The Authority Had Ineligible and Unsupported Expenditures
The Authority used public housing funds for ineligible and unsupported expenses. According to
Federal regulations, costs charged to a Federal program are allowable only if the costs are
necessary, reasonable, and allocable to the program. Regulations at 24 CFR (Code of Federal
Regulations) 905.310(b) also required the Authority to maintain detailed disbursement records to
document eligible expenditures. The Authority made ineligible and unsupported payments on its
Authority credit cards and ineligible and unsupported direct payments to vendors and individuals
(see table 2).

                     Table 2: Ineligible and unsupported expenditures


        Credit cards                       Ineligible                     Unsupported

     American Express                       $617.23                          $774.55
           Visa                              $41.47                         $2,909.99
  Home improvement stores                   $802.02                        $29,952.11
     Credit card total                     $1,460.72                       $33,636.65

      Direct payments

     Conflict of interest                   $989.00                             -
     Executive director                     $320.00                          $840.70
   Payments to individuals                     -                            $8,068.00
      Warehouse club                        $250.00                             -
     No detailed receipts                      -                            $1,039.69
   Maintenance purchases                    $158.69                         $3,471.75
   Direct Payments total                   $1,717.69                       $13,420.14
            Totals                         $3,178.41                       $47,056.79

Ineligible and Unsupported Credit Card Payments
The Authority paid $1,461 for ineligible expenses and $33,637 for unsupported expenses
charged on its Authority credit cards. The Authority had an American Express card and a Visa
credit card that its executive director and maintenance man used to make purchases. The
Authority also maintained credit cards with three home improvement store chains. These credit
cards were shared among the Anderson, Lanagan, and Pineville Housing Authorities.


                                               8
The executive director used an Authority-provided American Express credit card to purchase
items such as lottery tickets, meals at restaurants, meals for tenant meetings, and groceries for
needy tenants. Ineligible costs from these purchases totaled $617. In addition, many of the
items charged to the American Express card were missing receipts or did not include an itemized
receipt that showed what was purchased. Unsupported costs from these purchases totaled $775.
The Authority’s maintenance man used an Authority-provided Visa credit card to purchase items
such as lottery tickets, snack foods, and grocery items. Ineligible costs from these purchases
totaled $41. In addition, many of the items charged to the Visa card were missing receipts or did
not include an itemized receipt that showed what was purchased. Unsupported costs from these
purchases totaled $2,910.
The Authority made many purchases on its home improvement store credit cards. The
maintenance man often made several trips to the home improvement store per day and frequently
purchased drinks and snack foods using the Authority’s credit card. In addition, the executive
director used the Authority’s home improvement store credit card to purchase gift cards that she
claimed were Christmas gifts for her staff. Ineligible costs from these purchases totaled $802.
The Authority also allowed its maintenance man to use the home improvement store credit card
to make personal purchases. The executive director claimed that the maintenance man would
then reimburse the Authority but could not produce records that showed repayment (see finding
5). The Authority could not support maintenance expenses since it did not tie them to work
orders, unit numbers, or the Authority. The remaining $29,952 purchased on home improvement
store credit cards was unsupported since the Authority could not justify the expenditures.

Ineligible and Unsupported Direct Payments
The Authority paid vendors and individuals $1,718 for ineligible expenses and $13,420 for
unsupported expenses.
The Authority used a local appliance company for appliance repair. The company was owned by
the chairperson of the Authority’s board of commissioners, who was also the Authority’s former
executive director. The Authority also paid one if its board members to work for the Authority.
These were conflicts of interest as defined by section 19 of the Authority’s annual contributions
contract with HUD. The Authority spent $989 on ineligible costs due to these conflicts of
interest.
The Authority made $320 in ineligible and $8,410 in unsupported payments to the executive
director. It issued checks to the executive director for travel expenses but did not maintain
details or receipts to show what was included in the travel expenses. The executive director used
her Authority-owned vehicle for travel and her Authority credit card for gas, but she reimbursed
herself for mileage when she traveled. She stated the she viewed this payment as compensation
for the inconvenience of travelling. She also used her Authority credit card to pay for food when
she traveled while getting per diem for food.
We also noted other unsupported payments to the executive director. For example, the Authority
issued a check to the executive director for “van detailing” but could provide no support showing
who detailed the van or an invoice verifying the amount paid. In another case, the Authority



                                                9
issued a check to the executive director because she used her own money to provide change for a
tenant who paid rent in cash, but there was no documentation detailing the transaction.
The figure below shows the only support for the two reimbursements discussed above.



                                 Executive director




                                 Executive director




The Authority made unsupported payments to individuals totaling $8,068. It paid individuals for
work performed at the Authority without an invoice or agreement between these individuals and
the Authority showing work performed, agreed-upon price, terms, etc. These individuals were
often tenants who needed work, Authority employees’ relatives, or people the Authority staff
knew.
The Authority purchased an annual membership at a warehouse club store. The membership
included cards for its executive director, administrative assistant, and two of the executive
director’s children, and another individual not employed at the Authority. The executive director
claimed that the Authority received partial reimbursement for the membership but could not
produce documentation to support this claim. The executive director did not submit eligible
expenses for reimbursement from the warehouse club store during our audit period. The $250
spent on the memberships was ineligible.
The Authority often paid its vendors from statements showing only the total amount due instead
of detailed invoices that showed the items or services purchased. Unsupported costs from these
payments totaled $1,040.
In addition to purchasing maintenance supplies via credit card, the Authority made maintenance
purchases from catalogs and the local hardware store. The maintenance man would also spent
Authority funds on snack food and drink purchases from the local hardware store. Ineligible
costs from these purchases totaled $159. The Authority could not support maintenance expenses
since it did not tie them to work orders, unit numbers, or the Authority. The $3,472 purchased
from maintenance supply catalogs and the local hardware store were unsupported since the
Authority could not justify the expenditures.




                                                10
The Authority Had Inadequate Controls
The Authority did not have adequate controls over expenditures. Specifically, it did not
implement a credit card policy, did not fully understand requirements, and did not establish a
control environment that held individuals accountable for their internal control responsibilities.
The Authority did not implement a credit card policy that it required its users of Authority credit
cards to agree to. The executive director stated that there was a verbal understanding that the
credit cards were supposed to be for Authority purposes only, but this verbal understanding was
not effective and did not provide sufficient accountability since the executive director
disregarded the policy when she allowed the maintenance man to make personal purchases on
Authority credit cards. A credit card policy would officially establish the types of purchases that
are allowable, address personal use of the credit cards, and convey the necessity to maintain
receipts for all credit card purchases.
The Authority did not fully understand requirements relating to its expenditures. For example,
the executive director did not understand

      What expenses were considered eligible tenant services. She believed that it was
       allowable to provide meals and attendance prizes to tenants who attended tenant council
       meetings; however, HUD requirements permit the Authority to provide only light
       refreshments. Entertainment items such as lottery tickets and groceries for needy tenants
       are not allowable.
      Why it was not allowable for her to receive mileage reimbursement when she traveled
       with the Authority-owned vehicle.
      The liability issues associated with hiring individuals to do work around the Authority.
       She stated that she had a verbal understanding that if employees got hurt while working,
       the Authority would not assume liability, but there was no written agreement.
The Authority also did not establish a control environment that held individuals accountable for
their internal control responsibilities. The executive director and a member of the board of
commissioners signed all checks, but the board member signing the checks was not provided all
pages of the credit card statements. The Authority provided the board member only the first
page, showing the total amount due. The lack of accountability resulted in these problems going
unnoticed.
Funds Were Not Used as Intended
The Authority did not have $3,178 in public housing funds available for the purposes intended,
and HUD could not be assured that the Authority spent $47,057 in public housing funds for
allowable purposes.
The Authority also subjected itself to potential liability issues when it hired individuals to work
at the Authority without written agreements regarding injuries or accidents on Authority
property. This issue also could have potential Davis-Bacon Act implications regarding
prevailing wage rates.




                                                  11
Allowing employees to make personal purchases on Authority credit cards also placed the
Authority at risk because purchases on Authority credit cards were not subject to sales tax.
Using those tax benefits for personal gain could cause the Authority to lose this benefit.
Conclusion
The Authority used public housing funds for ineligible and unsupported expenses because it did
not have adequate controls over expenditures. Without adequate policies and knowledge of
expenditure requirements, the Authority spent at least $3,178 in public housing funds on
ineligible items and could not support that it used $47,057 for allowable purposes.
Recommendations
We recommend that the Director of HUD’s Kansas City Office of Public Housing

       2A.     Require the Authority to repay $3,178 for ineligible expenses from non-Federal
               funds to its program or to HUD as the field office deems appropriate based on the
               funding source.
       2B.     Require the Authority to provide adequate support that it spent $47,057 on
               allowable expense. Any amount determined to be ineligible should be repaid
               from non-Federal funds to its program or to HUD as the field office deems
               appropriate based on the funding source.
       2C.     Require the Authority to obtain appropriate training on eligible uses of program
               funds, including items that can be charged to tenant services, travel expenses, and
               hiring practices.
       2D.     Require the Authority to adopt an appropriate credit card policy that formally
               establishes guidelines for using Authority credit cards and accountability for
               misuse of the card.
       2E.     Require the Authority to establish an internal control policy that provides
               adequate oversight of expenditures and the need for detailed supporting
               documents before signing checks.




                                                 12
Finding 3: The Authority Improperly Admitted and Recertified
Tenants
The Authority did not properly conduct admissions or recertifications of tenants for all 11 files
reviewed. The executive director was not fully aware of the requirements. She believed that her
personal knowledge of tenants excused her from following HUD and Authority guidance, and
the Authority lacked formalized processes. As a result, eligible tenants were denied housing,
ineligible tenants received subsidized housing, and tenants paid the wrong amounts for rent.
Tenants Were Improperly Admitted and Recertified
The Authority did not properly conduct admissions or annual recertifications of tenants for any
of the 11 files reviewed of 46 total units. The Authority

      Improperly maintained its waiting list,
      Improperly admitted overincome tenants,
      Failed to complete required verifications,
      Inconsistently performed background checks,
      Failed to update its flat rents,
      Improperly documented utility allowances,
      Failed to maintain complete leases in its files, and
      Improperly determined community service status.
Waiting List Improperly Maintained
The Authority improperly maintained its public housing waiting list. The waiting list establishes
the order in which housing offers are made to qualified individuals. Setting up and maintaining
the waiting list properly is essential to carrying out public housing admissions in accordance with
HUD’s civil rights and program regulations. The Authority’s waiting list was a stack of
applications for public housing that included the date and time of application. The stack of
applications included applicants for the Anderson, Lanagan, and Pineville Housing Authorities.
We found one tenant, the executive director’s daughter, who entered the waiting list on January
15, 2014, and was admitted to public housing on May 1, 2014, although there were 25
applications on the waiting list before she applied. The executive director stated that those 25
applicants would have been contacted to determine their continued interest in public housing
before moving down the waiting list. The Authority sometimes noted this contact on the
applications, but there was often no documentation showing why the Authority did not admit
applicants to public housing before moving on to other people on the waiting list.
Generally, the executive director admitted only tenants who were elderly or disabled and did not
accept applications from families with children. This practice violated the Fair Housing Act and
Age Discrimination Act, which protect housing applicants from discrimination because of
disability, age, and the presence of children.
Overincome Tenants Improperly Admitted
The Authority admitted at least one applicant, the Authority’s administrative assistant’s sister,
into its public housing who was over the income limit. HUD allowed public housing agencies
with fewer than 250 units to lease units to tenants who were overincome as long as there were no


                                                 13
eligible applicants on the waiting list and the overincome tenant agreed to vacate the unit should
an eligible applicant enter the waiting list. The Authority allowed the overincome applicant to
enter and remain in public housing when there were other applicants on the waiting list.
Verifications Not Completed
The Authority did not properly verify the identity of applicants for all 11 files reviewed. HUD
required housing agencies to verify the identity and eligibility of applicants. The Authority did
not require applicants to provide proof of their Social Security number, citizenship, or
immigration status and did not obtain information to verify identity (such as a driver’s license).
The Authority did not verify previous rental history for 10 files or assets owned for any of the 11
files reviewed. HUD required public housing agencies to verify an applicant’s past performance
in meeting financial obligations, such as rent, and assets as part of income determination.
The Authority did not always obtain Enterprise Income Verification system reports before annual
recertification. When the Authority did obtain reports, it failed to use the updated income
information during the recertification process. The Authority used outdated income data for nine
files reviewed. HUD required public housing agencies to verify income to determine initial
program eligibility and properly determine rent during recertifications.
Inconsistent Background Checks
The Authority did not conduct criminal background checks on all adult occupants for two files in
our sample. In addition, when the Authority did conduct a background check, it maintained the
report in its entirety in the tenant file. HUD required public housing agencies to conduct
criminal background checks on all tenants and then destroy background checks to protect
personally identifiable information.
Flat Rent Amounts Not Updated
The Authority did not properly update its flat rent amounts. Regulations at 24 CFR 960.253
required that public housing agencies evaluate flat rent amounts annually. The Authority’s flat
rent for a one-bedroom unit was $164 from 1996 to 2013. In 2013, the Authority adjusted the
amount to $250. In 2014, HUD issued Office of Public and Indian Housing (PIH) Notice PIH-
2014-12, which required public housing agencies to set flat rent at 80 percent of fair market rent.
The 2014 fair market rent for McDonald County, MO, was $444 for a one-bedroom unit, making
the appropriate flat rent $355 for a one-bedroom unit.
No Documentation of Utility Allowance Determination
The Authority did not document how it determined utility allowances. HUD regulations at 24
CFR 965.507 required that public housing agencies review their schedule of utility allowances
annually. The Authority did not conduct annual updates of its utility allowances and was unable
to demonstrate how it determined its utility allowances.
Leases Not Maintained in Files
The Authority did not maintain a complete copy of the lease in any of the 11 files reviewed.
HUD required public housing agencies to maintain a copy of the lease in the tenant files. The
Authority maintained only the front pages of the lease, showing the tenant’s name, unit, and rent
and the last page, showing the signatures.



                                                 14
Community Service Status Not Properly Determined
The Authority did not properly determine the community service and self-sufficiency
requirement status for five files reviewed. Notice PIH-2009-48 required that public housing
agencies verify that families complied with the requirement or that family members were eligible
for an exemption from the requirement. The Authority did not ensure that tenants certified
exemptions annually or that community service activities were documented in the tenant files.
The Authority Was Not Aware of Some Requirements and Disregarded Others
The executive director was not fully aware of the requirements and believed that her personal
knowledge of tenants excused her from following HUD and Authority guidance, and the
Authority lacked formalized processes.
The executive director was not fully aware of HUD requirements. She was not aware of HUD’s
Notice PIH-2014-12 and its requirement to set flat rent at 80 percent of fair market rent. She
also believed that if she complied with the requirement and increased flat rent, it would cause all
of her flat-rent tenants to pay the full amount. In reality, an increase in the flat rents would likely
cause many of her flat-rent tenants to become income based and would not require them to pay
the full flat rent amount.
The executive director also believed that the Authority was designated as elderly and disabled
housing and HUD allowed the Authority to lease 5 percent of its units to individuals who were
not elderly or disabled. HUD staff stated that the Authority was not designated as strictly elderly
and disabled housing and there was no such
5 percent requirement.                            The executive director believed that
The executive director believed that her          her personal knowledge of tenants
personal knowledge of tenants excused her         excused her from following HUD and
from following HUD and Authority                  Authority guidance.
guidance. She stated that if she had a good
referral or had other personal knowledge of
an applicant, she did not conduct a criminal background check or perform other verifications
before admission. In one instance, an applicant disclosed that she owned a home on her
application for housing, but there was no other information in the tenant file regarding the asset.
When we asked the executive director about the home, she stated that the applicant sold the
home for as much as she owed on it, but she did not require the applicant to submit
documentation to support the claim. In another case, the Authority did not run a credit check on
an applicant’s spouse. The executive director explained that the applicant stated that his spouse
had never had credit so she concluded that a credit check was not required.
The Authority lacked formalized processes for administering its public housing program, which
led to inconsistent and inadequate implementation of program requirements. Tasks were
conducted differently, depending on whether the executive director or the administrative
assistant conducted them. For example, the executive director stated that the administrative
assistant consistently took notes regarding followup communications with applicants but the
executive director did not. A formalized process for evaluating applicants would have also
helped to ensure that the Authority adequately determined community service and self-
sufficiency requirement status, maintained complete copies of leases in files, performed


                                                   15
appropriate verifications, and allowed overincome tenants to reside in a public housing unit only
when allowable. This lack of formalized processes also contributed to the problem with the
Authority’s calculation of fair market rents and utility allowances.
The figure below shows the Authority’s process for calculating fair market rents and utility
allowances, which did not provide an adequate explanation of how the Authority made these
calculations.




The Wrong Tenants Received Housing, and Tenants Paid Incorrect Rents
Eligible tenants were denied housing, ineligible tenants received subsidized housing, and tenants
paid the wrong amounts for monthly rent.
The Authority’s failure to properly establish and maintain a waiting list for its public housing
program and remove overincome tenants caused eligible tenants to be denied housing, applicants
to receive housing in the wrong order, and families to be denied the opportunity to apply for
housing.




                                                16
The Authority’s failure to properly identify applicants and conduct reviews of applicants’
criminal history may have caused ineligible tenants to receive subsidized housing. Since the
Authority did not consistently take steps to verify the identity of applicants, it did not have
meaningful assurance of whom it admitted into public housing. Even in cases in which the
Authority did run a background check, if an applicant applied for public housing with false
information, a background check may not have caught it. In addition, ineligible tenants received
housing, when those who were noncompliant with the community service requirement had their
leases renewed.
The Authority’s failure to verify income, assets, and expenses and update flat rents and utility
allowances caused tenants to pay the wrong amounts for monthly rent since these items all factor
into rent determination. In addition, the Authority’s failure to update its flat rents allowed
overincome tenants housing for substantially less than fair market rent.
Conclusion
The Authority improperly admitted and recertified tenants because its executive director was not
fully aware of the requirements and believed that her personal knowledge of tenants excused her
from following HUD and Authority guidance. Without implementing HUD requirements and
the civil rights laws in the Fair Housing Act and Age Discrimination Act, the Authority may
continue to deny housing to eligible applicants and provide subsidized housing to ineligible
tenants.
Recommendations
We recommend that the Director of HUD’s Kansas City Office of Public Housing

       3A.    Require the Authority to stop denying applicants an opportunity to apply for
              housing based on age, disability, and familial status.
       3B.    Work with the Authority to update its waiting list in an auditable format that
              ensures that applicants are admitted in the correct order.
       3C.    Determine whether the households living in the Authority’s public housing units
              received housing in accordance with the program’s requirements and if not,
              consider a referral to HUD’s Office of Fair Housing and Equal Opportunity.

       3D.    Require the Authority to follow the criteria set forth in 24 CFR 960.503 to replace
              the overincome tenants with eligible tenants.
       3E.    Require the Authority to adjust its flat rents to comply with HUD requirements.
       3F.    Require the Authority to document the determination of its utility allowance.
       3G.    Work with the Authority to develop a formalized process, such as a checklist, for
              accepting applications, admitting tenants, and conducting reexaminations that
              would help to ensure that it follows HUD requirements for its public housing
              program.




                                                17
3H.   Require the Authority’s executive director to obtain appropriate training regarding
      public housing occupancy requirements.
3I.   Require the Authority to conduct a 100 percent review of its tenant files to ensure
      that tenants’ rents are accurate; the proper income, asset, and identity verifications
      are complete and documented in the file; all eligibility criteria have been met;
      complete copies of leases are documented in the files; community service and
      self-sufficiency requirement status is properly determined; and background
      checks are properly noted but not filed in the tenant files.
3J.   Monitor the Authority after the recommended training and tenant file reviews are
      complete to ensure the executive director understands and properly implements
      public housing occupancy requirements.




                                         18
Finding 4: The Authority Did Not Comply With Internal Revenue
Service Requirements
The Authority did not properly account for and report the fringe benefits it provided to its
employees. This condition occurred because the Authority did not have policies in place
governing fringe benefits or the personal use of Authority-owned vehicles. As a result, the
Authority subjected its employees to potential tax problems.
The Authority Did Not Account for or Report Fringe Benefits
The Authority did not properly account for and report the fringe benefits it provided to its
employees. It allowed its executive director and maintenance man to use Authority-owned
vehicles for personal use without accounting for taxable fringe benefits. It also did not report as
income cash medical insurance stipends it paid to its employees. The Internal Revenue Service
requires employers to report all fringe benefits they provide to employees, including the value of
employer-provided vehicles and cash stipends, unless the law specifically excludes it.
Personal Use of Authority-Owned Vehicles
The Authority allowed its executive director and maintenance man to use Authority-owned
vehicles for personal use but did not account for or report the value of personal use of the
vehicles. The Authority paid for all vehicle expenses, including gas and maintenance. Internal
Revenue Service requirements detail methods used to value personal use of employer-provided
vehicles. Under the cents-per-mile rule, employees are required to keep a record of the personal
mileage, and the employer determines the value by multiplying the personal miles by the Internal
Revenue Service standard mileage rate, which was 56 cents per mile for calendar year 2014. The
value of the fringe benefit is subject to employment taxes, and the employer must report the
benefit on Internal Revenue Service Form W-2, Wage and Tax Statement.
Cash Stipends Not Reported
The Authority paid its employees a quarterly cash stipend instead of providing medical
insurance, but it did not report these cash stipends to the Internal Revenue Service as income.
The Internal Revenue Service requires employers to report cash stipends as taxable income on
Internal Revenue Service Form W-2, Wage and Tax Statement. The amount of this stipend was
approximately $2,000 per year per employee.
Policies Were Not in Place
The Authority did not have policies or agreements in place that addressed the fringe benefits
from personal use of Authority-owned vehicles or cash stipends for medical insurance. These
forms of pay for service would typically be outlined as part of an employment contract, but the
Authority did not have employment contracts with its employees. It operated on verbal
agreements.
The Authority allowed its executive director and maintenance man to use Authority-owned
vehicles for personal use but did not implement a vehicle use policy. Such a policy would
require employees to keep track of mileage they incur for personal use, which would allow the
Authority to determine the value of the fringe benefit.




                                                 19
There Were Potential Tax Problems
The Authority subjected its employees to potential tax problems. Since the Authority did not
account for or report the fringe benefits it paid to its employees, it understated its employees’
taxable income it reported on Internal Revenue Service Form W-2, Wage and Tax Statement.
This practice may have subjected its employees to an additional tax liability.
Conclusion
The Authority did not properly account for and report the fringe benefits it provided to its
employees because it did not have policies in place governing fringe benefits. If the Authority
does not stop providing fringe benefits to its employees or report the value of the fringe benefits
as taxable income, it will continue to subject its employees to potential tax problems.
Recommendations
We recommend that the Director of the Kansas City Office of Public Housing require the
Authority to

       4A.     Either stop allowing staff to use Authority-owned vehicles for personal use or
               comply with Internal Revenue Service requirements to establish the value of the
               benefits and report the value as taxable income.
       4B.     Either stop issuing cash stipends to employees for medical insurance or comply
               with Internal Revenue Service requirements to report the amounts paid as taxable
               income.
       4C.     Require the Authority to enter into written employment contracts with its staff
               that outline the various forms of pay for service.
       4D.     Develop and implement written policies governing employee use of Authority-
               owned vehicles.




                                                  20
Finding 5: The Authority Did Not Maintain Auditable Books and
Records
The Authority did not maintain auditable books and records. This condition occurred because
the Authority did not have effective management. As a result, it was not in compliance with its
annual contributions contract and could be taken over by HUD.
Books and Records Were Not Auditable
The Authority did not maintain auditable books and records. Section 15(A) of the Authority’s
annual contributions contract with HUD required it to maintain complete and accurate books of
account to permit timely and effective audit. Specifically, the Authority did not keep inventory
records or track maintenance purchases, retain records of the disposition of its maintenance
truck, keep adequate records of its travel expenses, always maintain credit card receipts, maintain
complete bank records, track tenant services expenses, and adequately document its tenant files.
Inventory Records and Maintenance Purchases
The Authority did not have records of how it used maintenance purchases and did not maintain
equipment and supply listings. The Authority’s maintenance man made many purchases using
lines of credit with major home improvement store chains and local suppliers. He would often
make several trips to the home improvement store a day and consistently made purchases outside
work hours on the weekends. The Authority could not justify most of these purchases because it
did not tie the purchases to specific work orders, specific units, or the Authority (since the credit
cards were shared among the Anderson, Lanagan, and Pineville Housing Authorities).
Many of the purchases were for tools and maintenance supplies. The Authority did not keep
equipment or supply listings to show what it had on hand. The executive director also allowed
the maintenance man to store Authority-owned equipment, such as trailers, at his personal
residence. Without adequate supply listings, Authority management did not have a working
knowledge of what items the Authority should have in its inventory. During our review, we also
inspected the maintenance shed and found that it was not organized and it was difficult to safely
move around the shed due to clutter.




                                                  21
We were able to physically locate only 8 of 24 items selected for review during an inventory spot
check. The Authority claimed that two of the remaining items were broken, nine were not
located because the maintenance man was not available during our inspection (and the executive
director could not locate them), and five were personal purchases made by the maintenance man
for which the executive director claimed that the maintenance man reimbursed the Authority.
The maintenance man partially paid for one of the items on a non-Authority credit card at the
time of purchase, but the Authority was not able to produce documentation showing that it
received reimbursement for the personal purchases. Since no records were kept of these personal
purchases, we were unable to determine how many more personal purchases the maintenance
man may have made.
Maintenance Truck Disposition Records
The Authority did not keep records of its disposition of a maintenance truck in 2014. The only
record available regarding the sale was a bank deposit slip from November 2014 that noted a
currency deposit for “Sale of Pickup - $460.” The Authority did not keep a bill of sale or other
record of the sale, including the identity of the purchaser of the truck, so we were unable to
verify the sale price of the truck. Regulations at 24 CFR 85.32(d)(1) required the Authority to
maintain records of the disposition of the property, including the date of disposal and the sales
price of the property.
The figure below shows the only record available for review regarding the disposition of the
truck.




Travel Records
The Authority did not keep adequate records of its travel expenses. It paid its staff travel
expenses to attend training but did not maintain records of what the travel expenses included or
receipts for travel expenses. For example, the Authority wrote a check to the executive director
for travel expenses that included mileage, lodging, and per diem for meals but did not note the
breakdown for each item. This issue was further complicated by the fact that the Authority
included travel expenses for both the executive director and the administrative assistant on the
same check and the executive director stated that she gave the administrative assistant her share



                                                 22
of the money in cash. There were no auditable records for how the money was split between the
two employees.

Credit Card Receipts
The Authority did not consistently maintain credit card receipts to support its purchases. It used
an American Express card and a Visa credit card that its executive director and maintenance man
used to make purchases. The Authority did not maintain receipts for $775 of $5,855 in total
purchases on the American Express card and $2,299 of $12,895 in total purchases on the Visa
card. Many of the missing receipts were for gas, and the executive director stated that if the
machine was out of paper, she did not go inside and get a receipt. In other cases, usually vehicle
maintenance, the Authority would maintain a credit card receipt showing the vendor and amount
charged but did not maintain an itemized invoice showing the work completed or what vehicle
was worked on (see finding 2).

Bank Records
The Authority did not maintain all pages of bank statements and credit card statements in its
records. The Authority’s accounting service received the bank statements for its checking
account each month and then forwarded the statements to the Authority. In several cases, the
bank statements the Authority received were missing pages. It was not until we noted the
missing pages that the Authority knew they were missing. Since the Authority did not use online
banking services, these incomplete statements were the only source of bank statement review for
the Authority. The Authority was also not able to locate all of the credit card statements in our
review period. It was eventually able to obtain missing pages and statements for our review
from the bank and credit card issuers.

Tenant Services
The Authority did not track its spending on tenant services so it was not able to show whether it
remained under the $25 per unit annually that HUD allowed it to spend on eligible tenant
services items.

Tenant Files
The Authority did not have complete records in its tenant files. Section 7.11 of the Public
Housing Occupancy Guidebook stated that tenant files must contain verification of information,
including name, birthdate, Social Security number, citizenship status, disabilities, income, assets,
income deductions, rent computations, and a form HUD-50058. The Authority did not always
maintain documentation verifying this information in its tenant files. For example, the tenant
files would note a tenant’s name, birthdate, and Social Security number, but the Authority did
not verify this information by reviewing driver’s licenses, birth certificates, or Social Security
cards (see finding 3).

The Authority stored its previous tenant files, applications, and background checks in a storage
area attached to its community room. This storage area remained unlocked during our time on
site, although the Authority often rented out the community room outside normal operating
hours. In addition to the tenant and applicant information, it stored its past financial data in the
same space.



                                                  23
Ineffective Management
The Authority did not have effective management. The Authority’s executive director displayed
a pattern of ineffective management practices as shown in the previous findings. These
management practices often relied on the word of employees that lack an appearance of
objectivity and integrity and generally allowed the executive director to conduct business in a
way that left no audit trail.
The executive director admitted that her memory was lacking and she often had to rely on her
staff to fill in gaps in her memory. For example, when we asked about repayments for personal
purchases, the maintenance man told the executive director that he paid the Authority back for an
item, and she stated that if he said that he repaid the money, he must have done so. The
maintenance man that the executive director relied on to inform her of personal purchases was
her son-in-law, who had previously been convicted of stealing.

The executive director stated that repayments for personal purchases were made by putting
money into “petty cash.” When we asked whether the Authority tracked these additions on the
petty cash vouchers, the executive director stated that usually she recorded when she put money
into petty cash but not always. The petty cash vouchers for our audit period did not contain
notes regarding additions to petty cash.

The executive director did not think it was important to obtain receipts for all credit card
purchases. For example, she stated that if an automated fuel pump was out of paper, she would
sometimes leave without a receipt since it was inconvenient to go into the store and obtain a
copy.

The executive director believed that it was appropriate to accept a check from the Authority that
covered travel expenses for both herself and her assistant. She explained that she cashed the
check and divided the money. This process left no audit trail to prove that the administrative
assistant received her travel money. The executive director also thought it was appropriate to
write herself a check for “van detailing” without obtaining supporting documentation for the
alleged transaction.

The executive director stated that she did not track tenant services expenditures to ensure that
they remained under the threshold. She believed that there was usually tenant services money
remaining, although she did not track it.

The executive director relied on her own judgment and that of others to make decisions that
violated HUD requirements. She believed that it was acceptable to not obtain a criminal
background check if she knew an applicant or knew someone who vouched for the applicant’s
background. In addition, she would not always require tenants to show proof of items, such as
income deductions or the disposition of assets, if she believed she could trust the person.
Noncompliance with Annual Contributions Contract
The Authority was not complying with its annual contributions contract and could be declared in
default and taken over by HUD. The Authority’s failure to maintain auditable books and records
violated the requirements established in its annual contributions contract with HUD. Section 17


                                                 24
of the contract contained provisions regarding defaults, and stated that if the Authority
substantially defaulted on the contract, HUD would be entitled to remedies, including
receivership, until defaults were cured.
Conclusion
The Authority was not complying with its annual contributions contract and was at risk of
receivership because it did not have effective management. The Authority’s executive director
needs training regarding inventory and record keeping, and the Authority should be monitored to
ensure that it implements sound business practices that comply with HUD requirements. If the
Authority is unable to demonstrate that it can properly implement HUD requirements, HUD
should consider other options, such as receivership, to address the noncompliance with the
annual contributions contract.
Recommendations
We recommend that the Director of HUD’s Kansas City Office of Public Housing

       5A.     Require the Authority to immediately implement practices to ensure that
               personally identifiable information of its tenants and applicants remains properly
               safeguarded at all times.
       5B.     Require the Authority’s executive director to obtain appropriate training regarding
               inventory and record-keeping requirements to supplement the training
               recommended in the other findings.
       5C.     Monitor the Authority to ensure that it implements appropriate records
               management systems.
       5D.     Determine whether Authority management is able to properly implement HUD
               requirements and consider remedies that may be required to address any
               noncompliance with the annual contributions contract.




                                                 25
Scope and Methodology
Our audit period generally covered January 1, 2013, through December 31, 2014. We performed
our audit work from May through August 2015. We conducted onsite work at the Authority’s
administrative offices located at 500 Tatum Street, Anderson, MO.
To accomplish our objective, we
      Reviewed applicable laws and regulations and HUD’s guidance;
      Reviewed the Authority’s policies and procedures;
      Interviewed Authority staff;
      Interviewed HUD staff responsible for oversight of the Authority;
      Reviewed board minutes and resolutions;
      Reviewed the Authority’s audited financial statements covering our review period; and
      Reviewed physical records maintained by the Authority, including bank records,
       invoices, credit card statements, receipts, check vouchers, tenant files, and inventory
       items the Authority purchased.

We reviewed the only procurement that the Authority conducted during our audit period for
compliance with HUD’s procurement requirements and the Authority’s procurement policy.
This sole procurement was shared with the Anderson and Pineville Housing Authorities.
During our 24-month audit period, we reviewed bank statements and check vouchers to
determine that the Authority spent $419,331 from its bank account. We selected expenditures
totaling $249,688, which represented 59.5 percent of the funds spent. We chose items that we
believed had a higher probability of having been misspent. For each month in our audit period,
we selected credit card expenditures, payments to employees, payments to individuals who were
not employees, payments to vendors with which the Authority maintained house accounts
(examples include the local grocery store and hardware store), and recurring expenses (examples
include extermination service, accounting service, and maintenance service). We did not select
payments for utilities, taxes, insurance, or background checks. We also excluded government
fees, refunds of security deposits, and utility reimbursements for zero-income tenants. We
reviewed transactions for eligibility and adequate support and identified vendors with which the
Authority should have entered into contracts.
We did not use a statistical sample to select expenditures for review because we were looking for
specific examples of noncompliance and taking a representative statistical sample would have
included items that we believed to have lower risk of being misspent. The results of our review
sample apply only to the items reviewed and cannot be projected to the entire universe.
We selected a nonstatistical sample of 11 of 46 tenant files for review for compliance with
admission and recertification requirements, including verification of eligibility, income
determination, and rent calculation. We chose six tenants because we noted that they were
related to Authority employees or received money from the Authority, and we randomly selected
the remaining five.


                                                26
We reviewed the Internal Revenue Service Form W-2 for all employees during our audit period
to determine whether the Authority reported all pay for services performed as taxable income.
We did not rely on computer-processed data to form our conclusions. We used information from
HUD’s Public and Indian Housing Information Center system for background purposes only.
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.




                                                27
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:

   Policies and procedures that have been implemented to reasonably ensure that procurement
    activities, payments to vendors, public housing program administration, record keeping, and
    income reporting activities comply with applicable laws and regulations.

   Policies and procedures that management has implemented to reasonably ensure that
    resources are safeguarded against waste, loss, and misuse.
We assessed the relevant controls identified above.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, the
reasonable opportunity to prevent, detect, or correct (1) impairments to effectiveness or
efficiency of operations, (2) misstatements in financial or performance information, or (3)
violations of laws and regulations on a timely basis.
Significant Deficiencies
Based on our review, we believe that the following items are significant deficiencies:

   The Authority did not have adequate controls in place to ensure that procurement activities
    complied with applicable laws and regulations (finding 1).
   The Authority did not have adequate controls in place to ensure that its expenditures
    complied with applicable laws and regulations (finding 2).
   The Authority did not have adequate controls in place to ensure that it properly admitted
    applicants from its waiting list, verified eligibility of applicants, and properly conducted
    reexaminations (finding 3).



                                                  28
   The Authority did not have controls in place to ensure that it reported all income to the
    Internal Revenue Service as required (finding 4).
   The Authority failed to put into place effective management to maintain auditable records
    (finding 5).




                                                 29
Appendixes

Appendix A


                          Schedule of Questioned Costs
                  Recommendation
                                   Ineligible 1/ Unsupported 2/
                      number
                          1A                               $53,550
                          2A              $3,178
                          2B                               $47,057

                        Totals            $3,178           $100,607



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.




                                              30
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




Comment 1

Comment 2

Comment 3
Comment 4
Comment 5

Comment 6

Comment 7

Comment 8


Comment 9




                               31
                         OIG Evaluation of Auditee Comments


Comment 1   HUD’s visit in September 2014 was in response to a board member complaint to
            HUD regarding the positional responsibilities of the board of directors and the
            executive director and was not in response to the Authority’s annual audit.
Comment 2   The Authority’s policy and HUD requirements required the Authority to
            document the history of each procurement, perform independent cost estimates,
            select the lowest bidder for sealed bid contracts, and obtain at least three quotes or
            publicly advertise for bids for small purchases between $2,000 and $100,000. As
            evidenced in finding one of our report, the Authority did not conduct its
            procurements in compliance with these requirements.
Comment 3   We acknowledged in finding 2 of our report that the Authority implemented a
            verbal understanding that the credit cards are for Authority purposes, but as
            explained in our report, this is not a sufficient control over credit cards since it
            isn’t written, doesn’t describe specific allowable (or unallowable) uses of the
            card, documentation requirements, or any penalties for misuse of the card. The
            Authority will need to provide its proposed written credit card policy to HUD, and
            HUD will determine if the policy adequately addresses our recommendation.
Comment 4   We acknowledge the importance of the presence of an invoice prior to board
            members signing checks but would like to also emphasize the importance of the
            review of the complete copy of an invoice. For example, when paying a credit
            card statement, signers of checks should review all the transactions covered by the
            statement to ensure purchases are for allowable expenses. The Authority will
            need to provide its proposed written internal control policy to HUD, and HUD
            will determine if the policy adequately addresses our recommendation.
Comment 5   While we do not know the specifics of the documentation process the executive
            director set up, it would be beneficial to officially implement these procedures in
            writing and involve the Authority’s board of commissioners in the process.
Comment 6   As explained in finding 3 of our report, the executive director believed that the
            Authority was designated as elderly and disabled housing, with the exception of
            Pineville site 2. HUD staff confirmed that the Authority was not designated as
            elderly or disabled. During the exit conference, the executive director continued
            to state her belief that she could only admit up to 5 percent of individuals not
            elderly or disabled since the Authority had always been designated for elderly and
            disabled households. This illustrates that individuals who the Authority did not
            consider elderly or disabled were denied the opportunity for housing.
Comment 7   We acknowledge the Authority’s claim that the sale price of the truck was $1,000.
            However, the point in finding 5 was that there were no records available for
            review regarding the disposition of the 2005 truck besides a bank deposit slip.




                                               32
            This was not sufficient to show the amount the truck was sold for, or the
            purchaser of the truck.
Comment 8   While there is no technical violation of conflict of interest requirements by hiring
            a son-in-law, it is still a relationship that gives the appearance of a lack of
            objectivity, whether or not this lack of objectivity actually exists. As such, the
            Authority should give extra care to ensuring transactions related to this employee
            are thoroughly documented to show expenses are both reasonable and necessary
            to conduct the Authority’s business.
Comment 9   While the Authority did implement some changes in response to HUD’s review,
            implementation of OIG’s recommendations will more thoroughly help the
            Authority improve its management of HUD programs.




                                              33
Appendix C
                                             Criteria
Procurement
24 CFR 85.36 – Procurement

(b)(9) Grantees and subgrantees will maintain records sufficient to detail the significant history
of a procurement. These records will include, but are not necessarily limited to the following:
rationale for the method of procurement, selection of contract type, contractor selection or
rejection, and the basis for the contract price.

(d)(2) Procurement by sealed bids (formal advertising). Bids are publicly solicited and a firm-
fixed-price contract (lump sum or unit price) is awarded to the responsible bidder whose bid,
conforming with all the material terms and conditions of the invitation for bids, is the lowest in
price.

24CFR85.36 (f)(1) Grantees and subgrantees must perform a cost or price analysis in connection
with every procurement action including contract modifications. The method and degree of
analysis is dependent on the facts surrounding the particular procurement situation, but as a
starting point, grantees must make independent estimates before receiving bids or proposals.

Pineville Housing Authority Procurement Policy

Section 4.1(E) For small purchases in excess of $2,000 but not exceeding $100,000, no less than
three price quotations shall be obtained where practicable. If cases where the housing authority
has difficulty in obtaining an acceptable number of price quotes through direct solicitation of
contractors and vendors, it shall publicly advertise the procurement, if there is reason to believe
that the action would result in greater competition. Award shall be made to the offeror providing
the lowest acceptable quotation, unless justified in writing based on both price and non-price
factors. If non-price factors are used, they shall be disclosed to all those solicited. The names,
addresses, and/or telephone numbers of the offerors and persons contacted, and the date and
amount of each quotation shall be recorded and maintained as a public record.

Section 4.1(F) The Board of Commissioners shall authorize any procurement that entails an
obligation of $10,000 or greater, unless an emergency situation exists, as deemed by the
Executive Director. In that case, the Executive Director shall take the necessary action to abate
the emergency condition, and then advise the Board on the details of the procurement transaction
at the next meeting of the Board of Commissioners.

Expenditures
24 CFR 905.310 – Disbursements from HUD

(b) The PHA [public housing agency] shall maintain detailed disbursement records to document
    eligible expenditures (e.g., contracts or other applicable documents), in a form and manner
    prescribed by HUD.



                                                  34
Office of Management and Budget Circular A-87

Section (C)(2) Reasonable costs. A cost is reasonable if, inits nature and amount, it does not
exceed that which would be incurred by a prudent person under the circumstances prevailing at
the time the decision was made to incur the costs. The question of reasonableness is particularly
important when governmental units or components are predominately federally funds. In
determining reasonableness of a given cost, consideration shall be given to:
   a) Whether the cost is of a type generally recognized as ordinary and necessary for the
      operation of the governmental unit or the performance of the Federal award.

   b) The restraints or requirements imposed by such factors as: sound business practices; arms
      length bargaining; Federal, State and other laws and regulations; and, terms and
      conditions of the Federal award.

   c) Market prices for comparable goods or services.

   d) Whether the individuals concerned acted with prudence in the circumstances considering
      their responsibilities to the governmental unit, its employees, the public at large, and the
      Federal Government.

   e) Significant deviations from the established practices of the governmental unit which may
      unjustifiably increase the Federal award’s cost.


Notice PIH 2013-21 (HA) Guidance on the Use of Tenant Participation Funds

Section 7. Allowable and Unallowable Activities. The following is not a comprehensive list of
allowable and unallowable activities. However, this represents a starting framework that PHAs
may use in establishing their TP [tenant participation] policies and for RCs [resident council] to
assess the suitability of requests for the use of TP funds.

Unallowable Activities
Any activity outside the scope of the PHA policy and HUD regulatory requirements behind TP
funds and activities. Unallowable expenses also include any activities prohibited by laws related
to fair housing and non-discrimination. In addition, the Office of Management and Budget’s
(OMB) Circular A-87 prohibits the use of federal funds, including TP funds, for the following:

      Purchase of alcoholic beverages
      Entertainment, where the dedicated purpose of the event falls under the following
       categories:
           o Amusement (trips to theme parks, county fairs, etc.)
           o Diversions (theatre, movies, sports events, etc.)
           o Social activities (parties, bowling nights, etc.)



                                                 35
             o Any directly associated costs for the events in the categories above (tickets to
                 shows or sports events, meals, lodging, rentals, transportation, and gratuities)
        Organized fund raising costs, including financial campaigns, solicitation of gifts and
         bequests, and similar expenses incurred to raise capital or obtain contributions, regardless
         of the purpose for which the funds will be used.
Part A of the Consolidated Annual Contributions Contract

Section 19 – Conflict of Interest.
(A)(1) 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 this ACC [annual contributions contract] in
which any of the following classes of people has an interest, direct or indirect, during his or her
tenure or for one year thereafter:

        (i) Any present or former member or officer of the governing body of the Authority, or any
        member of the officer’s’ immediate family. There shall be excepted from this prohibition
        any present or former tenant commissioner who does not serve on the governing body of a
        resident corporation, and who otherwise does not occupy a policymaking position with the
        resident corporation, the Authority or a business entity.

Admissions, Recertifications, and Waiting List
24 CFR 960.253 – Choice of rent

(b) Flat rent.
    (1) The flat rent is based on the market rent charged for comparable unit in the private
        unassisted rental market. It is equal to the estimated rent for which the PHA could
        promptly lease the public housing unit after preparation for occupancy.

    (2) The PHA must use a reasonable method to determine the flat rent for a unit. To
        determine the flat rent, the PHA must consider:

         (i)     The location, quality, size, unit type and age of the unit; and
         (ii)    Any amenities, housing services, maintenance and utilities provided by the PHA.

    (3) The flat rent is designed to encourage self-sufficiency and to avoid creating disincentives
        for continued residency by families who are attempting to become economically self-
        sufficient.

    (4) If the family chooses to pay a flat rent, the PHA does not pay any utility reimbursement.

    (5) The PHA must maintain records that document the method used to determine flat rents,
        and also show how flat rents are determined by the PHA in accordance with this method,
        and document flat rents offered to families under this method.



                                                   36
24 CFR 960.503 – Occupancy by overincome families

A PHA that owns or operates fewer than two hundred fifty (250) public housing units, may lease
a unit in a public housing development to an overincome family (a family whose annual income
exceeds the limit for a low income family at the time of initial occupancy), in accordance with its
PHA annual plan (or supporting documents), if all the following conditions are satisfied:
(a) There are no eligible low income families on the PHA waiting list or applying for public
    housing assistance when the unit is leased to an overincome family;

(b) The PHA has publicized availability of the unit for rental to eligible low income families,
    including publishing public notice of such availability in a newspaper of general circulation
    in the jurisdiction at least thirty days before offering the unit to an overincome family;

(c) The overincome family rents the unit on a month-to-month basis for a rent that is not less
    than the PHA’s cost to operate the unit;

(d) The lease to the overincome family provides that the family agrees to vacate the unit when
    needed for rental to an eligible family; and

(e) The PHA gives the overincome family at least thirty days’ notice to vacate the unit when the
    unit is needed for rental to an eligible family.
HUD’s Public Housing Occupancy Guidebook

Section 1.0 General Provisions.
Public Housing Agencies (PHAs) are subject to civil rights requirements. This chapter gives a
general overview of the civil rights requirements of PHAs that specifically apply to admissions
and occupancy. Each chapter in the Guidebook also contains references to civil rights
requirements wherever appropriate.

Federal civil rights laws prohibit discrimination against applicants or residents based on one or
more of the following classifications:

      Race;
      Color
      National origin;
      Sex
      Age
      Disability;
      Religion; or
      Familial status (families with children under the age of 18).
Chapter 3. Waiting List Administration




                                                 37
The waiting list is the mechanism used to implement a PHA’s preference system and, thus,
establishes the order in which housing offers are made to qualified applicants. Setting up and
maintaining the waiting list properly is essential to carrying out public housing admissions in
accordance with HUD’s civil rights and program regulations and the PHA’s policies.

Section 7.1 What Must Be Verified
PHAs are required to verify information relating to eligibility, assets, income, and deductions
from income, admission preferences, and compliance with applicant selection criteria. Examples
include:

Eligibility for admission, such as:

      Income, assets and asset income (24 CFR 5.609);
      Divested assets (24 CFR 5.609);
      Family composition (24 CFR 5.403);
      Social Security numbers (24 CFR 5.216);
      Citizenship or Eligible Immigration Status (24 CFR 5.508); and
      Required criminal history review (24 CFR 960.204).
Deductions (24 CFR 5.617), such as:

      Family members (other than head or spouse) under age 18;
      Age, or disability of family head or spouse;
      Disability of family members other than head or spouse;
      Full time student status of family members other than head or spouse;
      Child care costs;
      Disability assistance expenses (working families only); and
      Unreimbursed medical costs (Elderly and Disabled Families only).
Standards for Applicant Selection Criteria (24 CFR 960.203), such as:

      Documented ability to abide by PHA lease requirements;
      Landlord references;
      Home visits;
      Credit checks;
      Pervious history of tenancy, rent paying, caring for a home;
      Utility history; and
      Criminal history of all adult family members.
Section 7.11 File Documentation
Each applicant and tenant file must contain verification of the information listed below.

      Names, relationship to head, birth date, social security number and citizenship or eligible
       immigration status of all family members;
      Names, status in the household, birth date, social security number and citizenship or
       eligible immigrations status of Live-in Aides and foster children;


                                                 38
      Disabilities;
      Amounts and sources of income of all family members;
      Net Family Assets;
      Deductions from income (for rent computation);
      Rent computation;
      Admission preferences (if any);
      Screening information (tenant history, credit history, home visit record, verification of
       criminal history); and
      HUD 50058 form.
The PHA must establish a system of records management that ensure that any criminal record
received by the PHA from law enforcement agencies is (1) maintained confidentially; (2) not
misused or improperly disseminated; and (3) destroyed once the purpose for which the record
was requested has been accomplished. Criminal records must not be filed in the applicant or
tenant files. Instead, the file should document that a criminal background check was conducted,
that the applicant passed the check or did not pass the check, and the source of the information.
Section 9.1 General Leasing Policy
There are several general requirements related to the leasing process, including who must sign
the lease and the process of reviewing the terms of the lease with the household. The lease must
be executed by the tenant and the PHA. Many PHAs require all other adult members of the
family accepted as residents to execute the lease because in some states lease enforcement
actions may only be brought against individuals who have signed the lease.

Before the family executes the lease, either occupancy staff or the housing manager should
review the terms of the lease with the resident and answer any questions new residents may have
before its execution. Staff should be sensitive to any special communications needs of new
residents with disabilities and/or limited English proficiency. For instance, it may be necessary
to provide a sign language interpreter for a hearing-impaired individual who requests one.
Whenever possible, all the adult members of the household should be present during the review
of the lease. A copy of the singed lease should be provided to the resident and a second copy
should be maintained in the resident’s file.

Section 14.3 Utility Allowances
The PHA must establish fair and reasonable utility allowances for individually metered utilities.
The objective in establishing an allowance is to estimate as closely as possible a reasonable
consumption of utilities by an energy-conscious household. In making the determination of what
consumption is to be attributed to an energy conscious household, a PHA should distinguish
between necessary appliances and luxury appliances. A PHA must be mindful of additional
utility use by individuals with disabilities due to the need and use medical equipment or other
needs. This distinction should reflect local usage and custom patterns. The utility allowance is
generally determined by or in consultation with the supplier of utilities following an energy
audit.




                                                 39
PHAs are required to review their schedule of allowances annually, revise them if needed, as
discussed below, and make them available for inspection by the residents. According to the
regulations at 24 CFR 965.502, not later than 60 days before the proposed effective date of the
revision, the PHA must inform the residents of the planned allowances, surcharges and revisions.
Residents must be provided with an opportunity to make comments during a period no longer
than 30 days before the proposed effective date of the revised schedule. The schedule of
allowances or surcharges is not subject to HUD approval before becoming effective by the PHA.

Notice PIH 2014-12 (HA), Changes to Flat Rent Requirements – 2014 Appropriations Act

Section 2. Applicability, background, and HUD interpretation of new statutory requirements.
This notice applies to PHAs that operate a public housing program. It also applies to families
residing in, or applicants to the public housing program.

Moving to Work (MTW) PHAs operating a public housing program can exercise flexibility in
regards to establishing flat rents, in accordance with the terms of their respective MTW
Agreement and approved Annual MTW Plan. If an MTW PHA has not exercised flexibility via
the Annual MTW Plan, then the polices set forth in this Notices will apply to the MTW PHA.

Currently, PHAs are required to establish flat rents based on the market rent of comparable units
in the private, unassisted rental market. Paragraph (2)(B)(i) of Section 3(a) of the United States
Housing Act of 1937 (the Act), as amended by Section 210, establishes new parameters that
PHAs must use when determining the flat rent amounts. Specifically, flat rents must now be:

      Set at no less than 80 percent of the applicable Fair Market Rent (FMR); and
Section 210 also establishes that PHAs may, but are not required to lower flat rents to 80% of the
applicable FMR in years when the FMR decreases from the previous year. This provision
applies to the FMRs published for fiscal year 2015 and beyond. If a PHA must increase their flat
rents to comply with the statutory changes, the increase shall be considered a significant
amendment to the PHA Annual Plan. Please review Section 8 of this Notice which provides a
detailed explanation regarding significant amendments for flat rent changes.
PHAs shall comply with the new flat rent requirements by June 1, 2014. The Department will
consider PHAs to be in compliance with the new requirements if non-qualified agencies have
initiated the process to amend their PHA Annual Plan, and qualified agencies have initiated the
public hearing process by no later than June 1, 2014. PHAs should begin applying the new flat
rent schedules to households they are recertifying and new applicants by October 31, 2014.
If a new flat rent amount for a unit will increase a family’s existing rental payment by more than
35 percent, then the new flat rent amount shall be phased in as necessary to ensure that the
family’s existing rental payment does not increase by more than 35 percent annually.
Notice PIH 2009-48 (HA), Administering the Community Service and Self-Sufficiency
Requirement




                                                 40
Section 4. Statutory/Regulatory Requirements for Administering CSSR: Community Service is
“The performance of voluntary work or duties that are a public benefit, and that serve to improve
the quality of life, enhance resident self-sufficiency, or increase resident self responsibility in the
community. Community service is not employment and may not include political activities.”
       Community service volunteer work and economic self-sufficiency requirements mandate
       that each nonexempt adult household member (18 years or older) shall either contribute 8
       hours per month of community service within his or her community, or participant in an
       economic self-sufficiency program for 8 hours per month (see 24 CFR 960.603(a)). The
       requirements can also be met by a combination of 8 hours of community service and
       participation in an economic self-sufficiency program. At least 8 hours of activity must
       be performed each month (see 24 CFR 960.603(a)). An individual may not skip a month
       and then double up the following month, unless special circumstances warrant it. The
       PHA will determine whether to permit a deviation from the schedule (see 24 CFR
       960.605).
Section 14. Documentation of CSSR Completion: At each regularly scheduled rent re-
examination, each non-exempt family member presents a signed certification on a form provided
by the PHA of CSSR [community service and self-sufficiency requirement] activities performed
over the previous twelve (12) months. Each PHA develops a standardized form with places for
signature confirmation by supervisors, instructors, or counselors certifying the number of hours
contributed. Supporting documentation will be requested of the resident to verify CSSR
participation or exempt status. Copies of the certification forms and supporting documentation
must be retained in PHA files. PHAs must obtain verification of CSSR completion administered
through outside organizations.
Fringe Benefits
Internal Revenue Service Publication 15(b)

Section 1: Are Fringe Benefits Taxable?
Any fringe benefit you provide is taxable and must be included in the recipient’s pay unless the
law specifically excludes it.

Section 2: Fringe Benefit Exclusion Rules
You can exclude the value of lodging you furnish to an employee from the employee’s wages if
it meets the following tests.

On your business premises. For this exclusion, your business premises is generally your
employee’s place of work.

For your convenience. Whether or not you furnish lodging for your convenience as an employer
depends on all the facts and circumstances. You furnish the lodging to your employee for your
convenience if you do this for a substantial business reason other than to provide the employee
with additional pay. This is true even if a law or an employment contract provides that the
lodging is furnished as pay.




                                                   41
Condition of Employment. Lodging meets this test if you require your employees to accept the
lodging because they need to live on your business premises to be able to properly perform their
duties.

Section 3: Cents-Per-Mile Rule
Under this rule, you determine the value of a vehicle you provide to an employee for personal
use by multiplying the standard mileage rate by the total miles the employee drives the vehicle
other than use in your trade or business. This amount must be included in the employee’s wages
or reimbursed by the employee.

Internal Revenue Service Notice 2013-54

Section II(B) Employer Payment Plans
Revenue Ruling 61-146 holds that if an employer reimburses an employee’s substantiated
premiums for non-employer sponsored hospital and medical insurance, the payments are
excluded from the employee’s gross income under Code § 106. This exclusion also applies if the
employer pays the premiums directly to the insurance company. An employer payment plan, as
the term is used in this notice, does not include an employer-sponsored arrangement under which
an employee may choose either cash or an after-tax amount to be applied toward health
coverage.

Internal Revenue Service Publication 5137 (1-2014)

Section 1 Types of Tax Treatment of Fringe Benefits
The IRC [Internal Revenue Code] may provide that a fringe benefit is nontaxable, partially taxable,
or tax-deferred. These terms are defined below.

Taxable – Includible in gross income, not excluded under any IRC section. If the recipient is an
employee, this amount is includible as wages and reported on Form W-2, Wage and Tax Statement,
and generally is subject to Federal income tax withholding, social security (unless the employee has
already reached the current year social security wage base limit), and Medicare. For example,
bonuses are always taxable because they are income under section 61 and no IRC section excludes
them from taxation.

Fringe benefits that do not meet any statutory requirements for exclusion are fully taxable. Although
there are special rules and elections for certain benefits, in general, taxable fringe benefits are
reported as wages on Form W-2 for the year in which the employee received them.

Internal Revenue Service Publication 15

Section 5: Wages and Other Compensation
Wages subject to federal employment taxes generally include all pay you give to an employee for
services performed. The pay may be in cash or in other forms. It includes salaries, vacation
allowances, bonuses, commissions, and fringe benefits.

Inauditable Records


                                                  42
24 CFR 85.32 – Equipment

(d) Management requirements. Procedures for managing equipment (including replacement
    equipment), whether acquired in whole or in part with grant funds, until disposition takes
    place will, at a minimum, meet the following requirements:
   1) Property records must be maintained that include a description of the property, a serial
      number or other identification number, the source of property, who holds title, the
      acquisition date, and cost of the property, percentage of Federal participation in the cost
      of the property, the location, use and condition of the property, and any ultimate
      disposition data including the date of disposal and sale price of the property.

   2) A physical inventory of the property must be taken and the results reconciled with the
      property records at least once every two years.

   3) A control system must be developed to ensure adequate safeguards to prevent loss,
      damage, or theft of the property. Any loss, damage, or theft shall be investigated.

   4) Adequate maintenance procedures must be developed to keep the property in good
      condition.

   5) If the grantee or subgrantee is authorized to sell the property, proper sales procedures
      must be established to ensure the highest possible return.
(e) Disposition. When original or replacement equipment acquired under a grant or subgrant is
    no longer needed for the original project or program or for other activities currently or
    previously supported by a Federal agency, disposition of the equipment will be made as
    follows:
   1) Items of equipment with a current per-unit fair market value of less than $5,000 may be
      retained, sold or otherwise disposed of with no further obligation to the awarding agency.
   2) Items of equipment with a current per unit fair market value in excess of $5,000 may be
      retained or sold and the awarding agency shall have a right to an amount calculated by
      multiplying the current market value or proceeds from sale by the awarding agency’s
      share of the equipment.
   3) In cases where a grantee or subgrantee fails to take appropriate actions, the awarding
      agency may direct the grantee or subgrantee to take excess and disposition actions.
24 CFR 964.150 – Funding Tenant Participation

(a) Funding duly elected resident councils and jurisdiction wide resident councils.

   1) The Authority shall provide funds it receives for this purpose to the duly elected resident
      council at each development and/or those jurisdiction-wide councils eligible to receive the
      resident portion of the tenant services account to use for resident participation activities.


                                                 43
      This shall be an addition to the Performance Funding System (PFS), as provided by 24
      CFR part 990, to permit HAs [PHA] to fund $25 per unit per year for units represented by
      duly elected resident councils for resident services, subject to the availability of
      appropriations. Of this amount, $15 per unit per year would be provided to fund tenant
      participation activities under subpart B of this part for duly elected resident councils
      and/or jurisdiction-wide councils and $10 per unit per year would be used by the
      Authority to pay for costs incurred in carrying out tenant participation activities under
      subpart B of this part, including the expenses for conducting elections, recalls or
      arbitration required under 24 CFR 964.130 in subpart B. This will guarantee the resources
      necessary to create a bona fide partnership among the duly elected resident councils, the
      Authority, and HUD. Were both local and jurisdiction-wide councils exist, the
      distribution will be agreed upon by the HA and the respective councils.

Part A of the Consolidated Annual Contributions Contract

Section 5 - Covenant to Develop and Operate.
The Authority shall develop and operate all projects covered by the ACC in compliance with all
the provisions of this ACC and all applicable statues, executive orders, and regulations issued by
HUD, as they shall be amended from time to time, including but not limited to those regulations
promulgated by HUD at Title 24 of the Code of Federal Regulations, which are hereby
incorporated into the ACC by reference as if fully set forth herein, and as such regulations shall
be amended from time to time. The Authority shall also ensure compliance with such
requirements by any contractor or subcontractor engaged in the development or operation of a
project covered under this ACC.

Section 9 – Depository Agreement and General Fund.
(C) The Authority shall maintain records that identify the source and application of funds in such
a manner as to allow HUD to determine that all funds are and have been expended in accordance
with each specific program regulation and requirements. The Authority may withdraw funds
from the General Fund only for: (1) the payment of the costs of development and operation of
the projects under ACC with HUD; (2) the purchase of investment securities as approved by
HUD; and (3) such other purposes as may be specifically approved by HUD. Program funds are
not fungible; withdrawals shall not be made for a specific program in excess of the funds
available on deposit for that program.

Section 15 – Books of Account, Records, and Government Access.
(A) The Authority must maintain complete and accurate books and account for the projects of
the Authority in such a manner as to permit the preparation of statements and reports in
accordance with HUD requirements, and to permit timely and effective audit.

Section 17 – Notices, Defaults, Remedies.
(B) Upon the occurrence of a substantial default by the Authority, as determined by HUD in
accordance with the ACC, HUD shall be entitled to any or all of the remedies set forth in
paragraphs (E), (F), and (H) below. A substantial default is a serious and material violation of
any one or more of the covenants contained in this ACC. Events of substantial default shall



                                                 44
include, but shall not be limited to, any of the following occurrences: (1) failure to maintain and
operate the project(s) under this ACC in a decent safe, and sanitary manner; (2) the disposition or
encumbrance of any project or portion thereof without HUD approval; (3) failure of the
Authority to comply with any civil rights requirements applicable to the Authority and the
project(s); (4) abandonment of any project by the HA, or if the powers of the HA to operate the
project(s) in accordance with the provisions of the this ACC are curtailed or limited to an extent
that will prevent the accomplishment of the objectives of this ACC; (5) failure to carry out
modernization or development in a timely, efficient and effective manner; and (6) termination of
tax exemption (either real or personal property) on behalf of a project covered under this ACC.

(E) Upon the occurrence of a substantial default, or the expiration of any applicable cure period
provided by HUD, the Authority shall: (1) convey to HUD title to the project(s) as demanded by
HUD if, in the determination of HUD (which determination shall be final and conclusive), such
conveyance of title is necessary to achieve the purposes of the Act; or (2) deliver possession and
control of the project(s) to HUD.

(F) Nothing contained in the ACC shall prohibit or limit HUD from the exercise of any other
right or remedy existing under applicable law, or available at equity. HUD’s exercise or non-
exercise of any right or remedy under this ACC shall not be construed as a waiver of HUD’s
right to exercise that or any other right or remedy at any time.




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